I have a traditional with profits pension policy (under the old S226 ICTA
1970) with Scottish Widows. It has a guaranteed annuity rate of 9.8%. I am
in the process of transferring various ragtag other policies (including some
shocking under-performers from London Life and Equitable which were made
paid-up years ago) to a SIPP. But the SW one has been kept up throughout,
and I have 18 years of premiums at £100 a month. I am therefore weighing up
whether to transfer it over or keep it till the original pension date -
which is about 100 months away (I am nearly 52).

The total of basic benefit and bonus is about £55k, which would produce
about £5500 per year for life from age 60 (I am assuming that the only way
to get the guaranteed annuity is to take the benefit on the original pension
date), but to know whether this is worth it I need to know both (a) the
transfer value of the fund if I transfer out (I have asked SW for this
information) and (b) the likely level of terminal bonus. It is this last
piece in the mathematical jigsaw puzzle which I cannot discover. If the
terminal bonus were to lift the pot to (say) £70k then I think I would
probably be better off leaving things as they are - because that would be
the equivalent of a fund of over £100k with an annuity at normal rates. Is
it the case that SW will adopt the Equitable line - "you can have the
guaranteed annuity, but we will reduce your terminal bonus so that the
effect is the same as if you did not"? If so, that sort of dishonest
approach - for such it was with the Equitable - would be an argument in
favour of switching now.

The other thing that puzzled me is why SW stopped paying any bonuses at all
on pre-1999 policies in about 2003. What was the reason for this? It seems
to be in relation to all policies and not merely those which had guaranteed
annuity rates. Is this likely to change?

Regards

Jonathan Morton

The other thing that puzzled me is why SW stopped paying any bonuses at
all on pre-1999 policies in about 2003. What was the reason for this?

A lot of companies paid little or no bonus at this time. The stockmarket
situation caused this. But things have improved since.

Rob Graham

"Jonathan Morton" wrote
... Is it the case that SW will adopt the Equitable line - "you can
have the guaranteed annuity, but we will reduce your terminal bonus
so that the effect is the same as if you did not"? If so, that sort
of dishonest approach - for such it was with the Equitable - ...

Dishonest? That's a bit strong, isn't it? ...

The idea of a terminal bonus is to bring the final payout up
to something close to the 'asset share' (plus/minus a bit for
smoothing). Considering two policies with and without
guaranteed annuities, but otherwise the same (eg same term,
premium paid etc), then their asset shares might be similar.
In that case, the policyholders with guarantees should
*expect* "... that the effect is the same as if you did not".

On the other hand, due to constrained investment policy, it
is likely that the asset share for the policy with the guarantee
would actually be *lower* -- in which case, those
policyholders should expect a *lower* terminal bonus.

You don't get anything for free in this world!!

"Tim" wrote in message
...
"Jonathan Morton" wrote
... Is it the case that SW will adopt the Equitable line - "you can
have the guaranteed annuity, but we will reduce your terminal bonus
so that the effect is the same as if you did not"? If so, that sort
of dishonest approach - for such it was with the Equitable - ...

Dishonest? That's a bit strong, isn't it? ...

Well, it certainly seemed to policyholders that they were being penalised
for having a guaranteed annuity rate when this approach wasn't in the
contract. The company's back was to the wall and it wanted to find some way
out.

Rob Graham

"Jonathan Morton" wrote
... Is it the case that SW will adopt the Equitable line - "you can
have the guaranteed annuity, but we will reduce your terminal bonus
so that the effect is the same as if you did not"? If so, that sort
of dishonest approach - for such it was with the Equitable - ...

"Tim" wrote
Dishonest? That's a bit strong, isn't it? ...

"robgraham" wrote
Well, it certainly seemed to policyholders that they
were being penalised for having a guaranteed annuity
rate when this approach wasn't in the contract.

That's where the problem lay : Equitable didn't realise that
policyholders would think they were getting a "free lunch",
while policyholders *did* think they were getting a "free
lunch" (because it wasn't spelled-out fully within the literature).

"robgraham" wrote
The company's back was to the wall
and it wanted to find some way out.

Eh? It wasn't a matter of them thinking up something after-the-fact,
was it? - They had intended it would apply that way all along...