They’re GARate (GAR/great, get it?!)

A GAR is a guaranteed annuity rate.

Some personal pension plans and older versions of these called Retirement Annuity Contracts might have a contractual benefit that when the plan holder reaches the point where they want to take their retirement income that they can convert their pension fund into an annuity at a GAR.

The GAR is usually significantly higher than an annuity available in the open market.

Sometimes it is better by a significant margin.

Watch out though because some pension products only offer these GARs on a single life basis and provide little protection for a surviving spouse for example.

Where extra care is needed is where the pension plan containing the GAR is subject to a pension sharing order on divorce.

If for example the plan is to be shared 50:50 between an ex husband and wife the recipient will not get the benefit of the GAR when he or she transfers their share to a new pension plan.

The transfer or of course will see the value of their GAR reduced by half. So neither party might really benefit.

If you are in the divorce process and you have a pension plan with a GAR it might be preferable to keep the entirety of that plan and ‘offset’ this with another asset, say a greater share of the value of the marital home.

Take advice if this applies to you. Ask your Solicitor to suggest a suitable adviser to help you.

Photo credit: Flickr/Thomas Hawk