Full transfer of GMP to a lifetime annuity
Wildparaplanner
Member
Hi all,
This is the first case I've come across where a CETV of a S32 with only GMP benefits exceeds the value required to buy the GMP benefits and therefore a transfer is allowed. I have a few questions though:
1) Is a PTS required where you are doing an OMO to purchase a lifetime annuity elsewhere (as the annuity rate is better this way)? Does the OMO have to be on the same terms as the ceding provider (Phoenix) and therefore accept liability for the GMP?
2) If you transfer by way of IVPP (to obtain higher PCLS as the scheme can only pay around 10% PCLS due to GMP) to then buy the annuity that way count as a conversion and therefore require a PTS?
My knowledge seems to be hindered as to whether a PTS is required or not, as well as APTA and TVC etc...
I've tried to skim through the AF7 text book but I cannot find an example of the above scenario.
Please can anyone help with this type of scenario of what I need to consider?
Many thanks
Comments
Pension transfer is defined by the FCA as:
a transaction, resulting from the decision of a retail client who is an individual, to require a transfer payment in respect of any safeguarded benefits:
(a) from any pension scheme with a view to obtaining a right or entitlement to flexible benefits under another pension scheme; or
(b) from an occupational pension scheme with a view to obtaining a right or entitlement to safeguarded benefits under a non-occupational pension scheme; or
(c) from an individual pension contract providing fixed or guaranteed benefits that replaced similar safeguarded benefits under a pension scheme with a view to obtaining a right or entitlement to safeguarded benefits under a non-occupational pension scheme or under a defined contribution occupational pension scheme.
For the purposes of this definition of “pension transfer”:
(d) “pension scheme” means an occupational pension scheme or a non-occupational pension scheme; and
(e) “non-occupational pension scheme” means a stakeholder pension scheme, a personal pension scheme or a deferred annuity contract.
GMP is definitely a safeguarded benefit. But I think safeguarded benefits are only in the accumulation phase i.e. a lifetime annuity arising from an OMO isn't safeguarded.
So for your first scenario I don't think a PTS is strictly needed.
However, for your second scenario a PTS is definitely required as you're transferring to a personal pension - the fact it's IVPP isn't relevant - it's caught in (a) above because the PCLS is a flexible benefit.
But with all this - the opinion that matters the most is that of your PI insurer.
I'm too busty to check the DB policy statements but I seem to remember transfer for IVPP was not PTS required as long as it was at scheme NRD.
PI rules though anyway regardless of what the regs say!
Thanks both. This particular case, the client has just met NRD on the scheme (65 female)
IIRC this was the original 2018 position and was amended in the 2020 policy statement (which also tightened up the position for other advice scenarios at or after NRD)
Cool
I've been quoted this excerpt from FG21/3:
"You will not know whether a potential transfer is likely to result in a recommendation to another safeguarded benefits scheme when you start the advice process. So you should treat the advice process as if it might result in a transfer to flexible benefits.
Where you arrange a transfer so a client can immediately buy an annuity, it is still likely to count as advice on giving up safeguarded benefits for flexible benefits. This is because the funds would usually go through a personal pension which pays out the pension commencement lump sum (PCLS) before a client buys the annuity.
A transfer to an immediate vesting personal pension plan may count as a safeguarded to safeguarded transfer. If that contract was cancelled within the cooling off period and the funds could not be sent back to the ceding scheme, the funds would not be available for investment elsewhere until advice had been given"
Our intention is not to move the funds through a PP to then pay out PCLS and buy an annuity. Our intention is to take the PCLS from the s32 (which is the excess above the fund required for the GMP) and crystallise the residual via an OMO. There would therefore be no PP or IVPP required.
Is my interpretation flawed as I can't seem to get anyone to rubber stamp it. Is it a case of just getting directors/PI to just make a decision??
An OMO is not a transfer so transfer rules should not apply - I'd check with your PI. At the end of the day the high risk is you are giving up guaranteed benefits for unknown future benefits. If you are annuitising you are giving up guaranteed benefits for guaranteed benefits (depending on annuity type of course)
An annuity purchased through the OMO process isn't a flexible benefit and it isn't a safeguarded benefit under a non-occupational pension scheme.
Let's say you have a £100k fund and £90k is needed to fund the GMP. The provider doesn't offer annuities, so is going to pay £10k PCLS and then arrange an annuity externally for the GMP. Client shops around and you see that the £90k can buy an annuity much better suited to their needs. Your file will clearly demonstrate that the safeguarded benefit they are giving up is not as good for them as the annuity (which isn't within the pension transfer definition earlier in the thread). Accessing benefits flexibly was never even a consideration. S32 provider pays the £10k and £90k goes to receiving scheme. Happy days.
The final paragraph of that guidance is at odds with the handbook. It says IVPP:
'may count as a safeguarded to safeguarded transfer'
It won't ever count as that. An IVPP is always a pension transfer under limb (a):
a transfer payment in respect of any safeguarded benefits from any pension scheme with a view to obtaining a right or entitlement to flexible benefits under another pension scheme
This is because an IVPP provides a direct opportunity to make a new decision over PCLS, which is a flexible benefit. I can't think of a situation where an IVPP will contain safeguarded benefits.
So I don't think that guidance is helpful - I think what you have described is within the rules and would not qualify as pension transfer advice. I'll ignore the bit in that guidance that talks about cancellation rights - which very much are a thing for an annuity and would potentially circumvent the pension transfer rules if the client cancelled and had the fund paid into a new or existing personal pension (there may be specific requirements to waive cancellation right from safeguarded transfers as part of the application?).
As you say, the compliance function in the firm and/or PII needs to give you a view.
I don't think it would depend on annuity type because only immediate guaranteed lifetime annuities fit the definition (single, joint, enhanced/impaired). Anything variable, or short-term, or deferred, is either a flexible or a safeguarded benefit and gets caught.