GARs, Misleading Pension Statements, Transfer Troubles and Other Gripes

After waiting for over 8 weeks I have finally heard back from Fidelity about my request to transfer my CIS FSAVC into my SIPP. It wasn't good news. Because the FSAVC (Free Standing Additional Voluntary Contributions) has a Guaranteed Annuity Rate they require me to take advice before they will accept it (even though the transfer value is less than £30,000).

They do, of course, offer this advice service themselves for the cost of £500. This fee is payable even if the advice turns to be "no, sorry, it's the wrong thing to do and we won't accept it". In which case, I am informed, the fee will have VAT added on top.

So I have a dilemma. I knew that there was a GAR attached to my pension but I didn't think Fidelity would require me to pay for advice before transferring it, and I don't think that the FCA requires them to do so either as suggested by the quotes below from a policy report released earlier this year.

"Historically there has been no need for a PTS to advise on a transfer from a scheme with a GAR and it makes sense that it shouldn't be implemented now.

"Although providers should be able to show the client what benefit they are giving up if they choose to forego these GAR even if the fund is under £30,000, where advice may not be given."

• Should I therefore look for a platform that will take my FSAVC without requiring that I pay for advice? Does one exist?

• But firstly, and importantly, should I think more carefully about the GAR and what I would actually be giving up seeing as Fidelity obviously think that this option requires £500 worth of investigation by a pension transfer expert.

A little background

I started paying into the FSAVC in 1996 because I knew I had gaps in my pension provision due to taking time out to have kids. I was working at the Council at the time but was in a fairly low paid role and wasn't sure how long I would stay, so I didn't really consider supplementing my pension there. Looking back this was possibly the wrong thing to do given that soon after taking up the CIS policy I got promoted into a job that's served me well ever since. Putting more into my LGPS at the time would have made a significant difference to the value of my DB pension now.

It could even be argued that the CIS (Co-Op) representative who sold me the pension was guilty of a mis-selling as he knew that I was in the LGPS and could/should use that to boost my pension rather than buy an independent product. However when the new pension rules were introduced this year and it looked as if there was going to be more flexibility around taking the FSAVC before my LGPS retirement age of 66 (or so I thought until I received the letter from Fidelity), I have been glad that I went the way I did and continued to pay a (very) modest amount into the FSAVC alongside my main LGPS scheme.

But what did I buy back then?

Working out the actual benefit that my FSAVC "with profits" pension carries has been quite difficult, especially for someone who knew nothing at all about pensions before I started thinking about how I could retire as soon as possible a couple of years ago, .

The policy benefit schedule looks like this:

And after doing a little research I took this to mean that it has a GAR of 6%

This was confirmed during a phone call with CIS (now Royal London) yesterday. So for every £1,000 in the fund at the time of retirement I am guaranteed £60 pa pension. As far as I am aware there is no index linking, widowers pension or any other "with profits" benefits. The transfer value in March 2015 was £19,200.

All that sounds fine but it doesn't actually tie in with the annual statement which says under the heading:

 Pension you Might Get at age 60

• Your fund might be £22,200
• which could give you a taxable yearly pension of £604

I queried the discrepancy in the figures (projected fund around £22,000 with a GAR of 6% - surely the projected pension is £1,320 not £604?). The CIS representative responded that the figures quoted in the statement don't include the GAR and she couldn't say what the pension would actually be with the GAR because they didn't know what the end figure would be. This doesn't make any sense. The statement already quotes me a projection and we all understand that a projection isn't a guaranteed figure. Given that, how can it be right to send out statements for pensions with GARs that do not include the projection for the GAR. That's the whole point of it being a guarantee - if my fund is £22,000 at pension retirement age I'm guaranteed 6%. I'm guaranteed £1,320.

The conversation went round in circles with me asking for a statement that included the GAR and her saying they couldn't do it. The only thing I could get her to agree to was to send out written confirmation that the FSAVC has a GAR of 6%, as although I have the scheme schedule, I felt that I wanted something more recent especially as the fact that I have a GAR apparently can't be included in any of the workings on my statement. The only reference to the notion that the figures may simply not apply in your case is in the "General Assumptions" section, one of which is "we have ignored any guaranteed minimum amounts that may apply to your policy". No wonder people complain that they can't understand pensions.

In conclusion I now have some work to do to find out if there would actually be a benefit to keeping the pension as it is and drawing it at the scheme age of 60, when I could also draw a reduced LGPS pension. In which case I need to look at those years between 58 and 60 again and assess if there is a way my existing SIPP/other funds/extra saving could fund them. 

And, if I find there is no benefit to doing this, I then have to decide whether or not I want to pay Fidelity £500 to tell me the same and accept the transfer, or, even worse, pay them £500 plus VAT to tell me it's a terrible thing to do and refuse.

Part 2 (including workings out) to follow, but any comments in the meantime would be much appreciated.

Enter Plan B - an Interlude

Slap bang in the middle of my attempt to work out a plan to pump up my S&S ISA enough to let me stop work at 60 the Chancellor throws a spanner in the works by reworking defined contribution pensions.

Pensions are the one part of financial planning that I've never really had to plan. I'm a public sector worker with a final salary (soon to be career average) defined benefit scheme that (along with my state pension, rent from our small flat and what's left of the savings) will be enough to let me live comfortably at age 66 (it should be around £12,000 if I manage to keep it intact.) Salary sacrifice, annuties, SIPP's, PPs and stakeholders  - all things that I haven't needed to concern myself with. I've only needed to know how LGPS works and what I can expect it to do for me.

However these last few days have been full of "all things pension" as I've had to start reading up and researching due to the changes introduced in the budget last week. Where once personal pension planning was just something that only applied to other people, it now promises to be an opportunity to help me with my early retirement plan.

Actually, I haven't always been totally faithful to my DB pension. Eighteen years ago when I had just started back at work on a part-time basis after spending 10 years at home looking after the kids, the Co-Op men came on their yearly visit. (We are northerners with the kind of backgrounds that mean that, if we were going to do financial business with anyone, it would be the CO-OP). They sold us a Platinum Bond (we had just come into a small inheritance) and, for the lady, a FSAVC. Whether they should have done this is up for debate (and in fact I'm not sure that they would be allowed to do so now considering that I was a Local Authority worker with a final salary scheme which I could have been paying extra into instead), but I'm jolly glad they did.

I've never stopped paying my small monthly sub and it is now worth about £16,000 (predicted £22,000 by 2019 when I can draw it) and it can be taken when I'm 60. The tax-free lump sum already figured in my calculations to buy me free time between 60 and 66 but now it looks as if I will be able to up my payments and use the whole lot during those years. An incredible opportunity, especially given that anything I put in will have a further 20% added to it by the taxman.

In the course of just one week the value of that small monthly payment has increased dramatically. From being worth about £5,000 when I needed it and then £450 pa when I didn't, it has now gone up to £22,000 that can be used exactly when I want it with the added benefit that putting more in gives me even more gain. It just goes to show that the "value" of money and the time that it is needed are woven closely together, they form a whole and are virtually meaningless in isolation. How can you possibly know how much money you need if you haven't plotted your income against your timeline?

Plan B Arrives

After some careful calculations as to what is the optimum amount to put in (around £250 per month I think) I have decided to beef up my payments into the FSAVC to the level that I will have enough at 60 be able to draw just the right amount each year to keep my taxable income below the threshold, and take the rest of what I need to live on from the ISA.

Just to be sure that this is the right thing to do I've spent the weekend researching whether I would be better transferring it into a personal pension as it is one of those rather difficult to understand "with profits" creatures. However from my reading it seems to be invested in a CIS fund that isn't performing too badly at the moment, it's low volatility and not charged too steeply. I've decided to wait for my annual statement which is due any day and maybe ask a few questions but then hopefully be able to avoid the fees associated with moving it anywhere else, up my monthly payments and forget about it (just like I have for the last 18 years).

Sometimes inertia does seem to pay.