New pension rules ( April 2015)
Discussion
Is there a reasonably easy to understand guide on the new pension rules that come into effect from April 2015?
I've just received an annual summary from one of my private pension providers ( who I stopped paying into when I left the Company 10 years ago). It's for a trivial 'transfer sum' of £8K. I have 2 more trivial transfer sums from 2 other Companies that I expect to receive annual reports from in the next few weeks and which I also stopped paying into some time ago. I'm 55 and these intended to pay a small pension at 65.
My thinking is I can cash in these annuity based pots from April, perhaps one a year or take the 25% tax free part of each to reduce the sum and then take them out one at a time. I currently pay no income tax or NI as I have a very small income from my pet sitting business (less than £5K per annum).
I've just received an annual summary from one of my private pension providers ( who I stopped paying into when I left the Company 10 years ago). It's for a trivial 'transfer sum' of £8K. I have 2 more trivial transfer sums from 2 other Companies that I expect to receive annual reports from in the next few weeks and which I also stopped paying into some time ago. I'm 55 and these intended to pay a small pension at 65.
My thinking is I can cash in these annuity based pots from April, perhaps one a year or take the 25% tax free part of each to reduce the sum and then take them out one at a time. I currently pay no income tax or NI as I have a very small income from my pet sitting business (less than £5K per annum).
That would be the plan, though I understand that there are likely to be transfer fees involved. I received the report from one of the other trivial plans and it's for a transfer value of just over £3K, which isn't too bad on my £1.7K contributions over 10 years.
I'm also not sure if transfer fees are a flat administration fee or a percentage fee.
I'm also not sure if transfer fees are a flat administration fee or a percentage fee.
just been informed from our company that the Final salary pension scheme is coming to an end, a real shame as this was a big factor in staying with the company. But I do understand that the company can no longer afford to pay the contributions.
It will be interesting to see what happens with my current fund and how much I will pay in the future.
It will be interesting to see what happens with my current fund and how much I will pay in the future.
If it's a funded final salary scheme, and if the company cannot afford it, check the current level of funding. If the pension is underfunded, ask the pension trustees what they're going to do in order to compel the company to replenish it so that it is.
Monarch Airlines has just gone through Final Salary pension scheme hell - FSCS has got involved. Many have lost tens of thousands because the Swiss owners simply decided to walk away from the company which was in trouble, with a large underfunding of the FS schemes.
Unsurprisingly, new owners have taken on the company with the condition that the underfunded pension is not part of the deal. We talk about all manner of risks in terms of investments, shortfall etc, but administrative/default risk is now one that has to be touched on too. Don't get caught short.
Monarch Airlines has just gone through Final Salary pension scheme hell - FSCS has got involved. Many have lost tens of thousands because the Swiss owners simply decided to walk away from the company which was in trouble, with a large underfunding of the FS schemes.
Unsurprisingly, new owners have taken on the company with the condition that the underfunded pension is not part of the deal. We talk about all manner of risks in terms of investments, shortfall etc, but administrative/default risk is now one that has to be touched on too. Don't get caught short.
The elephant in the room - the issues of under-funding, regulatory and political risk to final salary pensions.
The questioning of the integrity of them is fast coming to the fore. The dogma, the tired and prescriptive thinking which induced savers to subscribe to them and become dazzled by employer promises without thinking of the consequences, is fast getting many bogged down in quick-sand and misery. Forget talk of 'gold plated", forget talk of 'guarantees', it's the tongue of fools.
This piece refers to thinking which is nothing short of astonishing; is there now palpable tension between the Pension Protection Fund and the Pensions Regulator? My advice to all clients who are in defined benefit schemes is not to worry unduly, but to treat that pension statement with healthy scepticism. If you are in a final salary scheme, CHECK THE FUNDING.
http://www.telegraph.co.uk/finance/personalfinance...
The questioning of the integrity of them is fast coming to the fore. The dogma, the tired and prescriptive thinking which induced savers to subscribe to them and become dazzled by employer promises without thinking of the consequences, is fast getting many bogged down in quick-sand and misery. Forget talk of 'gold plated", forget talk of 'guarantees', it's the tongue of fools.
This piece refers to thinking which is nothing short of astonishing; is there now palpable tension between the Pension Protection Fund and the Pensions Regulator? My advice to all clients who are in defined benefit schemes is not to worry unduly, but to treat that pension statement with healthy scepticism. If you are in a final salary scheme, CHECK THE FUNDING.
http://www.telegraph.co.uk/finance/personalfinance...
^^^ Agreed, the key point being the financial health of the employer.
For instance, if a big successful company has a significant pension shortfall there's not too much to worry about. The company has money available to put into the pension scheme if it needs to.
On the other hand if the company's business is barely profitable and its products are in danger of becoming obsolete you'd be a lot more concerned.
For instance, if a big successful company has a significant pension shortfall there's not too much to worry about. The company has money available to put into the pension scheme if it needs to.
On the other hand if the company's business is barely profitable and its products are in danger of becoming obsolete you'd be a lot more concerned.
Claudia Skies said:
^^^ Agreed, the key point being the financial health of the employer.
For instance, if a big successful company has a significant pension shortfall there's not too much to worry about. The company has money available to put into the pension scheme if it needs to.
On the other hand if the company's business is barely profitable and its products are in danger of becoming obsolete you'd be a lot more concerned.
In that situation - let's call it a company like say PremierFoods really struggling a zombie company would the smart move for people in that sort of situation to transfer out of the fund forgoe the final salary and instead have a personal pension pot instead. For instance, if a big successful company has a significant pension shortfall there's not too much to worry about. The company has money available to put into the pension scheme if it needs to.
On the other hand if the company's business is barely profitable and its products are in danger of becoming obsolete you'd be a lot more concerned.
It's possible, although the pension scheme is likely to do everything it can to prevent that happening or to make the amount offered as low as possible. Obviously the people "left behind" get in deeper and deeper doo-doo as more and more people take the money and run. There's supposed to be a safety-net for failing schemes but that doesn't solve everything.
If things start to look shaky then, as someone said above, you need to be pressing the pension trustees to ask for more money from the company. Clearly it might be a bit late for that if things are really hitting the fan!
If things start to look shaky then, as someone said above, you need to be pressing the pension trustees to ask for more money from the company. Clearly it might be a bit late for that if things are really hitting the fan!
Welshbeef said:
In that situation - let's call it a company like say PremierFoods really struggling a zombie company would the smart move for people in that sort of situation to transfer out of the fund forgoe the final salary and instead have a personal pension pot instead.
The business of transferring out of a funded (in contrast to an unfunded scheme, such as the Armed Forces Pension Scheme) defined benefit pension is straightforward. For an adviser though, it's the nuclear option and not signed off lightly.Trustees are under increasing pressure to scrutinise personal applications more and more closely. The worse case scenario is that a DB scheme is transferred into a DC one, and then encashed or invested in rip off or fraudulent investments.
Ginge R said:
The business of transferring out of a funded (in contrast to an unfunded scheme, such as the Armed Forces Pension Scheme) defined benefit pension is straightforward. For an adviser though, it's the nuclear option and not signed off lightly.
Trustees are under increasing pressure to scrutinise personal applications more and more closely. The worse case scenario is that a DB scheme is transferred into a DC one, and then encashed or invested in rip off or fraudulent investments.
Thing is IF unions were really smart about the pension negotiations the biggest threat they could give the govt is that if the govt do not meet their requirement then all of their members will take their DB out of the public sector and invest it into a personal DC fund. Govt would be over a barrel as the £billions they would have to find overnight would be eye watering. Especially so as its all off balance sheet - just how on earth that passes audit is beyond me. Trustees are under increasing pressure to scrutinise personal applications more and more closely. The worse case scenario is that a DB scheme is transferred into a DC one, and then encashed or invested in rip off or fraudulent investments.
The ability for those in public sector/unfunded schemes to transfer out will vanish in April. That will stifle the unions somewhat. And if the unions did stray into the space of advising, they'd be liable for all manner of redress in the event of loss or ings going wrong.
For those in private/funded schemes the issue, as well as that of the underfunding, is the risk of (lack of) diversification. If one's money was saved entirely within a defined contribution scheme, if there were doubts about the integrity of the scheme or fund, would the saver put all of his or her eggs in one basket and still buy an annuity with it? Possibly, possibly not - that's one of the diversification issues which counts against a DB scheme.
On the plus side of course, if all goes well, there is certainty and peace of mind for the balance of one's life if you have a safely run defined benefit scheme. Each saver is different though - if you are aged, if you have a you g partner and/or dependents, if you are ill or in poor health and if premature death is a liklihood, then why wouldn't you take an informed view about transferring to a defined contribution scheme whereby the benefits may be transferred in full?
On the other hand, if you are risk averse, if you have no dependents and if you don't want to make more money at the expense of risking losing pension fund value, why *would* you transfer out? I don't normally add a caveat to my posts here, but I will now. The business of any defined benefits scheme is complicated and intricate. Anyone who is thinking about acting in any respect of their defined benefit scheme should take properly authorised and regulated advice that they trust.
For those in private/funded schemes the issue, as well as that of the underfunding, is the risk of (lack of) diversification. If one's money was saved entirely within a defined contribution scheme, if there were doubts about the integrity of the scheme or fund, would the saver put all of his or her eggs in one basket and still buy an annuity with it? Possibly, possibly not - that's one of the diversification issues which counts against a DB scheme.
On the plus side of course, if all goes well, there is certainty and peace of mind for the balance of one's life if you have a safely run defined benefit scheme. Each saver is different though - if you are aged, if you have a you g partner and/or dependents, if you are ill or in poor health and if premature death is a liklihood, then why wouldn't you take an informed view about transferring to a defined contribution scheme whereby the benefits may be transferred in full?
On the other hand, if you are risk averse, if you have no dependents and if you don't want to make more money at the expense of risking losing pension fund value, why *would* you transfer out? I don't normally add a caveat to my posts here, but I will now. The business of any defined benefits scheme is complicated and intricate. Anyone who is thinking about acting in any respect of their defined benefit scheme should take properly authorised and regulated advice that they trust.
Welshbeef said:
Thing is IF unions were really smart about the pension negotiations the biggest threat they could give the govt is that if the govt do not meet their requirement then all of their members will take their DB out of the public sector and invest it into a personal DC fund. Govt would be over a barrel as the £billions they would have to find overnight would be eye watering. Especially so as its all off balance sheet - just how on earth that passes audit is beyond me.
The unions won't do it because the government wouldn't be able to pay. It'd bust the scheme and all their members would end up getting was pennies in the pound.Emergency legislation would have to be enacted to prevent them busting the government. No reason at all for the whole country to burn because a few union members still can't add up.
Can I ask a question please?
I read the link on page one, and understand that you can take out up to £30k.....
I have a friend (really is a friend, I wish I had this pot) who has two pensions. One with a private company for just short of £10k and the other is an Armed Forces Pension for a smidge over £50K.
As I understand it, she could possibly take out the £10k, but what can she do with the £50k one? Can she take any/all of it out?
What are the tax implications? (she earns C. £25K/pa).
Thanks!
ETA: she is 55 in December this year.
I read the link on page one, and understand that you can take out up to £30k.....
I have a friend (really is a friend, I wish I had this pot) who has two pensions. One with a private company for just short of £10k and the other is an Armed Forces Pension for a smidge over £50K.
As I understand it, she could possibly take out the £10k, but what can she do with the £50k one? Can she take any/all of it out?
What are the tax implications? (she earns C. £25K/pa).
Thanks!
ETA: she is 55 in December this year.
It depends. If your friend is touching 55, she won't be going onto AFPS15 - is she on AFPS 05 or 75? With a pension like that, and on a salary of £25,000 I'm assuming she's now long been a civvy and that the £50,000 is a CETV. If she is a civvy, she'll be a deferred pensioner on either AFPS 75 or 05. From that point, it all depends on how long she served, and when.
AFPS 75 deferred pensioners whose service ended before 6 April 2006 claim a pension at 60. AFPS 75 deferred pension members whose service ended after 6 April 2006, but who had at least two years service before 6 April 2006, should claim the proportion of their pension which relates to their pre 6 April 2006, service at 60 with the remainder becoming payable at 65.m AFPS 05 deferred pension members can claim their pensions at age 65.
Can she take it out in one go? No. Can she transfer it out? In theory, yes, although she'd have to be quick - that option ends in about 5 weeks. The income is treated as taxable, unless it's one based on war disability.
AFPS 75 deferred pensioners whose service ended before 6 April 2006 claim a pension at 60. AFPS 75 deferred pension members whose service ended after 6 April 2006, but who had at least two years service before 6 April 2006, should claim the proportion of their pension which relates to their pre 6 April 2006, service at 60 with the remainder becoming payable at 65.m AFPS 05 deferred pension members can claim their pensions at age 65.
Can she take it out in one go? No. Can she transfer it out? In theory, yes, although she'd have to be quick - that option ends in about 5 weeks. The income is treated as taxable, unless it's one based on war disability.
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