What can I do with this?

Unbelievable_2

I have two personal pension plans with Scottish Widows - one is for the Contracted out element. I took these policies out years ago when I was working. It took ages for Scottish Widows to actually collect any premiums and shortly after that I left work to have my son and have never been back! I have not contributed to the plans since so there really isn't much money in them.

What should I do with them - should I contract back in, transfer them to a Stakeholder or just carry on ignoring them? A recent statement indicated an annual pension of just over £1000 - whoopi-doo.

Any suggestions (clean ones) anyone? :-/

Milarky

The important question for you to review is whether you are still 'contracted out' [of what was formerly called 'SERPS' and is now called 'State Second Pension (S2P)'] since you will remain contracted out through Scottish Windows on a year-by-year basis unless you amend your instructions/request to them..

This means you cannot alter any past years in which a rebate was paid, but if you do take up paid employment again [PAYE not Self-employed] you should understand under which regime your secondary state pension benefits will accrue

'Contracted out': A rebate is paid annually [anytime between August and following January] which is a set percentage, within bands, of the level of your whole year's earnings above the annual 'Lower Earnings Limit (LEL)'

'Contracted-in': You accrue a proportion, within bands, of your whole year's earnings above the annual LEL figure. This 'band earnings' figure is then uprated in line with average earnings [so 'faster' than prices in general] up until you come to draw this entitlement [age 65?] Thereafter the in-payment benefit is uprated in line with prices as per the rest of your state pension...

There is (with the new version, S2P) an 'Earnings Treshold (ET)' of about £11,500. If you are 'contracted out' and your income is actually below the ET then you would recieve a rebate based on these earnings and separately accrue a proportion of future second pension equal to the figure needed to take your actual earnings up to the ET. If your earnings are above the ET, then you would only get a rebate OR accrued entitlement. (But, since entitlements are built up 'year-by-year', you would almost certainly end up with 'bits' of both....)

The important points for you, I think, are to

1) find out if you are currently contracted 'in' or 'out' of the additional pension?

2) make a decision [based on IFA advice if needed] of whether you should chose ('elect') to change?

3) 'tidy up' your SW arrangement [again based on advice if needed] by either leaving it, moving it, and/or making added payments to a plan of your choice yourself.

But as I say 'past years' are done with, and you have to consider this as a 'future years' decision.

EDIT
Also note that it is worth working just to earn as much as the LEL (52 weeks @ 78 pw) since this will give you an accrued entitlement based on the figure 'ET-LEL' even if you remained contracted out [although this would be pointless as you would receive no rebate at this level]

Example: Say earning LEL of  £78pw x 52 weeks = £4006. Say ET = £11,500

(ET - LEL) = 11500 - 4000 = 7500

You get 1/49th of 40% of this figure - about £60 pa indexed [to earnings] pension without having paid any NICs. By not working (or working) but earning less than the LEL you lose out on this valuable entitlement.

I'm not sure where mothers stand in relation to the State Second Pension, but I believe that, where they qualify for 'Home Responsibility Protection', they are treated as though on the LEL, and will thus receive the benefit of S2P as described. So you may find that you don't need to take any action for now - you effectively become 'contracted in' by virtue of withdrawing from paid employment. Nice little perk!  ;)

Unbelievable_2

Thanks Milarky

Scottish Widows wrote to me recently to advise me that I should reconsider contracting in - so I assumed I was still contracted out. Dangerous I know - I will definitely get in touch with them now.

Yes - I think you're right about the Home Responsibilities Protection - if you'd met my kids you'd agree that I deserve some perks! However I have absolutely no intention of going back to work if I can help it - besides my brain is completely dead now as opposed to only half-dead when I worked as an IT consultant eons ago. Those weren't the days! :-/

Unbelievable_2

Moving swiftly on!!!

I have now arranged to contract back in and to convert my tiny itty, bitty PP into a stakeholder.

Question: as I said before I had two PPs, one for the contacted out bit. Will I be able to convert that to a stakeholder too or is it treated differently? I only ask because the Scottish Widow lady seemed to infer that I couldn't ???

dunstonh

I have now arranged to contract back in and to convert my tiny itty, bitty PP into a stakeholder.

Scottish Widows converted most of their personal pensions to stakeholder charging on most of their plans a few years back.   Be wary that you may lose guaranteed annuity rates if there are any.   Plus, some of the Scot Wid plans (that havent converted to stakeholder charging) have better charging terms later in the term.  So you may be moving from a cheaper personal pension to a more expensive stakeholder plan.

Also, if the protected rights segment is classed under pre royal assent rules, you may reduce your tax free lump sum entitlement if you transfer.

Question: as I said before I had two PPs, one for the contacted out bit. Will I be able to convert that to a stakeholder too or is it treated differently? I only ask because the Scottish Widow lady seemed to infer that I couldn't  

You can transfer protected rights and ordinary rights into stakeholder.    

Unbelievable_2

DD

Thanks for the info - where do I go to find out if any of the points you raise apply to my policies?

dunstonh

You get it from Scottish Widows. It isnt the sort of information you get over the phone though.

Copy & Paste the template letter below (making amendments for yourself sending it and not me!).

If the plan was started after July 89, then pre royal assent cannot apply and you can ignore that. If before july 1989, then add in a question "does the plan come under pre royal assent 1989 rules?"

Pension details request

Client:
Date of birth:
Pension Plans:

I enclose a letter of authority from the above client to allow me to act as an agent on their behalf and I request a transfer pack (discharge forms) and the information below on the pension plans.

Illustrative maturity value, assuming current regular contribution (if any) continue until age 60 & 65
Illustrative maturity value, assuming no further premiums are paid until age 60 & 65
Current fund value and transfer value
Are there any guaranteed annuity options attaching?
What are the charges on the pension plan?
What fund is the pension invested in and can the client switch to alternative funds?
Is the pension protected under any pension review or still under pension review?

I look forward to receiving this information at your earliest convenience.

Once you get the answers back, you can make sure you are not missing out on any guarantees etc. You will also see if there is a transfer penalty and what the ongoing charges are.

By asking for projections, you can compare what a prospective new provider would project against Scottish Widows projections. They should use industry standard projection rates unless the fund you are in is low risk/low return in which case they have to use lower.

In very simple terms, the one giving the higher value at the same projected growth rate is the one with the lower charges.

Unbelievable_2

Many thanks DD - much appreciated :-*

My policies started in Feb 1989 when there was a Woolwich on every street corner - so I'll add the relevant bit in and see what comes back.

The amounts involved are so small they may not even bother replying! :-[