McKechnie Pension Trust Limited - Pension PLan

Chime26

So I have a query and wanted to know what this meant..
My Dad Has a Pension with McKechnie. He has Had this pension probably 35 years ago but then the company was brought out and this pension was then stopped and a new scheme was introduced. He never transferred this pension and left it alone until now. He is Retiring this year and this is a similar figure he would be getting. The statement looks something like this…
A full pension off: £13613 a year.
Paid in monthly instalments of: £1134.43

Yearly rate of increase
No increase on £1837 p.a. (Pre ‘88 GMP)
CPI to a maximum of 3% on £1452 p.a. (Post ’88 GMP)
LPI to a maximum of 5% on £10323 p.a. (Excess)

I understand he would receive £13613 a year – this is without Tax correct? The three figure below this adds up to the yearly pension.
What I would like to know is where it states the 3%/ 5% Increase,
1. Does this mean I would receive this % increase on the two figures every year and this would be added to my yearly salary?
2. Am I guaranteed I would get this % increase or does this depend on inflation every year and that is the maximum?
3. Would this increase also be Taxed?

He also has an Option to Take out 25% Tax free (£55000 ) roughly which would lower his yearly annual pension income..
I’m not sure which option would be beneficial for him as he would like to take the FULL pension out and perhaps invest in it but McKechnie are saying he would not be able to take the FULL pension as lump sum and is only allowed to take out 25%.
1) Are they allowed to do this as I thought the rules had changed and he was able to take 100% of his Pension from April 2015.
Hope you can help. As I want him to have the best deal here as it is a big amount for him.

kidmugsy

It looks to be what is known as a Defined Benefits pension. You can't take the full pension out with these, though you can try to transfer to a pension that does allow you to do withdrawal. For most people that would be a lousy idea.

If, however, your father has no wife or dependants, or is in poor health with a reduced life expectancy, it could be worth his while to consider transfer. He'd need to ask the scheme to quote his CETV (cash equivalent transfer value) and then consult an IFA who would calculate whether it was worth giving up those benefits to release the CETV to another provider.

Chime26

Oh, I didn't know he can transfer with this type of pension.
He is single... So I just ask them for a CETV and then contact IFA?
Does IFA charge a fee?

kidmugsy

Chime26 wrote: »

I understand he would receive £13613 a year – this is without Tax correct? The three figure below this adds up to the yearly pension.

Yes, on both counts.

Chime26 wrote: »

What I would like to know is where it states the 3%/ 5% Increase,
1. Does this mean I would receive this % increase on the two figures every year and this would be added to my yearly salary?
2. Am I guaranteed I would get this % increase or does this depend on inflation every year and that is the maximum?
3. Would this increase also be Taxed?

1. yes
2. correct: it depends on inflation and that is the max they've quoted. You'll often see it referred to as a "cap" on the rise.
3. You betcha.

Chime26 wrote: »

He also has an Option to Take out 25% Tax free (£55000 ) roughly which would lower his yearly annual pension income.
I’m not sure which option would be beneficial for him

If you give the figures people here will opine on whether the lump sum is good value.

For example, if taking the £55k costs him £5k p.a. of pension it's lousy value. If it cost him £1.5k p.a. it's pretty good value. It also depends on whether he's got a compelling use for the lump sum: if he's just going to invest it he might be better off not taking it and letting the pension scheme shoulder the risk.

kidmugsy

Chime26 wrote: »

He is single... So I just ask them for a CETV and then contact IFA?

Yes.

Chime26 wrote: »

Does IFA charge a fee?

Oh yes, they have a living to make. If he explains properly to your father what the risks are, and how well his investments in his new pension would have to do to equal his old one, he'll have earned his corn. You should also realise that he might recommend against a transfer, and that there's no guarantee that you'll find a new provider who will accept a transfer.


You could search the threads on here for other discussions.
P.S. here's an example
https://forums.moneysavingexpert.com/discussion/5281703

Chime26

kidmugsy wrote: »

Yes, on both counts.



1. yes
2. correct: it depends on inflation and that is the max they've quoted. You'll often see it referred to as a "cap" on the rise.
3. You betcha.




If you give the figures people here will opine on whether the lump sum is good value.

For example, if taking the £55k costs him £5k p.a. of pension it's lousy value. If it cost him £1.5k p.a. it's pretty good value. It also depends on whether he's got a compelling use for the lump sum: if he's just going to invest it he might be better off not taking it and letting the pension scheme shoulder the risk.

If he took the 55k as tax free lump sum he would only receive around 8k per annum.


But when comparing both, if he chose Option 2 - taking the 25% tax free ( not the £13613p/ annum), assuming he would get the 3%/ 5% increase every year, it would take him around 13yrs before being better off with option 1, once tax is has been deducted. (assuming tax would be 20% or would it be higher)


13 years is a long time....right.

kidmugsy

Chime26 wrote: »

If he took the 55k as tax free lump sum he would only receive around 8k per annum.


But when comparing both, if he chose Option 2 - taking the 25% tax free ( not the £13613p/ annum), assuming he would get the 3%/ 5% increase every year, it would take him around 13yrs before being better off with option 1, once tax is has been deducted. (assuming tax would be 20% or would it be higher)


13 years is a long time....right.

No: by my arithmetic it would take 12.25 years for him to break even, if there were no inflation at all. If there were inflation he'd break even sooner. What the hell; call it 10 years.

And unless he's got a lousy health record, 10 years is no time at all for a man of (?) 65. His life expectancy is into his middle eighties i.e. another twenty years.

xylophone

Is your father about to draw his state pension?

Chime26

kidmugsy wrote: »

Yes, on both counts.



1. yes
2. correct: it depends on inflation and that is the max they've quoted. You'll often see it referred to as a "cap" on the rise.
3. You betcha.




If you give the figures people here will opine on whether the lump sum is good value.

For example, if taking the £55k costs him £5k p.a. of pension it's lousy value. If it cost him £1.5k p.a. it's pretty good value. It also depends on whether he's got a compelling use for the lump sum: if he's just going to invest it he might be better off not taking it and letting the pension scheme shoulder the risk.

xylophone wrote: »

Is your father about to draw his state pension?

He turns 65 in August so yes he will be taking his state pension also.

xylophone

Has your father received a statement from the DWP giving details of how his state pension is made up?

In particular, do you have the figures for pre 1997 Additional State Pension and Contracted Out Deduction?

Will he be receiving another occupational pension in addition to the deferred pension from the McKechnie DB Scheme?

Chime26

He has two other pensions one with couple grand and the other just under 10k which he has decided to take as 100% cash, obviously with the 25% tax free.

DWP are giving him the basic pension which is £115.95
Plus,
Additional state pension based on earnings frm 6th April 2002
Plus,
Graduated retirement benefit

If that makes any sense..?