Pension release,who,where to ask

oldhand

Hi all,have a few questions regarding the pension release next month,sorry if they have been asked or answered im not at my best health wise today.Anyway I receive a pension from a former employer of £510 per month,is there any formula for working out how much is in my "pension pot"? or do I just ring the pension provider.
Next if there is a fair pot I see it allows you to take out 25% tax free so although I do realise it will affect your pension in the years ahead how does it work? do you get a pension for so many years but the number of years are reduced depending on the amount you take out early? or is your remaining monthly pension reduced?
Just trying to figure if its worthwhile taking any out as my health prognosis gives me about 7 years left,any help much appreciated...

jem16

oldhand wrote: »

Anyway I receive a pension from a former employer of £510 per month,

Are you currently receiving this pension? Was it a final salary pension?

If you are already receiving this pension either from an annuity or a final salary pension, then you no longer have a pension "pot".

redbuzzard

Is the pension already in payment? In which case the die is cast and you probably cannot access the "pot" even if there is one. There was some talk of trying to introduce flexibilities to allow people to sell annuities for a lump sum that could be taken directly (presumably subject to tax) or used to buy a better value annuity elsewhere, but that hasn't happened yet. Watch out for the budget next week, there might be more on it.

Or do you have undrawn pensions?

oldhand

Thanks all question answered,yes im being paid the pension now so think as you say it rules out anything different for now,many thanks.

dunstonh

The rules apply to people that have not commenced their pension income yet. Not those that already have. Although there is some talk of people being able to sell their income in exchange for a lump sum (although this would likely be third party rather than providers unwinding contracts).

agarnett

Quite a lot of talk including on FT.com just a couple of days ago I see.

greenglide

Quite a lot of talk including on FT.com just a couple of days ago I see

But talk is cheap.

Actually doing it brings complications.

Tax implications? The cash sum would have to be taxable in its entirety - these people have already had the 25% PCLS.

Presumably this would be turned into effectively a reverse insurance policy on the persons life so you would end up with a new type of enhanced annuity sale whereby anyone with health issues (who would be obvious candidates for this) would get the smallest amounts of cash back.

Would these people expect to get back the same amount as they gave up when purchasing the annuity? Could be severely disappointed?

dunstonh

There is also the issue of who owns the income. A pension is a trust and the person getting the income is not the owner but the beneficiary. Legally, they may not have the ownership rights to sell it. So, its a really message subject.

The third parties are going to only buy if the deal is in their favour. Remember they will be taking the risk of early death. So, they are going to err on a much earlier date of death than the insurers would. They then have to build in a profit. So, it may not end up being that attractive for those selling.

There would also need to be a mechanism to register deaths as the third party will not know when the person dies. So, that will need a lot of work on.

Its an easy subject to talk about for soundbites but when you look at the issues, it becomes far more complicated.

DaveMcG

agarnett wrote: »

Quite a lot of talk including on FT.com just a couple of days ago I see.

The company paying the pension would have to co-operate and I can't see any reason why they would - increased risk, AML checks on the new payee and possible legal action in the future from any party in the transaction spring to mind.

There can't possibly be any immediate financial benefit to those selling the annuity, as even a liquid market with perfect information on their health the purchaser would offer them less than true worth because of transaction costs and profit margin. The only case that could be made (and will be by the unscrupulous) is that the released funds could produce a better return elsewhere.

Also tax avoidance schemes could spring up e.g. someone sells the income stream to an offshore trust for £1 and then borrows from the trust. Frauds could also grossly undervalue. A highly regulated market place could stop these but who is going to set it up and how much will it cost?

So extremely complicated, high risk and with no provable benefits to annuitants.

If the government keeps on producing "reforms" that place many consumers at risk, isn't it time that the industry demanded that the government pick up the bill for the resulting frauds and mis-sales?

redbuzzard

DaveMcG wrote: »

If the government keeps on producing "reforms" that place many consumers at risk, isn't it time that the industry demanded that the government pick up the bill for the resulting frauds and mis-sales?

Government = taxpayers, who will certainly pick up the tab for people who exchange a secure income for cash, spend it, and then fall back on benefits; though to be fair that is now going to be possible after 5 April for those not already drawing their pensions, or in capped drawdown.

A possible safeguard would be to allow the transaction only when there is another, adequate source of guaranteed income.

I think it is a bit fanciful anyway. The adverse selection against purchasers will mean that there will be very little chance of buying a better income - people with health problems (disclosed/diagnosed or otherwise) will have the highest tendency to do this. The annuity provider is very unlikely to want to buy them back at anything like a decent price as the whole edifice depends on some annuitants dying early to pay for the centenarians.

agarnett

DaveMcG wrote: »

If the government keeps on producing "reforms" that place many consumers at risk, isn't it time that the industry demanded that the government pick up the bill for the resulting frauds and mis-sales?

If the industry keeps on producing "reorganisations" that place the existing long term contracts held by consumers in jeopardy, isn't it time the industry were forced by the government to allow consumers to unpick bad deals and take back their cash without deduction ?