View more on these topics

Gauge value of guarantees

I have received letters from several of my insurers reminding me that my old personal pensions are maturing on my 60th birthday. As you know, I intend to carry on working for a short while. Can I ignore these letters as the last thing I require today is more income on which I will have to pay higher-rate tax?

In normal circumstances, you would be right not to start taking benefits from your personal pensions. However, I would suggest that we do not merely ignore these letters but, instead, contact the companies with your instructions.

By drawing your pension benefits today, you will be paying hig her-rate tax on the inc ome and locking into an annuity rate for a younger age.

On the basis that income is not a problem to you at the moment and you do not wish to utilise the new drawdown
facility, I would always generally suggest that monies are left within the tax-efficient vehicle of the pension fund.

Unfortunately, however, it is not such a simple decision. You need to be aware that the general worldwide trend is for interest rates to fall, which could mean that annuity rates will worsen.

In general terms, particularly as you are not sure when you would like to retire, I would be suggesting that the monies are left where they are. However, we must very urgently look at all your policies in greater detail.

I am sure you will be aware of the problems that have beset Equitable Life. The background to the situation is that some of its old pensions contained within the policy not only a guaranteed fund at retirement but a guaranteed conversion factor or annuity rate, which is used in converting the fund to income.

It is these guaranteed ann uity rates and Equitable&#39s poor judgement in dealing with these liabilities that have res ulted in the company closing its books to new business.

You have told me that several of your older pensions are the self-employed retirement annuities that were the predecessor to the personal pension plan. It was not just Equitable Life that offered guarantees within these contracts – most leading insurers offered similar guarantees.

You have to be very careful in that some insurers may not be making you aware that your policy contains guaranteed annuity rates. It is to their advantage if you do not exercise the guarantees, which will cost them more money.

I have recently dealt with maturing Friends Provident and Royal & Sun Alliance policies and, in both cases, these companies very clearly identified the benefits, using the guaranteed annuity rates within their policy.

The guarantee can take several forms. In Equitable&#39s case, it often provided a single-life guaranteed annuity rate at all ages, so there was no real problem as to the date when you retired. However, other companies only applied the guaranteed rate at the maturity date and that is why we must act quickly.

The guaranteed annuity rate, particularly in a falling interest rate market, can bec ome very valuable. In the last case I handled, the guaranteed rate for a 65-year-old male was some 12 per cent better than an enhanced imp aired-life ann uity available on the open market.

If your policies do not contain guaranteed annuity rates, then I will probably be agreeing with you that we take no action other than to inform the insurance companies that you do not wish to take benefits at this stage.

But if they do contain guaranteed annuity rates, we will have to look at the time these annuity rates apply and whe ther the particular annuity in question suits you.

It might well be that, if the rate only applies on your 60th birthday, that I suggest that you take benefits from that particular policy. It is allowable for you to take benefits from one policy and not others.

What we need to do urg ently is clearly identify whe ther any of your policies contain guaranteed rates and, if so, when they apply. If they only apply on your impeding maturity date, then we need to take this into account before making any decisions.


ScotLife International announces new investment head

Scottish Life International has promoted Richard Jamieson as head of investment marketing in their Edinburgh office. Jamieson will be responsible for the development and maintenance of ScotLife International&#39s investment communications for the international and UK markets. He will also continue to manage the development of third party fund links within Scotlife International&#39s pooled asset bonds. […]

Wesleyan announces returns for 2000

Wesleyan has announced positive returns for its growth trust, life managed fund and pensions managed fund. The Wesleyan Growth Trust has returned 4 per cent in 2000, against a Micropal average of minus 4.3 per cent, giving a ranking of 31st out of 290 funds. The Wesleyan Life Managed Fund returned 3.4 per cent over […]

Product Matters

Britannic Retire ment Services is the first specialist provider of impaired life annuities to launch in the competitive with-profits annuity market. One has to assume a level of investment growth at the outset to determine the starting level of income. This is done by choosing an assumed investment return of 1 to 7 per cent […]

State of fees to come

For almost 10 years now, long-term care planning for the more mature sector of the population has been talked about, written about and debated intermin ably in both Houses of Parliament. Yet it has remained a niche market in UK financial services. The reasons for this are legendary but, for the first time since the […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm