Widows Pension Options - Advice Needed!

Leftynick

Hi,

My recently widowed mother in law has a just recieved a letter about a pension her usband had which she is now entitled to. The fund value is approx £15,000 and she now needs to make a decision about which form to take this pension. Two thirds of the fund is protected pre-1997 and 1 third protected post 1997.

The options she has are:

* Paid in Arrear or Advance?

*Over 5 years, 10 years, life?

* Do you want pension guaranteed?

*Do you want pension to increase over time?

I am no expert at all (why i need your advice!) but as she doesnt need the money at the moment and the fund value means having it over a long period would only see very small payments, i think she would be best getting it over the shortest period and investing it somewhere where it will grow as a nest egg for retirement.

Could anyone out there give us any advice on which would be the best option to go for with the pension AND also any advise in terms of good places/ways to invest the money.

Thanks!

Leftynick

dunstonh

She needs to excercise her open market option (OMO). Scot Widows are not very competitive on annuity quotes and the open market option will almost certainly provide a better income.

It costs nothing to excercise the open market option and she will end up with more income from it. When excercising the OMO, the various options can be compared.

Here is a quick guide:

arrears usually pays a little more than advance but you have to wait 30 days for first payment
5 years guarantee usually pays a little more than 10 year guarantee. The older you are, the bigger the difference. If you mother lives 4 years, a further 1 year would be paid on the 5 year option but a furhter 6 years on 10 year. Guarantee is linked to that and is not a different option.
Increasing or level. If she choses a level pension it will remain the same for the rest of her life. If she choses increasing, it starts lower and then increases annually. At some point there will be a crossover and a breakeven point.

A decent IFA will have software to show the differences to you. I'm not aware of any online sites that will show a comparison like that using real rates.

Leftynick

Thanks for the info. Think you may have got the wrong end of the stick with the pension provider - its actually legal and general not scot widow. Dont know how competitive they are?

Think she is going to go for the 5 year option in areas and invest it in cash isa's.

Ta!

Leftynick

dunstonh

L&G are not too bad. They often come out in top 5.

Still worth investigating the open market option though as it costs nothing