Dads pension question

eviex

Hi there
I have power of attorney over my dads affairs due to his suffering a major stroke and being unable to speak, im only 29 and know nothing about pensions at all - i would really appreciate if somebody could help to answer this straightforward pension question for me as i dont want to go straight to paying an IFA for advice (unless i have to). My dad has just turned 65 and we recieved a letter from his pension company saying he has a fund worth £31,800.

The letter gives me two options (A) to buy a pension from their company (B) To take the 'open market option' and buy a pension from another company.

Due to my dads ill health he would prefer to take any monies owed to him from this pension in cash and enjoy the money while he can (ie -cash it in), instead of taking it as a pension. Is this possible to do???
If not - what would be the maximum he could take as a lump sum?

Any advice welcome please.
Thanks

nearlyrich

Hi eviex I am not sure if the experts are about so late so I will tell you what I know (not a massive amount but it might be useful)

The open market option means that your dad isn't obliged to buy an annuity from the pension providor that has been running his pension scheme but can look around the whole market and chose the one that gives him the best pension for his money. As he is ill he will be able to go for an "impaired life annuity " which pays more.

I know you can't take all the cash from a pension, there is a limit ( I think it's 25% ) it then cut's the annual pension down accordingly as the fund is smaller.

I found this website that might help answer some of your questions...

dunstonh

Go to an IFA on the open market option. It doesnt cost you any more and more providers will be available. Providers will keep the commission for themselves or pay it to the original adviser on the pension if you dont use an adviser now. So, there is no reason not to use one.

Given his health position, there are some providers that will pay higher annuity rates. Alternatively, if the funds are not required at this time, the pension doesn't have to be taken now but could be transferred and the commencement deferred.

EdInvestor

I agree you should see an IFA to get the best impaired life annuity.

I would suggest you take the tax free cash of 25%.

Has Dad got other savings?If not, probably best if you open a 3k mini-cash ISA for half of the tax free cash, and another one next April for the other half, saving the remainder in a high interest account. Putting the money in an ISA means he won't pay tax on the income - his pension income will be taxable.

Is Dad getting his state pension(s) yet?Call up these people to check on that:

https://www.thepensionservice.gov.uk

eviex

Hi there
Your replies are very helpful - thank you so much.

Yes my dad does have a state pension although this is slightly reduced due to him havin this personal pension.

Reading your replies it looks like the best option is to take the 25% casg we can get - and invest this in an ISA (my dad wants to access some of the money now for home redecoration) and put the remainder into the ISA next year.

For the remaining 75% which we cannot get hold of - i should see an IFA and let them advise me on the best pension investment option for this which will give a high annuity due to my dads illness and the pension company the IFA recommends to us should pay the IFA's fee for us - am i right?

I looked up the frequenty asked questions section of Martins Money tips and there are a couple of IFAs recommended in my local area so should i just contact one of them?

Feel like im on the right plan of action now thanks.

dunstonh

Yes my dad does have a state pension although this is slightly reduced due to him havin this personal pension.

The state pension is not affected by personal pensions. However, some benefits are. I think its fair to assume its those.

Reading your replies it looks like the best option is to take the 25% casg we can get - and invest this in an ISA (my dad wants to access some of the money now for home redecoration) and put the remainder into the ISA next year.

For the remaining 75% which we cannot get hold of - i should see an IFA and let them advise me on the best pension investment option for this which will give a high annuity due to my dads illness and the pension company the IFA recommends to us should pay the IFA's fee for us - am i right?

If he doesnt need the income, then just taking the 25% out may be the best option but leave the pension invested (in an appropriate plan).

www.unbiased.co.uk is the database of UK IFAs. You can postcode search. Avoid the salesforces (large regional or national firms). You can often spot these by the address and/or phone numbers not being local.

EdInvestor

The state pension is not affected by personal pensions. However, some benefits are. I think its fair to assume its those.

The OP probably means the S2P/Serps part of the state pension is affected - there are actually two state pensions.

This would be because the personal pension is a contracted out "protected rights" one where the money that would have gone to provide the S2P pension was paid into Dad's private scheme instead.

You can check this by seeing if there is a "COD" (contracted out deduction) from the total state pensions amount.

dunstonh

SERPs is not reduced for what you have in personal pensions. My bet is that its either income support or pension credits.

Be_Happy

dunstonh wrote:

SERPs is not reduced for what you have in personal pensions. My bet is that its either income support or pension credits.

OP probably has the same wording on his State Pension statement as my OH which says that additional pension based on earnings from 1978 to 97 have a contracted out deduction from earnings in an employer's or personal pension scheme. This is quite a big deduction, in our case additional pension of £55.49 a week is reduced to £24.79 a week.

eviex

Hi All

The letter we recieved from the inland revenue regarding the fact my dad would recieve a reduce pension reads as follows:

"our records show you were in an employers or private pension scheme. Because of this part of your additional pension you earned from april 78 to april 97 is replaced by a pension from the scheme you were a member of... from 6 april 1997 all of your addtional pension is replaced by a pension from your employers or private pension scheme. This will apply for the period you were a member of that scheme" ..." Your weekly contracted out deduction is £23.75"


So if my thinking is right - my dad might have been better never paying a private pension as the benefit of this has now been taken back off him in another way by the govt - am i right?

dunstonh

The reduction is not from the personal pension contributions. It is from contracting out and the pension is higher because of that.