Pension Winding-Up-Options

thisisthecount

Hi,

Just got a letter from my old Work Pension Plan "Emap Flexiplan Trustees Ltd" telling me that the scheme is in the process of winding-up.

I have the following options:

1/ Transfer your benefits to an individual registered pension arrangement called a Trustee Buy-Out Plan with Standard Life

2/ Transfer your benefits to another occupational pension, personal pension or a provider of your choice

3/ If eligible, take an immediate cash sum in full and final settlement
(current value is £11,009.93. Based on this amount, 25% (£2752) would be free from tax, but £8257 would be taxed on emergency tax code)

Initially I had considered taking the money and paying off some of my mortgage, but I'm 36, have a wife and 2 children and NO pension still. I am a sole trader.

I'm thinking I should really start a mortgage. and I guess this might be a good way to start one by using this money?

Can anyone advise me at all?

I know I probably need a financial advisor, but to be honest, I'm not sure who to go to that I would trust.

Anyone shed any light and advice?

TIA

dunstonh

Initially I had considered taking the money and paying off some of my mortgage, but I'm 36, have a wife and 2 children and NO pension still. I am a sole trader.

sole trader means you dont accrue qualification for the the full state pensions. Just the basic. Many self employed dont realise that. (the loss of the additional state pensions currently works out to around £100k of pension fund value if you had it in a personal plan).

You are 36, so the rough guide to aim for £35k in a pension by age 35 is a little bit behind (going by the current value of £11009). Still not a disaster but you are not at an age where you need to start looking at this seriously whilst you still have a chance to influence your future income at a reasonable cost.

I'm thinking I should really start a mortgage. and I guess this might be a good way to start one by using this money?

Do you mean mortgage or pension?

Can anyone advise me at all?

no-one on the internet. Its just discussion and comment.

I know I probably need a financial advisor, but to be honest, I'm not sure who to go to that I would trust.

you have a choice. Either DIY or use an IFA. Avoid FAs.

If you DIY it may be a bit cheaper if you know what you are doing but like any DIY, if you make a mess of it then it can cost you a lot more in the long run. If you use someone to do the work for you then like any area, it costs money but you get the consumer protection and you get it done right (or protected if not).

We cant tell you what to do. That is your choice. However, doing nothing at age 36 and self employed means you are looking at £5000 a year income at age 67.

thisisthecount

sorry, I did mean Pension not "Mortgage" ooops. thanks for your note, much appreciated.

Need to think this through ideally... Wondering how much something like this should / would cost me from an IFA typically?

dunstonh

Wondering how much something like this should / would cost me from an IFA typically?

Cost of IFA can be factored into the product so you dont need to write a cheque for the advice. (its actually tax efficient for the costs to be factored into the pension as you get tax relief on them. Plus, that option will be cheaper than commission at your age). As for cost of retirement provision, that will depend on what sort of level of income you are looking at wanting when you retire and when.

Really really rough, £100pm net increasing annually for inflation at your age would produce around £5k-£6k a year in todays terms.at your state pension age.

thisisthecount

thanks!

How do you mean Factored in exactly?

Also, as I am self employed, why does it mean I don't get the same state pension rate? I still pay my NI? and I emply someone here, so I actually pay employers NI too...

wow, £100 per month would only provide up to 6K per year! thats not that great is it? or am I being unrealistic?

dunstonh

How do you mean Factored in exactly?

Old fashioned way is for the commission to be priced into the annual charges on a pension (such as when you buy from a bank or commission adviser). i.e. on a stakeholder pension you pay 1% p.a. and out of that 1% the adviser is paid.

More modern way is to agree a fee, and that fee is paid out of the pension. Typically by a time limited fee (i.e. £x amount for 36 months or an increased annual management charge for x number of months). Then after that you drop down to a much lower amc (typically around half that of a stakeholder). In other words, you dont have to write a cheque to pay for advice but have it collected via the product.

Also, as I am self employed, why does it mean I don't get the same state pension rate? I still pay my NI? and I emply someone here, so I actually pay employers NI too...

You dont pay the same NI as an employed person. You pay class 2 and class 4. The additional state pensions (current version is known as state second pension but used to be known as SERPS) is based on class 1 NI.

Self employed typically pay less in tax/NI than employed. The view is that as you are a business person you will prefer to take more control over your retirement and insurances and be less reliant on the state. So, you get lower state benefits but you pay less. You can then use the money you save to choose how you replace the benefits.

wow, £100 per month would only provide up to 6K per year! thats not that great is it? or am I being unrealistic?

It was actually £11,500 it would provide but I have factored in inflation to show it in todays money.

Yes, you are being unrealistic. £100pm to buy you £500pm in todays terms is good. The problem is that your timescale is getting shorter. 10 years ago you could have got away with around £50pm to get the same. The less time you have, the more expensive it becomes. You are effectively saving £100pm for 30 years to pay you £500pm for 30 years.

seven-day-weekend

thisisthecount wrote: »

thanks!

How do you mean Factored in exactly?

Also, as I am self employed, why does it mean I don't get the same state pension rate? I still pay my NI? and I emply someone here, so I actually pay employers NI too...

wow, £100 per month would only provide up to 6K per year! thats not that great is it? or am I being unrealistic?

It means you will get the basic State Pension of (currently) £97 per week, assuming you have paid 30 years NI, but you will not get any of the earnings-related Second State Pension addition that employed people are eligible for.

thisisthecount

oh right, how much is that then I'll be missing out on?

dunstonh

thisisthecount wrote: »

oh right, how much is that then I'll be missing out on?

You see some people get as much as £5000 a year on the additional pensions but typically its around £2500-£3000 a year (in todays money). In monthly cost terms, at your age thats around £75pm gross (with annual indexation)

So, in effect and based on your age, if you are self employed, the first £75 gross of any contribution is just making up for lost state second pensions.