Scottish Widows - Personal Pension Income Drawdown Plan

gillybean2811

My first time .. so not sure if this is posted in the right place!

Within 18 months both my Father and Mother have passed away ... whilst sorting out their financial paperwork came across a Scottish Widows Personal Pension Income Drawdown Plan. Spoke to my Brother about this and he said he was with Dad when it was sold it was termed as "the Rolls Royce of policies". Regular money paid in by my Dad over the years - at pension age he would draw an income, in the event of his death it would pass onto my Mother - and she would draw a pension (or vice versa). If any lump sum was left this would pass onto their surviving children.

Well - like I've said - the policy now transfers to us - with 3 choices (albeit only choice number 1 is applicable) ...

1. To take the remaining fund as cash subject to a 35% charge to income tax
2. To continue with income withdrawals
3. To purchase an annuity with Scottish Widows or on the open market

If the late Mrs ...... was not married (well she was but my Father had died 18 months previously) and there are no dependants (us children were not dependant on Mum) - only the lump sum option is available.

I guess my question/seeking advice/moan(!) is has this policy been missold - as the Financial Advisor who sold it to my Dad, said it was "The Rolls Royce of Pensions". After all my Dad paid income tax on his earnings throughout his working life ... why is it that Scottish Widows are now claiming 35% income tax on the lump sum left?

I've filled out the paperwork to claim the lump sum, but in doing so will lose almost £30k in income tax!! Before sending the letter off I wanted all your fabulous advice to see if there is anything I can do to possibly save the 35% payment in income tax!!

Thank you in anticipation

Andy_L

Scottish Widows aren't claiming the tax, the Tax Man is. Had he not been using draw down you'd have received nothing so in that respect the "Rolls Royce of Pensions" was better than the "Ford Mondeo of Pensions" that wouldn't have allowed draw down.

Bare in mind that your dad wouldn't have been paying tax on the money paid into the pension anyway - that's the deal the tax man gives you: No tax on the way in, (some) tax on the way out.

ISTR it being suggested somewhere that you can move it straight into your own pension scheme & avoid the tax. At the very least you could pay it into a scheme & claim back the tax at your own marginal rate

dunstonh

If the late Mrs ...... was not married (well she was but my Father had died 18 months previously) and there are no dependants (us children were not dependant on Mum) - only the lump sum option is available.

If you were not classed as dependents then option 1 wouldnt be available to you either and the fund would go to a registered charity. So the other options should be available to you.

I guess my question/seeking advice/moan(!) is has this policy been missold - as the Financial Advisor who sold it to my Dad, said it was "The Rolls Royce of Pensions".

On what grounds are you claiming it was mis-sold? You havent suggested anything in your post. Whilst the description is corny it certainly isnt a mis-sale.

After all my Dad paid income tax on his earnings throughout his working life ... why is it that Scottish Widows are now claiming 35% income tax on the lump sum left?

Scottish Widows are not claiming income tax. The HMRC are. The Govt sets the tax laws of this country. Not IFAs or insurance companies.

I've filled out the paperwork to claim the lump sum, but in doing so will lose almost £30k in income tax!! Before sending the letter off I wanted all your fabulous advice to see if there is anything I can do to possibly save the 35% payment in income tax!!

There is nothing you can do to avoid the tax if you take the lump sum option. Complain to your MP that Gordon Brown takes too much tax maybe but thats about it. The tax charge was introduced to stop people using income drawdown to avoid inheritance tax.

The IFA (I am assuming it is an IFA as tied agents cannot do income drawdown normally) has given what appears to be perfect advice. Had the IFA done the alternative option of annuity purchase then you wouldnt be getting a penny now. So, rather than unfairly accuse the adviser of a mis-sale, perhaps you should be thanking them for their quality advice.

EdInvestor

The 35% tax represents the free money (tax relief) the Govt paid into the plan over the years when your father was contributing.Normally he wpould pay this back when he received his pension income which is taxable.

As you are getting a lump sum back, you pay it back in one lump.
Income drawdown was certainly the best option - you are getting all your father's money back, plus the investment growth.

In most cases the capital would have been used to buy an annuity income and you would get nothing.