the Pension Review
smith
Member
I’m currently looking at a ReAssure pension for a client which was bought as part of the legacy book from L&G and have come across something I’ve never dealt with before.
It was taken out in the 80’s and has fallen under the Pension Review, for opt outs between ’88 & ’94. The liability is still live, i.e. the client has not accepted the compensation and this has been recently re-calculated.
The client was initially looking to consolidate his plans & I have a couple of queries.
• Is this technically a safeguarded benefit?
• They quote an annuity figure, which then looks to be used to calculate the capital value required, from which the liability arises, but I can’t seem to find out how this annuity figure is calculated and how the liability element could then be affected un future.
It feels like we could treat this in a similar way to GMP potentially?
Comments
I assume it's a guarantee you have. I think Pru and L&G and maybe one other provider used guarantees instead of loss calcs.
If so, I think the guarantees operated broadly the same and there was a guarantee that there would be a capital value at the point it crystallises that would be able to provide an equivalent income to what you would have given up. These guarantees were drafted quite clearly to ensure there was not a guaranteed income amount (for a multitude of reasons).
It's not a safeguarded benefit unless there is a guarantee or promise of a specific amount of income or a specific rate to convert the fund into income. So that doesn't apply.
My view is you should treat it as a DB transfer as what you are getting is the capital value of a guaranteed income stream, albeit the income stream needs calculated as you aren't in the scheme to get the actual income level. And to put a client into a fully informed position they would need to understand the risks of the compensation amount varying whether they took it now or later.
I don't believe the regulator would agree with me though. They say you don't need pension transfer permissions for someone on divorce who has a choice of a guaranteed benefit in the DB scheme or an external transfer "as discharging a pension credit is not a transfer". Just because of a technicality you don't need to go through the process that you would do giving up a guaranteed income is bad crack as far as I'm concerned.
Check with the compliance officer and the PI. Just because the law doesn't need you to do it doesn't mean you shouldn't.
And finally, I seem to remember the assumptions used in the compensation calcs were weighted toward being generous to the pensionholder and not the pension provider but I am fairly sure they should have told you all the assumptions used in their calculations and if they haven't they should be (we used to have a fair amount of detail about our assumptions going out with the offer letters).