Policies taken out before 1989 may contain generous hidden terms

by Teresa Hunter

The Sunday Times

Sunday 18 March 2012

Pension savers with historic personal plans have been urged to review their paperwork after it emerged that they may be sitting on valuable guarantees that could boost the size of their retirement pots.

Millions of people reaching retirement have seen a share reduction in annuity rates since the credit crunch.

However the fortunes of some savers may be boosted by "hidden" guarantees that could potentially double their incomes in retirement.

These guarantees can easily be lost or policy holder retire early, take cash out of their pension, transfer funds elsewhere or neglect to exercise them according to strict terms.

As well as Gars, (guaranteed annuity rates), older style contracts contain guaranteed payouts, guaranteed minimum pensions and guaranteed terminal bonuses. ......

Guaranteed minimum pensions

Another now defunct contract, called a section 32 buyout policy, was used by employers to switch staff from company schemes to personal pension-type plans offered by an insurer.

Part of the pensions included their entitlement to Serps, the state earnings-related pension top-up, which also had to be protected and priced into the pension transfer value.

As investment conditions deteriorated, these transfer payments often proved inadequate to provide the pension they originally promised.

However, if you stick with the section 32, the small print guarantees you a "minimum pension", related to the state benefits even if it exceeds money in the pot today, so make sure this is not overlooked by the firm. If you move the money elsewhere, the guaranteed minimum pension (GMP) will be lost.

Steve Wilson, at Alan Steel Asset Management said: "With a GMP, you have a guarantee that you will be paid a certain level of pension at 65. The danger is that consumers do not know about this protection, and transfer out, at which point the GMP will be lost." ......

Quote courtesy of The Sunday Times
Sunday 18 March 2012