The Pensions Ombudsman has ruled against the holder of an S32 buyout plan with Aviva.
The value of Mr N, the policyholder's fund, was found to be insufficient to pay a guaranteed minimum pension, and so he may not receive any benefits before state pension age.
This is despite the fact Mr N has reached age 60, and the normal retirement date (NRD) under the plan.
The plan, like any section 32 buyout plan, is a pension which received benefits from occupational schemes.
These were collected contracted-out benefits - contributions made in lieu of national insurance contributions towards the state earnings related pension scheme (SERPs).
An occupational scheme receiving contracted-out contributions had to offer a guaranteed minimum pension (GMP) broadly equivalent to what the member would have received from SERPs had they paid those contributions instead.
The buyout plan included provision for this GMP to still be paid from state pension age (SPA), but also offered the opportunity for Mr N to receive a higher pension income from the plan's normal retirement date.
Mr N transferred the value of his deferred benefits from the Coats Viyella Pension Plan to the buyout plan in November 1998. At the time, the buyout plan was issued by CGU, but CGU has now been taken over by Aviva.
On 20 December 2012, Aviva wrote to Mr N to confirm he was due to start receiving benefits from the plan in June 2013.
However, this letter also stated that he would not receive anything if his fund value was not sufficient to cover the cost of paying the GMP.
When Mr N reached his normal retirement date, the value of his fund was not sufficient to pay the GMP, so Aviva said he could not receive any benefits.
Mr N highlighted that a previous Ombudsman’s determination had upheld a complaint similar to his where the complainant had a Section 32 buyout policy with Aviva, originally issued by Norwich Union.
The retirement date of that complainant was also 60, but when he reached that age Aviva said the value of his fund was not sufficient to pay his GMP. As such, Aviva said he was not entitled to any benefits at age 60.
The Ombudsman determined that the policy conditions required a pension to be paid from age 60.The Ombudsman therefore determined that a pension equivalent to the GMP revalue to age 60 should be paid.
But in his determination for Mr N, the Pensions Ombudsman, Anthony Arter, said: "The policy conditions of the buyout plan are not as ambiguous as those referred to in the previous determination and can be used here to determine when the benefits are payable."
Section 16 of the Buyout Plan Conditions set out the NRD conditions. Section 16 (a) stated “the related normal retirement date does not imply a binding pension date”.
Section 16(d) then goes on to say that “[Aviva] reserves the right not to allow the policyholder to choose a particular pension date if [Aviva] in its absolute discretion determines that the total value of the retirement benefit values under such policies at that Pension Date would not be sufficient to ensure payment of the Guaranteed Minimum Pensions.”
The Ombudsman concluded: "I therefore find that Mr N does not have an automatic right for benefits to be paid from NRD particularly if there are insufficient funds to cover the GMP.
" It was never guaranteed that benefits could be taken at NRD. The only guarantee provided by the Buyout Plan as a whole is that the GMP will be paid from state pensions age.
"As the policy makes it clear that Mr N’s GMP must be secured before any other benefits can be paid, it therefore follows that he is not guaranteed to receive any benefits until SPA. If no other benefits can be paid before SPA, then the earliest that Aviva must pay any benefits to Mr N is when he reaches SPA."
