Payment of total pension fund for mum

Littlemissnaughty_2

Hi everyone, I am a newbie moneysaver hoping to get some advice for my mum on her pension situation.

When she was in her early twenties she paid into three separate personal pension schemes with the Prudential (probably mis-sold at the time but that is another story!). She never had a high paid job, working with horses and in a restuarant kitchen respectively where a company scheme was not an option. She was advised by an accountant friend at the time to stop paying into the personal pension schemes as the amount she could pay in would never be enough to build her a realistic retirement income and would affect her receiving any state benefits at the time of her eventual retirement. I think this turned out to be very good advice. She therefore held the pensions over and they have been sitting with the Pru for about 35 years now. She is now 59 years old and therefore due to retire next year. She got a letter from Pru advising the total of her 3 funds is around £18,260.

I understand that if your total pension pot is £16,500 or under you can withdraw the whole value as a "minimal pension" and take 25% of it tax free but not have to take an annuity income from the remainder, which in any case the Pru have forecasted to be around only £344 per annum.

Is there any way she can get around this problem of the slight excess in her pension pot and "lose" some of her current pension value by way of transfer to another scheme so that she can take the whole £16,500 or is it not legal to do this? Her intention is to give the money to me to help go towards a deposit on my next home/mortgage. She will have no other income other than the state pension and any low-income benefits she is entitled to as she has not been able to work for the last few years due to ill-health.

Grateful for your advice!:o

dunstonh

She was advised by an accountant friend at the time to stop paying into the personal pension schemes as the amount she could pay in would never be enough to build her a realistic retirement income and would affect her receiving any state benefits at the time of her eventual retirement. I think this turned out to be very good advice.

Probably very poor advice. If you start in your 20s then you dont have to contribute much in real terms to get a 10k pension in retirement.

Is there any way she can get around this problem of the slight excess in her pension pot and "lose" some of her current pension value by way of transfer to another scheme so that she can take the whole £16,500 or is it not legal to do this?

Invest in a high risk investment for 24 months. If it goes up then she gets more. If it goes down she falls below the threshold.

Her intention is to give the money to me to help go towards a deposit on my next home/mortgage. She will have no other income other than the state pension and any low-income benefits she is entitled to as she has not been able to work for the last few years due to ill-health.

The means test for benefits/credits would probably treat the gift as deprivation of assets and reduce her benefits accordingly.

Littlemissnaughty_2

Thanks dunstonh, I guess at the time she was finding it hard to even contribute £30 a month when raising a family on a low single income. Hindsight is a wonderful thing but her situation cannot be changed now so your advice on a high risk investment is worth considering. Do you have any suggestions what kind of thing she should invest in?

Retired_I.F.A.

Bet that a first fo you eh Dunstonh? First time I've ever heard a customer ask how can I lose money. lol

There is one sure way to get it below the 16k which would effectively put the excess in the IFA's pocket. Bit sneaky, well morally speaking but quite legal. AFAIK which would involve transfers with max commission taken as each transfer would reduce it by 5% o so thus there'd be no risk to it falling way below.

ffacoffipawb

Retired_I.F.A. wrote: »

Bet that a first fo you eh Dunstonh? First time I've ever heard a customer ask how can I lose money. lol

There is one sure way to get it below the 16k which would effectively put the excess in the IFA's pocket. Bit sneaky, well morally speaking but quite legal. AFAIK which would involve transfers with max commission taken as each transfer would reduce it by 5% o so thus there'd be no risk to it falling way below.

Another easy way to get it down quicker is to transfer it into a SIPP and follow my share recommendations. She'll lose the excess in no time at all!!

jamesd

Isn't there a change coming later this year that makes the limit apply for each individual pension pot instead of for all pensions? That may provide an opportunity if several funds means several independent pensions.

EdInvestor

jamesd wrote: »

Isn't there a change coming later this year that makes the limit apply for each individual pension pot instead of for all pensions? That may provide an opportunity if several funds means several independent pensions.

There has been some talk of tweaking the rule, as quite a few people would have been able to take trivial pensions under the old rules are now caught by the change.

But there hasn't been any announcement.

The amount does rise every year, IIRC it will be around 18k in around 2010.

Littlemissnaughty_2

Thanks everyone for your helpful advice. I admit its crazy asking how we can lose money from a pension! Nonetheless it seems daft for her to leave as is since the pot is not really big enough for an income but would help in other ways if she could get her hands on the whole amount. It seems you can have too much of a good thing sometimes - quite literally!

margaretclare

Her intention is to give the money to me to help go towards a deposit on my next home/mortgage.

Crazy!

She will have no other income other than the state pension and any low-income benefits she is entitled to as she has not been able to work for the last few years due to ill-health.

Therefore she needs every last penny-piece that she has and should NOT think of giving any of it away! Retiring at 59, she can easily live another 40 years and the thought of living all those years in poverty is terrifying, or should be. However, she has the possibility of putting money into some savings/investment vehicle now against a time when she may need it more than she does now. It's possible to put money into a pension fund any time up to your 75th birthday and still get tax relief on it. A basic stakeholder, maybe with the much-maligned Prudential, or similar?

Littlemissnaughty_2

margaretclare wrote: »

Crazy!



Therefore she needs every last penny-piece that she has and should NOT think of giving any of it away! Retiring at 59, she can easily live another 40 years and the thought of living all those years in poverty is terrifying, or should be. However, she has the possibility of putting money into some savings/investment vehicle now against a time when she may need it more than she does now. It's possible to put money into a pension fund any time up to your 75th birthday and still get tax relief on it. A basic stakeholder, maybe with the much-maligned Prudential, or similar?

Margaretclare, thanks for your concern. For reasons that are too complicated to go into here (let's just say a legal case is pending) it is not quite as bad as it sounds for her retirement years. It is entirely her decision what to do with her money, and rest assured I am certainly not expecting it or putting any pressure on her to give it to me. Luckily I can progress up the property ladder with or without it. After reading these posts she may well change her mind anyway and put into one of the many financial products out there (although perhaps not the share investments recommended by ffacoffipawb)!

margaretclare

I think ffacoffipawb's comment was very much tongue-in-cheek, referring to his inability to pick shares that grow (if there are any such, these days!)