Special Pension Benefits

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Depending on the type of pension you have, there could be unique benefits attached to your policy as long as you remain in the pension scheme. While the benefit’s type and value will vary from pension policy to pension policy, it’s essential to understand what benefits you could lose. You can determine if your pension comes with any special benefits by checking your pension paperwork or speaking directly with your pension provider.

With Hilltop Finances’ Digital Service, these types of safeguarded benefits may not allow us to transfer your funds into our non-advised, digital proposition.

If your pension is shown to have one or several safeguarded benefits during the transfer process, a member of the team will contact you.

Guaranteed Annuity Rate (GAR)

A Guaranteed Annuity Rate (GAR) is sometimes offered as a benefit when you join a pension scheme and promises a favourable rate if you decide to use your pension to purchase an annuity with the same provider. Your annuity rate is guaranteed regardless of the market rate when you retire, which could provide you with a higher fixed income level than another pension provider may offer you. Guaranteed Annuity Rates were prevalent in the 80s – 90s, but are less commonplace in today’s pensions. Most Guaranteed Annuity Rates come with strict conditions, and you may lose the rate if you transfer to another pension provider. For this reason, it’s a legal requirement to consult an independent financial adviser before moving a pension worth more than £30,000, which has a Guaranteed Annuity Rate attached.

Guaranteed Minimum Pension (GMP)

A Guaranteed Minimum Pension (GMP) is a benefit that sometimes came with old Defined Benefit pensions set up between 6 April 1978 and 5 April 1997, before being discontinued by government. During this time, employers could choose to reduce their National Insurance bill by contracting out of the State Earnings-Related Pension Scheme (SERPS). Still, in exchange, they had to guarantee an equivalent minimum fixed retirement income for staff. If you have a Guaranteed Minimum Pension, your current pension provider is committed to paying this to you, but if you transfer your pension to a new provider, you risk losing the benefits you’ve accrued. For this reason, it’s a legal requirement to consult an independent financial adviser before moving a pension with a Guaranteed Minimum Pension worth more than £30,000 attached.

Protected Tax-Free Cash (PTFC)

Protected Tax-Free Cash (PTFC) may enable you to receive a higher amount of tax-free cash from your pension than is usually allowed. If you leave your pension scheme or transfer your savings to another provider, you could lose your PTFC benefit and may end up paying more in tax when the time comes to take your pension.

Protected Retirement Age (PRA)

Current pension legislation states that you need to be aged 55 or over to access your workplace or personal pension. However, if you have a Protected Retirement Age (PRA) stated in your pension, you’ll be entitled to withdraw your pension earlier. Protected Retirement Age is a rare benefit that must have been granted before 6 April 2006 to be valid. It’s usually only applicable to individual careers where early retirement is typical, such as professional sports, modelling and military service. If you try to move a pension with a Protected Retirement Age it’s likely you’ll lose this benefit and could be exposed to harsh tax penalties if you then go on to withdraw your savings before you turn 55.

Defined Benefit/Final Salary

A Defined Benefit Pension is a workplace pension that pays a retirement income based on the number of years you worked for an employer and other factors, rather than the amount of money you paid in. It’s often called a ‘Final Salary’ pension because the amount you receive in retirement can be based on either a proportion of the final salary you earned or your average salary throughout your career. Defined Benefit Pensions are rare, but are occasionally offered to senior employees of large corporations and public sector companies. If you decide to move your Defined Benefit Pension, you may lose some of the benefits you’ve accrued such as a guaranteed retirement income. For this reason, it’s a legal requirement to consult an independent financial adviser before moving a Defined Benefit Pension worth more than £30,000.

Life Cover

Life Cover is also known as life insurance or life assurance and is sometimes offered alongside a pension. It’s an insurance policy designed to provide money for your loved ones if you pass away during the policy term. Life Cover can provide reassurance that your family will be looked after, as anyone you name as a beneficiary will receive either a lump sum or regular payments when you die. If your existing pension comes with Life Cover, transferring your pension to a different provider will likely invalidate your policy and you’ll lose this benefit.

Earmarked Pension

When you get a divorce, it’s custom to split your assets with your former partner. As a pension is one of the most considerable financial assets you’ll ever own, it’s often included in a financial settlement. An Earmarked Pension lets you take some or all of your former partner’s pension when they reach retirement age and start drawing their pension, effectively earmarking it for later. This pension sharing option is called ‘Pension Earmarking’ in Scotland and ‘Pensions Attachment’ in England, Wales and Northern Ireland. Usually, an Earmarked Pension order moves across when a full pension is transferred to a new scheme. However, this is not guaranteed, and your new pension provider can reject it.

Guaranteed Growth/Bonus Rate

Savers in some lower-risk pension schemes will benefit from what’s called a Guaranteed Growth or Bonus Rate. Each year they’ll receive a guaranteed increase to their pension savings for as long as they remain a member of the scheme. While it’s possible to transfer a pension with a Guaranteed Growth or Bonus Rate, the charges you’ll pay to exit the scheme could be high. It may also be challenging to find a new pension provider willing to accept such a transfer.

Pension with Pension Sharing Order

As part of the financial settlement in a divorce, a court may order your former partner to split their pension with you in a process called ‘Pension Sharing’. If this happens, you are entitled to take a share of their pension straight away and can join their pension scheme or move it into a pension of your own. Not all pension providers will accept a transfer of this nature so you’ll need to speak to the company you wish to transfer to before taking any action.

Unfunded Government Pension Schemes

Many public sector pensions including NHS, Armed Forces, Fire Service and Police Service are classed as Unfunded Government Pension Schemes. These types of pensions are considered the gold standard of pensions but unfortunately, as they have no assets set aside, they are untransferrable and cannot be moved through our direct digital service.

Loyalty/Fund Bonus

Some pension schemes reward their long-term customers with a Loyalty or Fund Bonus after they’ve been with the scheme for a set number of years. Whether this is paid to you in the form of a rebate on your annual management charges or as a lump sum, your pension will depend on the rules of your scheme. Usually, if you choose to leave a pension scheme with a Loyalty or Fund Bonus set up, you will automatically forfeit these benefits.

Guaranteed Conversion Option (GCO)

Some pensions come with additional insurance benefits such as Life Cover or Critical Illness Cover. If your insurance includes a Guaranteed Conversion Option (GCO), you’ll be able to convert a more basic insurance policy to a whole life policy or new endowment at a pre-agreed date. If your pension has Guaranteed Conversion Option as a feature, you’ll likely lose it upon transferring your pension to a new scheme.

Safeguarded Benefits

Waiver Of Premium Benefits

If you have a pension that includes a Waiver of Premium Benefits, it means that the insurance provider could pay your pension contributions for you if you meet specific criteria. Should you fall ill and are unable to work for 26 weeks or more, the fees will be waived, and your pension contributions may be paid for you up until you reach your retirement date. Should you decide to transfer or close your pension, you’ll lose this benefit.

Critical Illness Cover

Critical Illness Cover is a type of insurance designed to provide financial protection, should you fall ill and are no longer able to work and earn an income. If you are diagnosed with one of the illnesses listed within your policy, you’ll receive a tax-free lump sum that can be put towards anything from paying your bills to paying for your care. If Critical Illness Cover is included with your pension, you’ll likely lose this benefit if you decide to leave your pension scheme and transfer your pension.

Section 9(2B) Rights (Contracted Out)

Section 9(2B) Rights (Contracted Out)refer to a section of the Pension Scheme Act 1993 and the benefits in a contracted-out-salary-related scheme (COSR). They are similar to Guaranteed Minimum Pension benefits and were accrued when employers offering old Defined Benefit pension schemes were allowed to contract out of the State Earnings-Related Pension Scheme (SERPS). While contracting-out was abolished on 6 April 2016, any benefits accrued are protected, and your pension provider must pay them. However, if you move your pension or leave your scheme prematurely, you are unlikely to receive these benefits.

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