Please Help, letter I don't understand!

pinklady13

I get so annoyed with Pensions they seem to use words that 'normal' people don't understand. Given that I'm an Accountant I expect to be able to understand but still get lost. Today I've received a letter regarding a pension i had with a Previous employer and I don't understand a word of it - can anyone help?

Dear Mrs ********,

Company Pension scheme with *********

I am writing to you in connection with your membership of the above pension scheme. The scheme established by your former employer has given notice to the trustee and Friends Life that they wish to wind up the scheme.

I am pleased to confirm that a deferred annuity contract has been purchased on your behalf. This is written in your own name and is no longer subject to the scheme trust. The deferred annuity will retain the above policy number and will retain original policy provisions. Except as stated in the endorsement the terms and conditions remain unchanged.

Please note that because of statutory requirements you are not permitted to assign your entitlement to these benefits to any other party or attempt to use these benefits as a security for a loan.

For you reference I include:

' statement of investment
' Illustration of transfer value
' Illustration of projected benefits
' discretionary trust for pension policies (see note (ii))
' tax free lump sum statement (see note (iv))

Notes:
(i) The MRP master policy has been endorsed to the effect annuity and is now held by Friends Life. If you require a copy at any time please contact Friends Life.

(ii) The discetionary trust document enables you to place your deferred annuity under trust (please note this is seperate from the original trust scheme). Without this, any lump sum payable under the policy on your death would form part of the estate and may be assessable for inheritance tax. If you wish to use this option you should seek legal advice regarding it's suitability.

(iii) Now that the deferred annunity contract has been purchased Friends Life is the scheme administrator.

There is a lot more blah blah blah but nothing quite as serious as this lot.

I'm currently 42 due to retire in 2035 - it's not a massive sum but neither is it couple of hundred pounds.

Attached is some major legal form about putting it into trust.

Totally confused and none of the statements have a death value benefit.

Can anyone help?? I have a couple of other pensions - none of which I've been told are worth transferring because of fees, something I was also told with this one. It also has clauses about more money due as it was taken out before a specific date which might be lost.

Helpppppp!! Don't currently have a financial advisor and am thinking I might need one but don't want to come across thick!

Shimrod

Is this a defined benefit/final salary scheme? If so it sounds like the pension fund was fully funded to buy out level and the trustees have chosen to 'sell' the fund to an insurance firm, who in turn will provide your pension for you at the point you retire. In doing this the trustees cannot lessen the benefits you would have received had the pension not been transferred in this manner.

It seems slightly unusual as it is relatively rare at the moment for a final salary scheme to be fully funded, let alone funded to buy out level (which effectively includes an element of profit for the insurance company).
Has the company in question been the subject of a takeover or sold a subsiduary?

pinklady13

The company I had the pension with were very good - paid in 15% on top of my contributions.

They sold our to an American company about 6 years ago while I was still in the scheme in 2006, there must have so clause that protected our pension within the buyout.

i'm totally confused - is this good or bad? Do I have to fill out the form they sent? Do I transfer?

Should I get a financial advisor?

Many thanks for read said letter! It's so long!

Daniel_Elkington

I'd get an IFA, but being one I have a significant amount of bias!

Is there a helpline, if so spending an hour on the phone to them may help (may not though).

It sounds like this scheme was a Group Money Purchase pension and they have bought an income for you at the normal retirement date (deferred annuity).

If you have any dependents then there is no need for the trust.

What is note (iv)?

What are the projection of benefits and transfer value etc? (more numbers are better, being an accountant... )

The 'illustration of transfer value' makes me think it may be possible to transfer out, this may be better than letting a deferred annuity have it - but that depends on the numbers.

If you want to email me a copy of everything I can have a look over it for you?

dancingfairy

It sounds to me like the previous pension people don't want to do it/can't do it anymore and have sold/transferred the pension on. It sounds like the new company have taken over any guarantees from the orginal pension and everything else (all terms and conditions remain the same). It sounds to me like it is a done deal and that your options are to carry on your pension with this new company or transfer it.
A seperate issue for tax/inheritance planning appears to be whether to include this pension in a trust (or not).
df

xylophone

As far as I can see, your old company pension scheme has been wound up but your deferred benefits have been protected by transfer into a deferred annuity policy administered by Friends Life.
You will be able to exercise your pension rights at your scheme retirement age or possibly earlier but usually no earlier than 55.

If your old scheme was a defined benefit scheme, it will have been a Pension Trust and would have had Trustees. You will probably have signed a "letter of nomination" concerning the cash lump sum , for example "I should like my wishes to be known so that in the event of my death, the Trustees may consider exercising their discretion in favour of .......named below."

These benefits would be paid outside your estate and so not subject to IHT.

I am assuming that as the scheme has wound up, any such nomination is now null and void.

You now have a personal pension policy and this will pay out a lump sum on death. You are being invited to consider (take advice on) writing the policy into Trust so that the lump sum can be paid outside your estate. As here? https://extranet.friendslife.co.uk/pub/doc/documents/ATRUSTDTPN.pdf

There is also a transfer value but you would need to take advice as to whether it was wise or possible to transfer the benefits - there may be a Guaranteed Minimum pension to consider.

It looks as though you are going to have to read the terms and conditions of your policy and any supporting information provided, and then consult an IFA expert in pensions?

jamesd

Since the value appears to be in the few thousands not the many tens of thousands it won't be worth paying an IFA to take a look.

It's probably fine, just check that the purchased benefits match the ones in your past pension projections.

The gain for the company in doing this is that it removes the need to report a pension surplus or deficit on the company books, so it makes the company look more attractive and with a less volatile value based on how high or low gilt prices are.

If your other pensions are money purchase - where you can control the investments if you want to - not final or average salary type then it may well be cheap and easy to transfer them, perhaps even something you can get paid a a few tens of Pounds for doing, by the receiving place. For the ones that are final or average salary don't bother, it is going to be too expensive and not worth considering unless the capital value is in the hundreds of thousands and even then it's usually not worth doing unless you're expecting to die much younger than usual or the scheme is in massive trouble.