Confused as to right way forward. Thoughts appreciated

Skinnydad

Does anyone know if you can get a transfer out value from the Pension protection fund. Trying to get my head around the best options for myself.

I am currently 57 this year and want to retire at 60. I have 3 pension funds

One in the PPF
One deferred (Final Salary)
And one I am currently paying into (Stakeholder)

The reason I ask is that the pensions world has turned of late and the prospect of getting your money out is an attractive option. Though we have still to wait and see what’s in the detail, who’ll allow the transfer out and whether or not it’s a viable option.

My line of thinking is would it be sensible to extract the funds from PPF & deferred and transfer these into my stakeholder pension with the goal of seeing what options are available once the new pension rules come into place. Naturally I don’t want to take it all out at once as this would incur high taxation. But I believe once in this vehicle then the pot can be transferred in the event of my demise, whereas with the PPF & deferred a percentage would be payable to my wife. If anything happened to her then would I lose the remaining monies in these pensions as both of us will have died?

It’s quite tricky in that I’d be paid a regular income from final salary and PPF, leaving me to decide what to do with the stakeholder. I definitely don’t want an annuity and drawdown may be an option, but I believe with the new rules coming into play the pension providers may provide alternative attractive options.

Any thoughts would be appreciated.. Thanks

jamesd

In general you can't transfer out of the PPF, though there are some small window of time exceptions.

jamesd

The main new option coming in from 6 April 2015 once the law is passed is flexi-access drawdown. That lets you withdraw a tax free lump sum of up to 25% from any portion of the pot and take any of the remainder of that portion as normal taxable income whenever you like. You'll have all of the usual broad range of personal pension investment options including such things as funds, shares and commercial property if your pension provider offers them, or you transfer to one that does.

The PPF is likely to be paying more than an annuity would pay you so it probably beats that. What it might not beat is deferring the state pension which goes up by 10.4% for each year deferred for those who reach state pension age before the flat rate scheme arrives or 5.8% afterwards, both inflation-linked.

Because there is no cap on how fast you can take money out after 6 April the stakeholder pension you're paying into may well provide a good way to pay higher income to you in the ears before the state pension, PPF and final salary pensions start. The tax relief means that large payments into that pension are probably your best way to go to bridge that gap.

Because you are 55 or over you also already have access after 6 April to any personal pension pots, so it's a good time for you to be putting other savings into a pension to get the tax relief, knowing that you'll be able to get at the money when needed. There ar some rules limiting pension lump sum recycling that need to be considered if you were to do things like borrowing to fund this. You'll also need to be aware of the £40,000 a year limit or the earned income limit - your PAYE income - whichever is lower.

Skinnydad

Thanks James I appreciate your prompt response, so I'll leave the PPF fund where it is. The final salary funds pays out at 60.. Is it worth getting a quote as to the transfer value of this? I understand the old adage death and taxes, but I'd like to be in the position to at the very least to lose as little as possible to pension providers and ensure my funds would go to my family in the event of my demise. I mean if the final salary scheme says I'll give you 5K a year till you die and thereafter 50% to your spouse, how do I know if this is good value unless I know the value of my fund. Say I budget to live 20 years and my spouse a further 5 so in essence I'd get 112,500 over this period but my fund may be worth 200K. I assume the rest would be lost? The stakeholder is only sitting at 100k so would give me buttons at todays rates I believe..

kidmugsy

Skinnydad wrote: »

The final salary funds pays out at 60. Say I budget to live 20 years and my spouse a further 5 so in essence I'd get 112,500 over this period

Why so gloomy? Are you both in poor health, do you smoke, are you from short-lived families?

Skinnydad wrote: »

but my fund may be worth 200K. .... The stakeholder is only sitting at 100k so would give me buttons at todays rates I believe..

Hang on; you accept that investment returns are currently poor, and yet you want to convert an FS pension into a lump of capital that will get .... poor returns. This is wildly inconsistent. Can you justify your logic?

mgdavid

Why do people view pension funds as something to be left to future generations, when they are actually for living costs from when one stops work to when one dies? How will you pay for care if you become ill or infirm? The best way of beating the taxman is to live healthily and well, look after yourself and stay alive!

xylophone

https://www.moneyadviceservice.org.uk/en/articles/transferring-out-of-a-defined-benefit-pension-scheme

If you wish to transfer out of your deferred Final Salary Pension even under current rules you are likely to find that any receiving scheme will require you to show that you have take advice from an IFA qualified in pensions transfers - under the new arrangements

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/332673/2014-07-20_defined_benefit_transfers.pdf

"The government will require every pension scheme member who wishes to transfer
out of their defined benefit pension to take advice from a professional financial
adviser who is independent from the defined benefit scheme and authorised by the
Financial Conduct Authority (FCA).
The government will issue new guidance to trustees on how to use their existing
powers to delay transfers from schemes if the scheme is at risk, and to reduce
transfer values to reflect scheme funding level."

jamesd

Skinnydad wrote: »

The final salary funds pays out at 60.. Is it worth getting a quote as to the transfer value of this?

No harm asking for a quote but it usually turns out to be a bad idea to transfer. there are sometimes exceptions where a transfer looks like a better deal, though. If you let us know the figures when you get them the people here will probably be able to tell you whether it looks like a good or bad deal and what looks like the best option.

Skinnydad wrote: »

I understand the old adage death and taxes, but I'd like to be in the position to at the very least to lose as little as possible to pension providers and ensure my funds would go to my family in the event of my demise.

Life assurance can be a good way to pay for that if it turns out that the final salary scheme is the better deal.

Skinnydad wrote: »

Say I budget to live 20 years and my spouse a further 5 so in essence I'd get 112,500 over this period but my fund may be worth 200K. I assume the rest would be lost?

One thing that people often get wrong is estimating life expectancy. At 65 it's about 23 more years for men at the moment, using the UK cohort life expectancy. So you have a good chance of living 30 more years and 40 wouldn't be surprising. Yes, the rest is lost from a final salary scheme aside from whatever its' paying to the spouse.

Skinnydad wrote: »

The stakeholder is only sitting at 100k so would give me buttons at todays rates I believe..

About 4% increasing with inflation is a commonly used rule, though with better management studies have suggested that up to 6% can approach 90% success rate using US investment returns. So long term sustainable £4,000 for the £100,000 but you can draw much faster than that to supplement the income until the final salary scheme starts, then the state pension.

Skinnydad

Thanks Jamesd a very balanced response I really appreciate your thoughts on this, as for the other responder’s I don’t mean to be all gloom & doom, basically just reviewing the options available.
We are both in reasonable health and don’t smoke etc. Mind you we are both from short lived families but our lifestyle is totally different from the previous generations. Times where a lot tougher then I believe. This is all supposition on my part, it’s a matter of 3.5 years away from when I’d like to retire and checking the options available that is all. Mgdavid I agree but due to the inequalities in life the best way to beat the taxman is to have it under your bed in a box then you’d be entitled to get all the state hand outs that are available, the latest mantra being bandied about is ‘those with the broadest shoulders should contribute more’

mgdavid

Skinnydad wrote: »

...... . best way to beat the taxman is to have it under your bed in a box then you’d be entitled to get all the state hand outs that are available, the latest mantra being bandied about is ‘those with the broadest shoulders should contribute more’

too much entitlement and not enough personal responsibility is what got us into this mess.

atush

Skinnydad wrote: »

Thanks Jamesd a very balanced response I really appreciate your thoughts on this, as for the other responder’s I don’t mean to be all gloom & doom, basically just reviewing the options available.
We are both in reasonable health and don’t smoke etc. Mind you we are both from short lived families but our lifestyle is totally different from the previous generations. Times where a lot tougher then I believe. This is all supposition on my part, it’s a matter of 3.5 years away from when I’d like to retire and checking the options available that is all. Mgdavid I agree but due to the inequalities in life the best way to beat the taxman is to have it under your bed in a box then you’d be entitled to get all the state hand outs that are available, the latest mantra being bandied about is ‘those with the broadest shoulders should contribute more’

You can't base your LE on parents or grandparents who had different lifestyles/choices incl Smoking or drinking to excess, not eating 5 a day etc.

Long or short lived relatives may be a guide, but not if any diseases they had were caused by environmental factors. Cancer caused by BRAC genes etc would be a different thing entirely.