Transferring from with profits pension scheme

[Deleted User]

It has been suggested that my husband should close his with profits pensions scheme which he has been paying into for many years and transfer the fund (£190K) o his new scheme which has been contributing to for a couple of years and is about £7K.

A nominal amount is paid to keep the with profits scheme open and he could take the pension in 2 years time.

Are there any advantages to doing this? I am reluctant to make this move.

atush

You need to look into al the specifics. Most important, as it is a WP scheme, is there an MVA? This could severely impact his retirement benefits.

Is there a guaranteed anuity rate? What are the annual charges of his new scheme and the charge against incoming assests? This could be far more than the annual charge to keep the old plan open.

Is the OLD WP fund still acruing annual bonuses? What will be the likely (based on the this past yeaR) terminal bonus applied to the pension if left til retirment date?

Until we have an answer to some or all of these I have to say we can't really help much- but with just 2 years to go I feel it might cost you more to move it than to leave it.

We are in the process of moving an old WP pension as it was no longer acruing new bonuses, and has no MVA and no GAR.

[Deleted User]

Thank you for the reply. The annual bonus and contractual bonus total about £6k. When this pension was opened we we only supplied with a very small booklet which really only gives general details. Therefore I don't know if there is a GAR but I have been advised that the full value of the plan is available for transfer. I am going to find out more details and probably post again in a few days.

dunstonh

has been suggested that my husband should close his with profits pensions scheme

Who is "suggesting" this?

[Deleted User]

Dunstonh. His current employer is suggesting the change. They inherited the WP scheme when they bought his previous employer a couple of years ago. Subsequently he enrolled in the new company's scheme (which is a salary sacrifice) and the company makes minimum contributions to the old WP scheme.

jamesd

Salary sacrifice is good so that's a good sign that the company at least has some idea of how to do things well. But that still doesn't mean it's a good idea to transfer. As dunstonh wrote, it's not really possible to say more without knowing more about the with profits scheme. It's not necessarily a bad idea - if it's units with no real bonuses it might well be a good idea if your husband is happy to choose new investments.

With profits are generally not suggested for new investment but that doesn't mean that all old ones were bad deals. Just depends on the details.

Your husband might also have the possibility of paying new money into the new scheme and leaving the old money alone. Or he would have the option of transferring from the old scheme to any personal pension that he chooses to set up. Sometimes those can be better deals than company schemes once the money has been paid in. Can't beat company matching, particularly with salary sacrifice, for getting the money into a pension initially.

Don't just trust general statements about the whole value being available for transfer. Ask specific questions including:

1. Will any market value adjustments be applied?
2. Are there any guaranteed pot values at any specific ages, including a predefined retirement date?
3. Are there any guaranteed annuity rates at any time?
4. What are the costs for the investment management (fund fees and others) in the old scheme?
5. What are the costs for the investment management (fund fees and others) in the new scheme?
6. Are partial transfers out of the new scheme to a personal pension permitted, while still remaining a member of the scheme and making more contributions?

When it comes to taking a pension income, do remember that it is not necessary to buy an annuity from the place where the money has been invested. Unless there is a guaranteed annuity rate it seldom is best. It's also not necessary to buy an annuity, not necessary to buy an annuity to get a lump sum and not necessary to buy any annuities all at the same time, they can be purchased gradually over time. These things can matter greatly for those who are at younger ages like 55 or who are in less then perfect health.

If he's approaching 55 it may be beneficial to him to start taking a pension income (but not buy an annuity) once he is able to, then reinvest the income in his workplace pension. So he might get say £9500 pension income (in drawdown, not with an annuity) and sacrifice £9500 salary. Income tax is a wash, no difference, but he then gains by saving the NI on the sacrificed £9500 and by getting a second tax free lump sum that he can take later, so he profits a bit on the tax there.

atush

While i did cover items 1-5 James said it better lol.

We really can't say until you come back witht eh detials form this scheme.

We are cashing in/taking a small WP pension of approx 40K as it isn't earning new bonuses. But, this might not be the case for you so check all the details carefully asking the Qs we mentionned above and get back to us with the answers.