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Pension advice

I would be very grateful for some pension advice because I am having emergency hospital tests tomorrow (Mon 29th Sept) in the afternoon for cancer and things don't look too good. I want to do the best for my beloved husband and son. I have 3 small pensions and one medium-sized - all private pensions. We have no properties - we are renting.
One of the 3 small pensions sent me a Retirement Options letter 2 days ago for benefits payable 26th Sept:
Option 1. An annual pension
Option 2. A Pension Commencement Lump Sum and a reduced pension. They included a Retirement Option Form for signing.
Questions I have:
1. Is Option 2 what I need to sign now or is there a 3rd Option if one is terminally ill?
2. Does one need a diagnosis?
3. Also stated is that if I die within 5 yrs, the pension can go to your beneficiaries and they include a Death Benefit Nomination Form for this. Do I complete this?
4. A 2nd small pension has sent a similar 2 options but no forms. Should I do a letter like the other form?
5. I have not heard from the largest pension which is naturally the most urgent. Do I create something for that pension, like a form?
Many thanks in advance.
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Comments

  • bigadaj
    bigadaj Posts: 11,531 Forumite
    Ninth Anniversary 10,000 Posts Name Dropper
    Sorry to hear of your situation.

    Are the pensions defined benefit or defined contribution?

    In general if you get a letter from a doctor confirming that your prognosis is that you wil not survive longer thana year then ther is generally provision for paying out the pensions as lump sums.

    Contact the schemes and see what they will allow, please come back on here for any advice if you hit problems, and someone more knowledgeable than me can hopefully help further.
  • Hi thanks for the info. I am afraid I don't the answer to your question. Do I need to ask the pensions perhaps?
  • Sorry what I meant was I don't understand your question. I contributed years ago but was alarmed to see this last week that if I died without taking my pension, my husband would only get my contributions returned. Also I don't know if it's significant but my husband is a higher rate tax payer and my son is lower rate.
  • atush
    atush Posts: 18,731 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    Generally speaking, your husband would inherit your pension pot, not just yoru contributions.

    Second you should fill out expressions of wishes forms for all your pensions ASAP. Third, if you have Life insurance, or death in service with your job, find out the correct procedures and if any paperwork hasn't been fill out.

    Make a will.
  • I thought pensions fell outside wills - something I read on another thread? I am not in work and also have no life insurance. Or a will. I have checked and all the pensions have my husband nominated as my beneficiary so at least that is done. One of them mentioned that only my contributions would be returned to him however, if I had not drawn on my pension before I died.
  • atush
    atush Posts: 18,731 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    Look into transferring the pension that says you only get your contributions back?
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    Do make a will: even if your intentions are so simple that it lends itself to filling out a standard form from a stationer and getting it signed and witnessed. You really don't want your family wrestling with the lack of a will while they are grief-struck.

    Some pensions that remain uncrystallised are paid complete and tax-free to the person you nominated, after your death. It's a grim thought, but it would perhaps be useful to check the rules covering yours.
    Free the dunston one next time too.
  • Thanks for the advice. How does one find out the rules governing your pensions? Is it a case of calling the pension providers and asking them (I'm not keen to let them know my medical state at this point until I know for certain) or does one have to hunt down the initial documents (I have thousands and thousands of papers to go through!)?
  • RichandJ
    RichandJ Posts: 1,087 Forumite
    bigadaj wrote: »
    Sorry to hear of your situation.

    Are the pensions defined benefit or defined contribution?

    In general if you get a letter from a doctor confirming that your prognosis is that you wil not survive longer thana year then ther is generally provision for paying out the pensions as lump sums.

    Contact the schemes and see what they will allow, please come back on here for any advice if you hit problems, and someone more knowledgeable than me can hopefully help further.

    OP, please read the above again. If your prognosis is that you will not unfortunately survive for more than a year there is provision in law & most pension scheme rules for the value of defined benefit pensions to be paid as a one off lump sum.

    Please contact the relevant administrators & advise them of this (if it is the case). If I were you I'd ask to speak to team leader or above, junior staff, IME, may not know about it.
    It only takes one tree to make a thousand matches, it only takes one match to burn a thousand trees. As well, the cars are all passing me, bright lights are flashing me.

    Johnny Was. Once.

    Why did he think "systolic" ?
  • jamesd
    jamesd Posts: 26,103 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    edited 4 October 2013 am31 10:15AM
    Find out what the tests say before you take anything from the pensions. There are substantial differences in death benefits from pensions before and after you take anything from them. Some critical differences:

    1. Before taking anything from a personal pension the whole pension pot can be paid out tax free to anyone on death. If an annuity is purchased there is normally no death payment at all, just often a guarantee to pay out the normal income for a few years. If using income drawdown instead of an annuity the situation is better, there is a 55% tax charge on a death payment unless it is paid into the pension pot of a spouse, which is tax free.
    2. Before death, if nothing has been taken, the whole pension pot can be paid out to the person with the pension pot if they are diagnosed with a medical condition that gives them an estimated life expectancy of a year or less.
    3. A medical diagnosis that results in reduced life expectancy can result in qualifying for an enhanced annuity that pays out more than a standard annuity. In drawdown, a scheme pension can be used instead of standard drawdown and this uses the life expectancy estimate from an actuary to calculate a personal income limit that is higher than normal drawdown.

    So it's important not to take anything out of pensions while there is a potentially life-threatening diagnosis because it can dramatically reduce the amount of money available, resulting in massive losses compared to the optimal choice. It's particularly critical not to buy an annuity with pending diagnosis, because that loses the most on death.

    The one year life expectancy rule runs continuously, so if you were to start out with 18 months and wait 6 months then your doctors might say one year at that point. Then the serious ill health lump sum would be available.

    Do not hesitate to tell the pension providers. Be explicit, phone them and follow up in writing to say that you are undergoing tests for cancer that could result in a dramatically shortened life expectancy. Tell them that for this reason you do not want to take pension benefits at the moment, because that would block availability of a "serious ill health pension lump sum" and possibly later of an enhanced annuity. This will put them on notice that they should not act in ways that will be inappropriate for that situation.

    Knowing more about each specific pension would help us to say more about how to handle each. There are different rules for work final salary or similar defined benefit pensions and personal pensions or work defined contribution pensions.

    You wrote that these are all private pensions. That eliminates the workplace defined benefit case. Please say whether the existing ones are retirement annuity contracts, personal pensions, SIPPs, or whatever else you can tell us about them.
    One of the 3 small pensions sent me a Retirement Options letter 2 days ago for benefits payable 26th Sept:
    Option 1. An annual pension
    Option 2. A Pension Commencement Lump Sum and a reduced pension. They included a Retirement Option Form for signing.
    Questions I have:
    1. Is Option 2 what I need to sign now or is there a 3rd Option if one is terminally ill?
    None of these options is correct for a person facing a possible life-threatening diagnosis. You MUST contact the pension provider and tell them that and that they should not proceed with any default annuity purchase option but should wait for you to tell them what you want to do when you have a diagnosis.

    Yes, there are options for those who are terminally ill but these letters do not consider this case and do not have any appropriate options for it.

    Do not use option 1. It is the worst possible choice for a person facing a possible very short life expectancy!
    2. Does one need a diagnosis?
    Yes. You need a diagnosis to know what to do.
    3. Also stated is that if I die within 5 yrs, the pension can go to your beneficiaries and they include a Death Benefit Nomination Form for this. Do I complete this?
    No! This is asking about a five year guarantee on an annuity. This means it pays out normal annuity income for at least five years from the time you buy it, even if you die within those five years. This means that your family will lose a massive chunk of the pension pot value!

    To give you some idea, a typical level annuity would pay out perhaps 6% of the pension pot value each year. Say the pot is £100,000 and you were to take a 25% lump sum and buy a level annuity with a five year guarantee. The £75,000 would buy an annuity of £4,500 a year. Then say you die. Instead of the whole £100,000 your family would get only the £25,000 lump sum plus five years worth of the £4,500, a total of £47,500. So half of the money would be lost compared to not making the mistake of buying an annuity. It's even worse if they are quoting for an RPI inflation linked annuity. that might instead pay out initially at £2,250 a year so your family would only get £36,250 (plus a bit of inflation increase).

    Contact each company. Tell them about the tests and possible diagnosis and that because you may soon be eligible for a serious ill health lump sum payment or enhanced annuity you "do not currently want to crystalise the pension" in any way, because that would dramatically reduce your death benefits.

    As time allows after that you should use unbiased.co.uk to find an IFA who can help you with this. If you can give us the approximate pension pot values that will help us to tell you whether using an IFA is worthwhile.
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