Pension Cash Release at 55, to fund business

Mo1961

Hi
I'm 55 and have recently been made redundant I have a frozen company pension AON, Hewitt, with. Pot value of £550,000, with a CETV value of £500,000 ( £50,000 taken for fund deficit), I also have a company pension PPP with a value of £37,000.
AON have offered me an early retirement package of
A pension from now of £16,500
A lump sum of £70,000 and a pension from now of £10,500

I wish access to the cash to start a business to work to secure my families future

Some questions if I may, as this is all new to me and slightly confusing.........:eek::money:

1. Can I have AON release the 25% cash free sum, and leave the rest (£375,000) to become my pension at 65, as I do not wish to take early pension

2. If the above is not viable, I would assume that I'm forced to move the pot of £500,000 via an IFA, question here is how do I find a reputable IFA that charges a minimal fee for the transfer (what would be an acceptable fee), and can manage the fund successfully (I do understand the risk of the market).....by managing the fund successfully I mean past history. All I have is word of mouth, which I'm sceptical about.

Thanks:beer:

hyubh

Mo1961 wrote: »

AON have offered me an early retirement package of
A pension from now of £16,500
A lump sum of £70,000 and a pension from now of £10,500

What happens if you left it preserved and took it at the scheme's normal pension age? In particular, are the early retirement terms quoted just the same as if you had left voluntarily and decided to take the pension early, or are they special terms because the retirement would be following a redundancy?

I wish access to the cash to start a business to work to secure my families future

Exchanging a not insignificant low-risk, inflation-indexed income stream for a pot of money to be spent on starting a new business in your late 50s sounds a slightly odd way to secure your future to be honest... What if the business is unsuccessful, and just lands you broke in your 60s?

Can I have AON release the 25% cash free sum, and leave the rest (£375,000) to become my pension at 65, as I do not wish to take early pension

I would be 99% confident such a 'part transfer' will not be possible, however your best bet is to check with the pension scheme administrator.

If the above is not viable, I would assume that I'm forced to move the pot of £500,000 via an IFA

You will by law have to get independent financial advice, yes.

dunstonh

I have a frozen company pension AON, Hewitt, with. Pot value of £550,000, with a CETV value of £500,000 ( £50,000 taken for fund deficit),

A lot of contradictions in that sentence.

Is it frozen? Frozen has a specific meaning. I doubt it is frozen but if it is, then this can change things.

You say it has a pot value of £550k but then say it has a CETV of £500k. CETV is a term used with defined benefit schemes. The CE stands for cash equivalent. Defined benefit schemes dont have a pot. Money purchase schemes do have a "pot" but they dont have a CETV. They just have a TV. So, the information we have isnt clear as to what type of scheme you have. Can you clarify?

1. Can I have AON release the 25% cash free sum, and leave the rest (£375,000) to become my pension at 65, as I do not wish to take early pension

Highly unlikely you can do it with them. It should be possible on a transfer though.

2. If the above is not viable, I would assume that I'm forced to move the pot of £500,000 via an IFA,

You are not forced unless there are safeguarded benefits.

how do I find a reputable IFA that charges a minimal fee for the transfer (what would be an acceptable fee),

If it is a DB scheme you would need a pension transfer specialist. If its a money purchase scheme with no safeguarded benefits then any IFA is fine. Most IFAs are reputable and you can spot the ones that are not with just an ounce of common sense.

and can manage the fund successfully (I do understand the risk of the market).....by managing the fund successfully I mean past history.

IFAs are not investment managers. IFAs are financial planners and facilitators. The IFA would put the investment strategy into place and select the investment funds but it is the investment funds where the management is. The IFA may select the asset allocations (depending on the investments) but that should be to a defined strategy. Not the day to day management of the investments.

All I have is word of mouth, which I'm sceptical about.

If you plan to start a business, then you need to realise that Word of mouth is how most businesses get by. How do you expect people to trust you?

atush

I would leave your seemingly DB pension alone, and take the 37K pension instead.

Tke it next tx year ie April 6th if you have stopped work, and then it will be 25% Tax free, and 75% less your PA taxed at 20%.

How much is your redundancy payment? Is it over 30K?

Mo1961

Not an expert so sorry for contradictions...said as I seen it

Redundancy payment is 32k

The pension schemes is a defined benefits scheme now closed (in March 2014) but live, and in ten years my pension would be circa 23k

Have been offered from unemployment the following
16.4k pension has a 4% reduction per year
10.5k pension has a 4% reduction per year, this option also has a lump sum payment of 70k
I have two months from redundancy to take the above or the reduction then becomes approx 8% per year.

Question ...... is it worth taking the 16.4k pension to cover no job going forward, and if I get a job pumping the 16.4 k back into another pension scheme. Can this be done legally?

The schemes value is 549k ((actuarial value of benifits retained in the scheme) but has a reduction in the transfer value of £49.5k due to the schemes reported deficit by the actuary.....the scheme "estimates" that it will be 100% funded by 2018.
Question........is the fully funded a pipe dream ( sales talk, to keep you in the scheme) or should I wait for the scheme to be fully funded in hopefully 2018.

I understand if I wish to move the CETV that it has to be done via an IFA, and in that aspect I'm looking at one just now ...... but to advise they are looking for payment, is there IFAs that will advise free of charge and then only charge if I decide to move the CETV through them.

Question - The company that I worked for are on a a bit of a sticky wicket and may fold in the future, is this a risk that I have to take into account, if so what is the risk should they fold in a year or two to my pension value of £549k

Thanks for the responses and comments

dunstonh

is there IFAs that will advise free of charge and then only charge if I decide to move the CETV through them.

Only if they are stupid. Why would an iFA take on all the liability of of advice and spend all that time and not charge you?

Question........is the fully funded a pipe dream ( sales talk, to keep you in the scheme) or should I wait for the scheme to be fully funded in hopefully 2018.

Given the low assumptions that schemes have to work to at present, the fact they expect to be fully funded in under 24 months suggests a very healthy scheme. Lots of schemes are fully funded and many are only underfunded due to the assumptions they have to use. The tiny bit of info you have given is not enough to go on but it does suggest a healthy scheme.

Question - The company that I worked for are on a a bit of a sticky wicket and may fold in the future, is this a risk that I have to take into account, if so what is the risk should they fold in a year or two to my pension value of £549k

Your pension solvency is separate from the employer solvency apart from the employer paying into the pension to meet future liabilities. If the scheme is fully funded or near to fully funded at the point of folding, then there should be no issue.

kidmugsy

Mo1961 wrote: »

Redundancy payment is 32k

In your shoes I'd be tempted to bung extra into a private pension of some sort before the end of the tax year, contributing enough to avoid any higher rate tax you might be exposed to. If you're not exposed to higher rate tax, even with the taxable £2k of redundancy pay, then a pension contribution isn't such an obviously right thing to do.

Mo1961 wrote: »

The pension scheme is a defined benefits scheme now closed (in March 2014) but live, and in ten years my pension would be circa 23k. ....Have been offered from unemployment the following
16.4k pension has a 4% reduction per year ....
I have two months from redundancy to take the above or the reduction then becomes approx 8% per year.

The 4% reduction is in the normal run of things, perhaps better than some. I'd give that option serious consideration. I wouldn't touch the 8% option.

Mo1961 wrote: »

10.5k pension has a 4% reduction per year, this option also has a lump sum payment of 70k

Don't take the lump sum option: it's dreadful value.

Mo1961 wrote: »

... is it worth taking the 16.4k pension to cover no job going forward, and if I get a job pumping the 16.4 k back into another pension scheme. Can this be done legally?

Yes, the "pumping back" is OK. If you have the good sense to turn down the lump sum from the DB scheme then you'll be at no risk from the rules against recycling of its lump sum. You'd want to check the recycling rules to see whether they would constrain you on taking lump sum from the company PPP or any personal pension of your own. You'd also want to be careful not to drawdown any income from those two (beyond the TFLSs) because that would limit you to maximum annual pension contributions in future of £4k gross. If you do find a job and its salary plus your £16.4k took you into the higher rate tax band (£45k for 17/18) then you could contribute enough to a pension to at least let you avoid the higher rate tax. And also, of course, contribute enough to harvest maximum employer's contribution.

Mo1961 wrote: »

The schemes value is 549k ((actuarial value of benifits retained in the scheme) but has a reduction in the transfer value of £49.5k due to the schemes reported deficit by the actuary.....the scheme "estimates" that it will be 100% funded by 2018.
Question........is the fully funded a pipe dream (sales talk, to keep you in the scheme) or should I wait for the scheme to be fully funded in hopefully 2018.

Impossible for me to say. The fact that their normal actuarial reduction rate for an early pension is 8% doesn't fill me with confidence. Nor does the reduction in transfer value.

What I would do is calculate the ratio for the transfer: £500,000/£16.4k p.a. = 30.5. That sounds to be pretty good but not stellar value. Remember that a transfer puts onto your shoulders the burden of investment risk and longevity risk that otherwise the scheme bears.

How much longer have you got to make the decision on whether to start the pension with only the 4% reduction? Have you got the luxury of deferring the decision until you've had a chance to find work? In other words, is your two months nearly up?

You're considering starting a business. Have you any experience of running your own business?

atush

I would consider putting some of the redundancy (at least the taxed 2K) into a DC pension- your old one if you can. More if you take the DC pension now.

Then yes, you can take the 16K pension. And when your business is up and running, and you dont need the money as you are earning- yes you can put that income into a new pension.

xylophone

Had you considered taking the DB Scheme Pension of £16500 per annum, contributing £2000 of your redundancy to the PPP in the tax year of receipt (is it this tax year)? and continuing to contribute to the PPP as soon as you are in a position to do so?

Taking the scheme pension will not trigger the MPAA but taking anything over the 25% PCLS in the PPP would.

The MPAA will be reducing from £10,000 to £4000.

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