What to do about a pension from a previous employer?

mr_fishbulb

Hi all,

I have some questions my gilfriend was asking me and I haven't a clue.

When we left uni in 2001 we took jobs to save to go travelling. Her job had a pension scheme where they contributed a certain amount into it (my girlfriend could have put in contributions too, but decided she'd prefere the money whilst travelling).

Now we're back from travelling, Girlf has a new job with no pension so she's thinking of taking out her own stakeholder pension. here's the questions:

1 - Is there any way she can take the money from her old pension and put it in with a new one so it's all together?

2 - Does it need to be done before/after april as I know some pension laws are changing?

3 - If it needs to be done before April, does she need to set-up her stakeholder pension before then, or can she get the money from her old pension and put it in a savings account until her stakeholder pension is set-up?

4 - What's the best way to do all this without paying more tax than she needs to?

Cheers

exil

1. Yes. But having tried this myself be prepared for a shock when they tell you
the transfer value - could be a lot less than you would like

2. Don't think the April rules make a difference in this case (but I'm ready to be corrected)

3. The one thing you can't do is take money out of a pension fund in the form
of cash. You either keep the old pension or transfer its value to the new pension.

4. Not sure there is any tax angle

As I say, I'm trying to do much the same thing. The question is - do you think your old pension will do better where it is, or do you take the (probable) hit on the transfer value, on the expectation that the dosh will do better in your new pension?

Also, as far as I know, pension schemes don't HAVE to let you transfer funds into another scheme.

dunstonh

1 - not only exil's response but it also may not be best advice to do it. If the old scheme is better, then leave it where it is.

2 - No chnage on that front (no correction needed exil

3 - Once money is in a pension, it stays in a pension. It cannot be moved to a savings account (unless you put it in a SIPP but lets not go there and it wouldnt serve any purpose).

4 - Correct again. Pensions can reduce IHT liability, gain tax relief on premiums and can increase working/childrens tax credits. A pension contributions doesn't increase your taxation at point of entry.

exil

Hell's bells! 4 out of 4! Do I get a coconut?

The case FOR transferring is, as I see it (final salary schemes, assuming all other things are equal):-

You have pension rights in an old scheme. Say you have 5 years at
a salary of 20k. So you expect to get 5/60 when you retire (about 1600 a year)

You start in a new scheme. Your pay is now 25k. Say the transfer value is
given as 4 years in the new scheme (some chance!).

Now over the next 30-40 years all that will happen to your old pension
is that it will be uprated with inflation (up to 5%)

If the money is in the new pension - as you (hopefully) rise up the salary scales
your 4 years will become more and more valuable. Also on the basis of the past you can expect your salary to rise faster than inflation.

Doesn't apply to money purchase schemes.

If (as happened to me) you get offered only (in this case) 2 years - then you have a dilemma!

mr_fishbulb

Thanks guys. I'll tell her to find out how much it's going to cost to transfer the pension and whether it's worth it.

dunstonh

Its not just the transfer penalty. Its what you get on the new scheme compared with what you give up on the old one.

marylee

Son is in a similar postion, having left his job a year ago to go travelling. He was only working there for nearly a month. It's the Council, I think, he has only got about £2000 in the pension. When he left, they were supposed to refund his pension as as it is under two years but on his return to UK last year he has not heard anything or received the money. I know, it is only a small amount of money, but what does he do now? I have asked him to write to them but do not know where and ask what are his options. Currently he is temping and does not have a pension. Thanks

dunstonh

When he left, they were supposed to refund his pension as as it is under two years but on his return to UK last year he has not heard anything or received the money. I know, it is only a small amount of money, but what does he do now?

This is not automatic. They send out a form upto a couple of months after leaving asking if you want it to stay where it is, refund the personal contributions or transfer it to another pension. If they don't get the form back, they do nothing.