FS & MP Scheme question.

amc1

My final salary pension scheme was closed in 2010 and the pension deferred. It was replaced with a Money Purchase scheme.

I am about to made redundant and am able to take my final salary pension early enhanced. I cannot take my MP pension until I'm 55.

There is a statement that I don't understand however := "under current HMRC rules you will have transfer your money purchase section benefits to another registered scheme withub 6 months of your redundancy date" - can anyone explain to me please what this means and what the implications are ?

The MP pension currently has a value of around £80k but I was going to redundancy "sacrifice some" of my redundancy pay into it.

Thanks, Andy

xylophone

Presumably the DB Scheme had a protected pension age which permits you to draw your pension under age 55.

It may be possible to have part of your redundancy payment paid as a contribution to the Money Purchase Pension. Check with the employer/pension scheme administrator.

https://www.pensionsadvisoryservice.org.uk/about-pensions/when-things-change/redundancy-and-your-pension

https://www.usdaw.org.uk/CMSPages/GetFile.aspx?guid=91785e00-5095-43a7-87e1-28d1921d8770

It would appear that you are required to transfer your money purchase benefits into another scheme after leaving the job, but this should not be a problem - you find another scheme which accepts pension transfers.

If you are going to a new employer it may be worth exploring a transfer into the occupational scheme provided there.

david78

It sounds like you have a company pension with two sections: (1) a defined benefit (FS) section, and (2) a defined contribution (MP) section. If so you can usually take a proportion of the MP pension as part of the tax free lump sum. It is worth looking into this, then I will answer your question at the end.

Let FS be the final salary pension you will be paid
Let MP be the value of your defined contributions pot.

The value of your pension is taken to be 20*FS + MP.

The maximum tax free cash is 25% of this, so 5*FS + MP/4

If you only want to take tax free cash from the MP section, the amount you can take is min(MP, 5*FS + MP/4). You can take all the MP section as tax free cash if MP < 5*FS + MP/4 or equivalently MP < 20*FS/3. With an £80k pot you can take it all tax free if FS > £12k.

It is worth looking at the numbers on a spreadsheet.

Now your Question:
Because you are being made redundant and taking your enhanced final salary pension (defined benefits), you will need to transfer your money purchase (defined contribution) scheme to another scheme within 6 months. The other scheme can be a SIPP or other personal pension.

You can pay redundancy in excess of £30k into a money purchase scheme or personal pension to save tax. Ask your company if you can use the existing money purchase scheme for this. If not you could open a personal pension now and use that. You can then do the transfer out at your leisure but within the 6 months.

AnotherJoe

amc1 wrote: »

There is a statement that I don't understand however := "under current HMRC rules you will have transfer your money purchase section benefits to another registered scheme within 6 months of your redundancy date" - can anyone explain to me please what this means and what the implications are ?

It simply means you need to find another pension provider and transfer the money in the MP plan into it. Could be a personal pension or a SIPP.

amc1

Thanks all.

Is there a cost (significant) to transferring a MP pension pot to another scheme. Or will I lose out (significant) in how they work out the transfer value ? That's what I was worried about ?

david78

There should not be a significant cost. The transfer out should be free, but there may be dealing costs to sell the funds to convert to cash.

There could potentially be a cost to setting up a SIPP plus dealing costs, but there are online SIPPs where these are free. There will be ongoing annual administration charges that you would not have paid in the company scheme.

amc1

Thanks. I would potentially end up with around £180k in the MP scheme. Are there any tax implications when I move it to another scheme or SIPP ?

AnotherJoe

amc1 wrote: »

Thanks. I would potentially end up with around £180k in the MP scheme. Are there any tax implications when I move it to another scheme or SIPP ?

No there are not. Your pension money simply moves from one scheme to another. Your main issues will be which one to choose, and which investments to pick..you can take advice on that, but it will cost.