Pension advice required!

magpiesnest

Hi all, my father has received a letter about a small personal pension he has as he's coming to retirement age soon. As usual the terminology is baffling for him and he has turned to me and I'm no expert on pensions in fact far from it. So I'm hoping you can help.
His fund value is only £5951 and in the pack it has an open market option which appears to offer £1487 tax free but then transfers the remainder to a compulsory purchase annuity. It also has a "Confirmation in connection with the commutation of a small pension" form which has his fund at £5059 and under that a Trivial Commutation lump sum of £3571.

So what does he fill in? We are both confused by this so any and all help will be much appreciated.

jem16

magpiesnest wrote: »

Hi all, my father has received a letter about a small personal pension he has as he's coming to retirement age soon. As usual the terminology is baffling for him and he has turned to me and I'm no expert on pensions in fact far from it. So I'm hoping you can help.
His fund value is only £5951 and in the pack it has an open market option which appears to offer £1487 tax free but then transfers the remainder to a compulsory purchase annuity. It also has a "Confirmation in connection with the commutation of a small pension" form which has his fund at £5059 and under that a Trivial Commutation lump sum of £3571.

So what does he fill in? We are both confused by this so any and all help will be much appreciated.

Is this his only pension or does he have others?

If it's his only pension, he has the option of using Triviality to take the whole pension pot, 25% of it will be tax free and the remainder taxed as per normal income.

The other option is to purchase an annuity with the remainder after taking the tax-free 25%. It reminds him that there is the open market option where he looks at alternative providers other than his pension provider who is rarely the best option. If he does wish to take an annuity he would probably be better off using an IFA who have access to the best deals. He would find an IFA through https://www.unbiased.co.uk.

magpiesnest

He is already in receipt of a pension which the grand total of £170 / annum. He will be getting his state pension in January. Does this help at all?

Linton

You father is approaching the age that he or someone on his behalf told the insurance company he would be retiring. The insurance company holds £5951 in his name and wants to know what your father wants to do with it.

He is entitled to take 25% of £5951 = £1487 as a tax free lump sum. With the remainder he can buy an annuity which will give him a very small monthly pension for the rest of his life - say £8-£18/month. The size of the payment would depend on the details. The "open market option" is saying that the annuity is being provided by another insurance company, possibly because his current one dont offer annuities or because there is a better deal elsewhere.

Now the key question is whether your father has any other pensions:

1) If he doesnt or the total of all his pension pots amount to less than £18K he can take the full amount (minus the tax free lump sum) as a single payment subject to income tax. This is known as triviality.

2) If he does have reasonable pension pots elsewhere merging them may be worthwhile. In that case he should contact an IFA who would be able to determine his situation and advise on the best course of action.

jem16

magpiesnest wrote: »

He is already in receipt of a pension which the grand total of £170 / annum.

Is this an annuity or is it from a final salary pension? How long has it been paid?

He will be getting his state pension in January.

State pension doesn't matter here.

magpiesnest

The pension he already gets is for £170 /annum, this is the remnant of a works pension he cashed in 15 years ago and took a £9500 lump sum for then. Other than this all he has will be his state pension starting in January.

So, I'm still unsure which form to fill in or both?

Would he get the 1487 tax free then the remainder (the 3571quoted) as another lump sum? Surely this would be better than £200 / annum?

jem16

magpiesnest wrote: »

The pension he already gets is for £170 /annum, this is the remnant of a works pension he cashed in 15 years ago and took a £9500 lump sum for then. Other than this all he has will be his state pension starting in January.

It's important to know if this was a works pension based on final salary.

For Trivial Commutation rules, the total of ALL his pensions apart from the state pension must be worth £18k or less. The value of final salary pension schemes is worked out differently from those with an annuity which started off with a pot of money.

So, I'm still unsure which form to fill in or both?

Can't answer that yet.

Would he get the 1487 tax free then the remainder (the 3571quoted) as another lump sum? Surely this would be better than £200 / annum?

Yes the rest would be a lump sum but it would be taxable at 20% ( assuming he is a basic rate taxpayer). However whether or not it's best depends on how long he lives.

atush

The pension he already gets is for £170 /annum, this is the remnant of a works pension he cashed in 15 years ago and took a £9500 lump sum for then.

The size of this LS means to me he cannot use Triviality as I dont' know of any pensions with a LS of over 9K that would be worth less than 12-13 K. So his original opension be it MP or FS will bring him well over 18 K in total.


So it seems like a tFLS, and the best annuity he can find for the rest- has his health changed sine he took the last pension? HJe might find a better rate thru an enhanced annuity if he has any health problems now.

magpiesnest

It was a DC pension, he is in good health but does not really need £200 / year once he gets his state pension. We are just looking to get the best lump sum possible out of this.

atush

The LS you have been offered is the best he will get. Only the income can be bettered.


If he has so much now, a few quid per month wont matter then don't sweat it. If he wants every penny due (even so he can gift it by taking someone in the family out to lunch each month), then try and get a better rate if you can

jem16

atush wrote: »

The size of this LS means to me he cannot use Triviality as I dont' know of any pensions with a LS of over 9K that would be worth less than 12-13 K.

I would agree. A lump sum of £9500 would suggest a pot of £38,000. However I can't work out how the remaining pot of £28,500 would produce such a low pension of £170 per annum.

OP - are you sure the figures of £9500 lump sum and £170pa are correct?