problem with Individual stakeholder pension

worn_out

A friend of mine was sold one of these after advice from her bank's financial advisor. she paid in a lump £2,880 and got another £720 from the tax man..making her gross investment £3,600..this was in Feb 2013.

The thing is she was 62 years old, and the bank have admitted it was inappropriate for her to have been advised this, they have offered £100 in compensation. The bank say the investment has grown and she has not suffered a loss, which is true.

I'm not sure about this though because she wasn't a taxpayer in 2012/13 or since, because she was retired with just a OAP and and investment income below her tax allowances - does this mean she shouldn't have received the £720 at outset ?

Also, the bank have never advised she should contribute in any year since the start, that's 13/14, 14/15 or 15/16 ?

Finally, in working out her 'gain' the bank have said that she can cash in 25% tax free but the rest of the fund will pay 20% tax on..is this still the case when she is a non taxpayer ?

There is some wording about permitted contributions being 'if you are eligible for tax relief'' , this is from the pension provider..i'm not sure what this means.

If she left it where it was she'd get an annual pension of around £227 when she's 71...

can anyone advise ?

dunstonh

The thing is she was 62 years old, and the bank have admitted it was inappropriate for her to have been advised this,

Being 62 is not a problem. I have many clients that fully intend to utilise the annual pension allowance for non-earners right through to 75.

Seeing as she it not financially worse off, it is quite possibly the bank doing an auto-uphold on a S166 review as its easier this way. I have seen a number of these review outcomes and some are genuine wrongdoing but many just have a minor error in an unrelated area and automatically get upheld because of that. Some have no errors at all but the quality of the checker was poor.

I'm not sure about this though because she wasn't a taxpayer in 2012/13 or since, because she was retired with just a OAP and and investment income below her tax allowances - does this mean she shouldn't have received the £720 at outset ?

She should still get tax relief. Non-earners can still pay £3600 into a pension each year. It is very popular to do so to get the tax relief.

Also, the bank have never advised she should contribute in any year since the start, that's 13/14, 14/15 or 15/16 ?

Banks operate under a transactional arrangement. Not ongoing servicing. You need to go to an IFA or a restricted but whole of market advice distribution channel typically to get ongoing servicing.

Finally, in working out her 'gain' the bank have said that she can cash in 25% tax free but the rest of the fund will pay 20% tax on..is this still the case when she is a non taxpayer ?

It is 20% on the amount above her personal allowance. Below it, it will be tax free.

If she left it where it was she'd get an annual pension of around £227 when she's 71...

That is just standard projection calculation using assumptions. It can be largely ignored as it can be drawn in full, in part with or without an annuity. So, a projection calculation showing one method is unreliable.

worn_out

dunstonh wrote: »

Being 62 is not a problem. I have many clients that fully intend to utilise the annual pension allowance for non-earners right through to 75.

Seeing as she it not financially worse off, it is quite possibly the bank doing an auto-uphold on a S166 review as its easier this way. I have seen a number of these review outcomes and some are genuine wrongdoing but many just have a minor error in an unrelated area and automatically get upheld because of that. Some have no errors at all but the quality of the checker was poor.


She should still get tax relief. Non-earners can still pay £3600 into a pension each year. It is very popular to do so to get the tax relief.

Can you pay in for back years ie 3 x £3600 and still get relief ?

Banks operate under a transactional arrangement. Not ongoing servicing. You need to go to an IFA or a restricted but whole of market advice distribution channel typically to get ongoing servicing.

The bank are her financial advisors and charge her a fee for reviewing her investments.

It is 20% on the amount above her personal allowance. Below it, it will be tax free.

Does this have to be reclaimed from HMRC after the year end ?


That is just standard projection calculation using assumptions. It can be largely ignored as it can be drawn in full, in part with or without an annuity. So, a projection calculation showing one method is unreliable.

for clarification, would she have paid £3600 then had to reclaim the tax or just pay in the net amount and have it added by the company? she can't remember what she paid.

thank you

dunstonh

Can you pay in for back years ie 3 x £3600 and still get relief ?

No. Not in this case. You have to have used the full £40k allowance before you can go back to use past year allowances and a non-earner cannot do that as they are capped at £3600.

The bank are her financial advisors and charge her a fee for reviewing her investments.

Are you sure there is charge for ongoing servicing?
1 - most of the banks distribution was transactional. They did not levy a charge for ongoing servicing.
2 - the charge is likely to be product/fund related and not ongoing servicing.
3 - Stakeholder pensions dont allow for the provision of an ongoing servicing charge.

Does this have to be reclaimed from HMRC after the year end ?

No. The relevant P form can be completed once she gets the P45 from the pension company. The refund tends to arrive within 2 months of that.

for clarification, would she have paid £3600 then had to reclaim the tax or just pay in the net amount and have it added by the company? she can't remember what she paid.

She would have paid £2880. Tax relief would be added by the provider at source to bring it to £3600.

worn_out

dunstonh wrote: »

No. Not in this case. You have to have used the full £40k allowance before you can go back to use past year allowances and a non-earner cannot do that as they are capped at £3600.
Understood, thanks


Are you sure there is charge for ongoing servicing?
1 - most of the banks distribution was transactional. They did not levy a charge for ongoing servicing.
2 - the charge is likely to be product/fund related and not ongoing servicing.
3 - Stakeholder pensions dont allow for the provision of an ongoing servicing charge.
Good question - I don't know


No. The relevant P form can be completed once she gets the P45 from the pension company. The refund tends to arrive within 2 months of that.

Sorry,I didn't word that properly - they were quoting for cashing it in..that 25% would be free of tax and the balance would be paid minus 20%. I guess if that balance is still below her allowance minus her OAP and investment income then no tax would be due ? If it takes her over the limit then tax would be due..but would that be an end of year assessment that sorts that out ?

She would have paid £2880. Tax relief would be added by the provider at source to bring it to £3600.

Understood, thanks