Enhanced transfer value query

spitfire21

Good morning all.
On Saturday morning I received a letter, out of the blue, from a former employer. I worked for them for four years in the 80's.
The letter told me the company is offering an enhanced transfer value of nearly £90,000 on a pension I didn't even know I had! Part of the offer is that I get advice from an IF A, but can't get an appointment until a week tomorrow.
Basic, and rather embarrassing question is, is this the fantastic windfall it appears to be, or am I missing something very obvious? The paperwork seems to state clearly that I can take this money as cash, 25% tax free, balance taxable as income. I took early retirement at 59 last year and this level of cash would be life changing for me. Literally, as it would mean my wife could retire too. I calculate that if I took the cash over this and the next financial year I would see around £77,000.
You can see why it seems to good to be true but, if it is true, I'd love to tell my wife, and waiting another 8 days will be agony.
Please, can anyone tell me if I am understanding the situation correctly, or am I fundamentally misunderstanding the situation?

xylophone

It would seem that you have a deferred DB pension - it may have been of the "non contributory" type, or perhaps you didn't notice that you were contributing from your salary.

Presumably the alternative to the offer is the possibility of a lump sum and a regular pension.

The reason that advice from an IFA ( one assumes one who is a pension transfer specialist) is required is that you have safeguarded benefits whose value is in excess of £30,000.

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

spitfire21

Yes, it was a defined benefit scheme. I was made redundant and this coincided with a bereavement, so wasn't quite thinking straight at the time. I knew I had been contributing but thought this had been rolled into a G R E buyout policy with contributions from a previous job. Checking buyout paperwork, that wasn't the case, so the pension is kosher and includes, as you say, a £200 monthly pension or reduced pension and relatively small lump sum.
My query, I suppose, is whether I'm understanding correctly that the £90,000 E T V is available to me as cash, subject to tax other than the 25% tax free element.

ischofie1

I wouldn't quite use the term "too good to be true" just yet.
You need to know what pension you'd be giving up to receive this £90K.
Only then will you know if it's good or not.
This is the missing piece of the jigsaw that people on this board would need to know in order comment further.

ischofie1

Yes if you transfer you can take 25% tax free with the remainder taxed at your marginal rate for whatever year/s you withdraw it.

There will also be a cost for the IFA to conduct the transfer.

sandsy

If you proceeded to accept the transfer, the money would have to be transferred to a personal pension in the first instance.

Whilst you could then withdraw it all in cash, that's a silly idea as any amounts withdrawn form part of your taxable income for the year and a massive income in 1 year also means a massive tax bill. Better to withdraw it slowly to make it last as long as possible and minimise any tax liability.

But an adviser will talk you through all the implications, including crucially whether taking the transfer might be the wrong thing for you to do, depending on your other sources of retirement income.

whispony

Hi sorry to jump on your thread but I have a similar situation with a bank pension from the 70s. Gives me roughly £9000 and £200 a month pension or if transferred it's worth £97000. My plan was to transer to a draw down and take 25% to pay off the mortgage. I contacted a IFA who after weeks has come back to me and said they would not do what I want as the pension has benefits and it would not be morally correct. I have just turned 60 and due to ill health have not worked for the last year so the idea of paying off the mortgage was great. If I go to another IFA are they all likely to refuse? Is there anything else I can do?

xylophone

Did you consult a pension transfer specialist?

Are you on benefits?

Have you obtained a new state pension statement?

https://www.gov.uk/check-state-pension

xylophone

My query, I suppose, is whether I'm understanding correctly that the £90,000 E T V is available to me as cash, subject to tax other than the 25% tax free element.

You have taken early retirement- you are receiving an income?

If you transfer the deferred DB to a DC arrangement, any withdrawal over the 25% lump sum will be taxed as income in the tax year you receive it.

You would not wish to be paying any more than you must to the tax man.

http://adviser.royallondon.com/technical-central/pensions/benefit-options/emergency-tax-and-lump-sum-withdrawals/

Have you and your wife obtained new state pension statements?

What were your "starting amounts" at 5.4.16?

https://www.gov.uk/check-state-pension

Malthusian

whispony wrote: »

I have just turned 60 and due to ill health have not worked for the last year so the idea of paying off the mortgage was great. If I go to another IFA are they all likely to refuse? Is there anything else I can do?

Have you looked into whether the scheme will allow early retirement on ill health grounds (and at what penalty)? If so is it better to take the income which would help cover the mortgage repayments and then provide you with a guaranteed income for life once the mortgage is paid off?

Impossible to say from so little information whether advising you to transfer would be morally right or not, but in general terms advising someone to transfer out of a DB scheme is the most fraught thing an IFA can do and is assumed to be misselling until proven otherwise. Another IFA may give you a different opinion if they take a different view of your circumstances or are more keen to take your money. But impossible to say how likely that is without knowing more.

xylophone

Have you looked into whether the scheme will allow early retirement on ill health grounds (and at what penalty)?

It has just occurred to me that scheme NRA may have been 60 which the OP has just reached.

If so, I wonder if the option of a transfer still exists?

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