Lump sum payment on critical illness diagnosis

Sakura10

Good morning all
I am hoping for a bit of advice before going to a financial adviser - I like to have a rough idea of what I am talking about beforehand

I used to contribute to a DB pension with the railway. Having been diagnosed with a terminal illness I am looking at the money I have tied up in various areas.

I am not married, nor do I have any dependents. I am under 50.

I contacted the railway pension company who advised me that, as I only have 4 years and 84 days in the scheme, they would not pay out an ill health pension. They have a minimum membership time of 5 years for this entitlement to kick in.

But I am allowed to transfer my money out into another scheme. I am not in my current employers DC scheme.

Am I able to set up a private pension now, transfer the money and then take a lump sum on production of suitable medical evidence? As my current employer knows my situation I would imagine they wouldn't let me join the DC scheme at this stage although I haven't checked this.

Thank you for any assistance.

atush

Is your terminal condition within 12 months approx?> If so, i'd transfer out of the DB pension into a DC pension then claim your lump sum thru terminal illness.

This is if the DB pension you have wont consider TERMINAL illness pay out. Which is different than ill health retiral? there is no min time period of you are terminally ill, but I dont know your scheme rules.

greenglide

As my current employer knows my situation I would imagine they wouldn't let me join the DC scheme at this stage although I haven't checked this.

I would have thought that your present employer cannot prevent you joining their DC scheme as the only cost to them is the employer contributions?

jamesd

The most important single question is the one atush asked: have you been diagnosed as having a medical condition with a life expectancy less than a year? If you have it is vital that you consider transferring out to a personal pension to improve your benefits. A personal pension allows the whole pension pot to be taken tax free given such a diagnosis and this is usually way better than the death benefits available from a defined benefit pension, though not always. The personal pension option gets paid out before death, not after, based on the doctor's life expectancy statement. There is no age restriction on this, you could do it at 18. If any pension benefits had been taken the treatment is much less generous, not all tax free. The personal pension option is called a "serious ill health lump sum".

If you have a longer life expectancy today you can make the claim as soon as it fits within the twelve months rule. You can transfer out of the defined benefit scheme first to prepare for this.

You should ask the railway company what they pay out for terminal illness diagnosis, rather than ill health pension. They just might pay out a large lump sum, though this is unlikely to be as large as you could get from transferring.

A financial adviser from unbiased.co.uk could hep with this. When shopping around there be sure to tell them that you will be consulting them about a serious ill health lump sum and possible transfer from a defined benefit scheme to get it. Some financial advisers will prefer not to do this business and you can quickly eliminate them from consideration by telling them up front.

Sakura10

jamesd wrote: »

The most important single question is the one atush asked: have you been diagnosed as having a medical condition with a life expectancy less than a year? If you have it is vital that you consider transferring out to a personal pension to improve your benefits. A personal pension allows the whole pension pot to be taken tax free given such a diagnosis and this is usually way better than the death benefits available from a defined benefit pension, though not always. The personal pension option gets paid out before death, not after, based on the doctor's life expectancy statement. There is no age restriction on this, you could do it at 18. If any pension benefits had been taken the treatment is much less generous, not all tax free. The personal pension option is called a "serious ill health lump sum".

If you have a longer life expectancy today you can make the claim as soon as it fits within the twelve months rule. You can transfer out of the defined benefit scheme first to prepare for this.

You should ask the railway company what they pay out for terminal illness diagnosis, rather than ill health pension. They just might pay out a large lump sum, though this is unlikely to be as large as you could get from transferring.

A financial adviser from unbiased.co.uk could hep with this. When shopping around there be sure to tell them that you will be consulting them about a serious ill health lump sum and possible transfer from a defined benefit scheme to get it. Some financial advisers will prefer not to do this business and you can quickly eliminate them from consideration by telling them up front.

Thank you very much for all your replies. Very much appreciated.

Yes, my expectancy is less than 12 months and life insurance has already paid out on this basis. Oncologist was the one who said I may want to look at my pensions.

I guess I used the wrong wording when I spoke to railway pension company then so will call again.

I had assumed I would be hammered for tax so your comments on that are very good news.

Plan of action then

Call railway scheme and ask about terminal illness payout (have already requested transfer value so I can compare any figures)

Speak to current employer DB pension scheme and also get transfer value and ask about tax treatment if they pay me a lump sum ( they are asking the trustees to pay me lump sum based on transfer value but I didn't ask about tax)

Book appointment with FA declaring my intentions upfront

Find personal pension and possibly transfer money in

Take lump sum, hopefully under special circumstances mentioned (serious ill health lump sum) to reduce tax

Blow it all on sportscar and fast men

jamesd

Nice work by your oncologist to alert you to this. Right, no tax hammering. Your plan looks good.