Section 32 with GMP and Protected Tax-Free Cash

Nathan

Hi All

Working on a case where the cleint has a scheme with protected tax-free cash, GMP and a residual fund, the provider has said that they can pay the GMP, the protected tax-free cash and then allow us to transfer the remainder.

However, we have run an annuity quote and it would appear that we could potentially buy a better annuity on the open market using the cost of the GMP.  The scheme contains both pre and post 88 gmp.

Is this common or am I missing something in terms of the difference in value of the GMP and a comparable annuity?  I must admit I am not overly familiar with the relationship between the new State Pension and COPE and the Pre 88 GMP and this is what I might be missing as I am not sure of the ramification on the State Pension if you do transfer the Pre 88 Gmp away?

Any help would be greatly appreciated.

benjaminfabi

First off if any part of this plan is going to be transferred to provide flexible benefits, then any advice about taking the benefits from this scheme must be given or checked by a pension transfer specialist.

As for the specifics of the case, it sounds very much like the Aegon S32 plan. That has a sub-class of units reserved to pay the GMP and another sub-class that is effectively the excess. The excess can be used to pay any PCLS.

I'd assume on the facts presented that:
- it is like, or is, that Aegon contract
- the reserved units are worth less than the GMP
- the excess units are worth more than the protected PCLS

If they are saying everything that is in your first paragraph, I'd be getting that in writing before doing anything else. Being able to transfer the residual (post PCLS) fund from a section 32 is not a common option and I wouldn't believe it if I was told it verbally (definitely not by Aegon!).

As for the open market annuity being higher than the GMP, that seems unlikely but I don't have enough information.

Any impact on the State Pension was done when the member was contracted out in the scheme that originally accrued the GMP entitlement. Nothing can change that now. The COPE exists whatever happens. Here's a good source:

https://www.gov.uk/government/publications/state-pension-fact-sheets/contracting-out-and-why-we-may-have-included-a-contracted-out-pension-equivalent-cope-amount-when-you-used-the-online-service

Ben

Ralfos

Great answer Ben. I have a similar question on the same product if you could help please? 

My client does not have enough in the 'main' fund to meet the GMP so they will have to use the reserved fund (fair enough). However, this client has more than enough non pension savings to see him through retirement and ideally would like to transfer this away as an IHT planning tool. Aegon are telling me that it is not possible, even if he gives up his GMP.

Dies this sound correct to you?

cheers

Andy

benjaminfabi

Yes that's how I understand it.