Defined Benefit (~3k) - what can we do?

Deisler

Hi All,

My wife worked for 1 year (fixed term contract, her first job ever), and now looks after our child at home and do not plan to find another work in the near future.

After she finished her contract, the pension provider wrote to her and gave her two options with respect to her pension (defined benefit, worth around 3k):

1) Transfer to contributions to National Pension scheme (I think it is called 'State Second Pension (S2P)'). But I assume that doing this will mean she loses the money.

2) Transfer to another pension provider.

At the beginning, we chose the 2) option, but now are told that the transfer cannot proceed without hiring a financial advisor, because it is a defined benefit.

And I just google'ed about the fee for hiring a financial advisor - it costs around 1k!!!

So my questions are:

1) Is it true that for transferring a ~3k pot, we need to pay ~1k or something like that to financial advisor? This does not make sense at all......

2) Is there any way we can get away from the need of finding a financial advisor, in order to transfer the amount of money?

3) Can we cash out? I was so surprised that we were not given this option...

4) If we have to proceed with the first option we were given, am I right to assume that it will effectively mean that my wife will lose that money? (I read from somewhere that individual needs to contribute to a certain number of years in order to benefit from it...)

Thanks for your help. Really confused by this....

Regards
D

LHW99

Transfer of a DB pension is expensive, because of the liability for the adviser.

Assuming your wife is not 55 yet, then she cannot take the pension as cash.

The first option seems rather odd - although you can buy extra state pension contributions, "National Pension Sceme" doesn't sound like S2P - and this doesn't exist now the new state pension has begun. Is this exactly what has been said / written?

Could she not leave it where it is? She may start a new job after your child(ren) are grown and could transfer the pension into a new employers scheme.

xylophone

What were the dates that your wife worked for the employer?

Are you sure that she is not being offered a refund of her own contributions, less statutory deductions of tax (and a premium to re-instate her in S2P for any membership up to 5 April 2016)?

If no refund is offered and she has to transfer out, then even if she is in a DB scheme, if the value of the benefits is under £30,000, then she does not have to take financial advice.

https://www.pensionsadvisoryservice.org.uk/content/publications-files/uploads/DB_Options_Pension_Flex_SPOT024_V1.pdf

http://www.pruadviser.co.uk/content/knowledge/technical-centre/transfer_pension_scheme/

Under these particular circumstances ( and despite the fact that DB transfers are normally not accepted),your wife might contact Cavendish Pensions to find out whether a transfer into a stakeholder plan would be a possibility?

https://www.cavendishonline.co.uk/pensions/

or maybe try the Pru?

https://www.pru.co.uk/pensions-retirement/

Deisler

LHW99 wrote: »

Transfer of a DB pension is expensive, because of the liability for the adviser.

Assuming your wife is not 55 yet, then she cannot take the pension as cash.

The first option seems rather odd - although you can buy extra state pension contributions, "National Pension Sceme" doesn't sound like S2P - and this doesn't exist now the new state pension has begun. Is this exactly what has been said / written?

Could she not leave it where it is? She may start a new job after your child(ren) are grown and could transfer the pension into a new employers scheme.

She was given a 'deadline' (in two weeks time), after which the company (Prudential) will reinstate the 'Contributions Equivalent Premium (CEP)' to the HMRC NI Contribution Office, which means 'opt into State Second Pension Scheme'.

At the moment two options were written on the letter:

1) Reinstatement into the State Second Pension (which I assume it means losing that money)
2) A cash transfer lump sum to a suitably approved arrangement.

So there is no option to either cash out, or to keep it there.

I have no idea what we should do, provided that a financial advisor is so expensive to have.

Thanks,
D

Deisler

xylophone wrote: »

What were the dates that your wife worked for the employer?

Are you sure that she is not being offered a refund of her own contributions, less statutory deductions of tax (and a premium to re-instate her in S2P for any membership up to 5 April 2016)?

If no refund is offered and she has to transfer out, then even if she is in a DB scheme, if the value of the benefits is under £30,000, then she does not have to take financial advice.

https://www.pensionsadvisoryservice.org.uk/content/publications-files/uploads/DB_Options_Pension_Flex_SPOT024_V1.pdf

http://www.pruadviser.co.uk/content/knowledge/technical-centre/transfer_pension_scheme/

Under these particular circumstances ( and despite the fact that DB transfers are normally not accepted),your wife might contact Cavendish Pensions to find out whether a transfer into a stakeholder plan would be a possibility?

https://www.cavendishonline.co.uk/pensions/

or maybe try the Pru?

https://www.pru.co.uk/pensions-retirement/

Thanks for your reply. She worked for 1 year 2015-2016.

It was written on the letter from Prudential about two options:

1) Reinstatement into the State Second Pension
2) A cash transfer lump sum to a suitably approved arrangement

For the option 1), it seems the employer will offer an 'ex gratia payment' to compensate the period she participated in her work-related pension scheme.

For the option 2), we were told that we have to find a financial advisor in order to transfer (by Aegon to which we wish to transfer). I have said to the Aegon that as far as I understood we do not need a financial advisor because it is a very small amount of money, but were refused to transfer in without an advisor.

Is the 'ex gratia payment' what you mentioned as 'refund'? From reading the letter, it means all the contributions she and her employer made will be used to reinstate into State Second Pension (and I assume this means we lose all money).

This is really confusing as we've never dealt with these things before.

Any advice will be greatly appreciated.

Thanks,
D

greenglide

Is the 'ex gratia payment' what you mentioned as 'refund'? From reading the letter, it means all the contributions she and her employer made will be used to reinstate into State Second Pension (and I assume this means we lose all money).

Normally you are put back in the condition you would have had if you hadnt joined the scheme.

You should get a refund of employee contributions less tax (because you are paying back the tax relief that the pension contributions attractive) and less the cost of buying back into the State Second Pension Scheme (paying back the lower employees NI for being contracted out).

It is normally a bad deal to do this, you really want to find and pension scheme you can transfer into, even if you move it somewhere else afterwards.

Could try AJ Bell Youinvest?

xylophone

Can't the Pru offer a suitable scheme?

xylophone

And don't forget that once you have found a scheme, even though your wife has no earned income, she can contribute up to £2880 per tax year and the provider will claim tax relief of £720.

Generally, Hargreaves Lansdown will not accept DB transfers but in these special circumstances it might be worth an enquiry.

Also try Cavendish re a stakeholder.

Kynthia

When someone leaves a public sector DB scheme without the required two years membership in the scheme they don't qualify for a deferred pension. Therefore they are given two options:
1. to receive back their contributions less tax and their SERPs contributions. As they were contracted out until April 2016 and they need to be contracted back in and pay the higher NI contributions for that period of time.
2. to transfer the employer and employee contributions to another pension scheme.

The second is usually the greater amount and preferable to most people. This isn't really a 'pension transfer' as there isn't a pension if no action is taken. Therefore it shouldn't really need an IFA to provide advice.

Who exactly is saying you need an IFA as perhaps they believe you are trying to transfer out a DB pension using a cash equivalent transfer value (CETV) when actually you have no pension but have a brief oppotunity to keep the employer contributions that were made?

Deisler

xylophone wrote: »

Can't the Pru offer a suitable scheme?

She is with Prudential actually. Prudential gave her two options.

I seem to remember that from one phone call with Prudential, they said they were unable to keep this, therefore my wife has to transfer out.

Not sure why though....

Deisler

greenglide wrote: »

Normally you are put back in the condition you would have had if you hadnt joined the scheme.

You should get a refund of employee contributions less tax (because you are paying back the tax relief that the pension contributions attractive) and less the cost of buying back into the State Second Pension Scheme (paying back the lower employees NI for being contracted out).

It is normally a bad deal to do this, you really want to find and pension scheme you can transfer into, even if you move it somewhere else afterwards.

Could try AJ Bell Youinvest?

Perhaps the 'ex gratia payment' is in fact the refund you mentioned?

Yes, we will try other providers tomorrow.