Refund of Contributions or Transfer Value?

shell_girl

I've very recently changed jobs:T and am looking for some advice about my pension.

I've only been involved in the company pension scheme for the last year, and have therefore been offered either a refund of my contributions or a transfer value.

I know the most responsible thing to do would be to transfer it, however my new job is much better paid and so I will be able to up my contributions into whichever new pension scheme I choose. Also, the money (if I was to take it as a refund) would come in very handy towards clearing some debt. I'm 26 so I don't think long-term a year lost pension contributions will have that much effect on my final pension.

I've been told that if I take a refund, it will be given less tax and less the cost of reinstating me into the State Scheme. My contribution (by my working out) for the last year has been roughly £800, which was matched by my employer.

My question therefore is- Is there any way of working out how much will be deducted if I was to take the refund? If I'm going to lose a big chunk of the £800 on tax and reinstation into the State Scheme then I won't take the refund but will simple transfer the amount. I've looked on the DWP website but couldn't find anything relating to this . If I'm going to end up with much less than say £500, then there's not really any point in me taking it out when I compare it to the transfer value. Does anyone know the cost of being reinstated into the State Scheme, or does it vary from company to company?

Thank you for reading! I hope this isn't a really stupid question- but I know nothing at all about this. I really will appreciate anyone's thoughts.

jonathon_hart

Hi

As a rough guide the tax on refunds is 20% (up to I think £10,800) and 40% above that. It slightly more complicated than that as the pension will only tax your contributions and any investment return (or income) then needs to be declared separately by you for tax purposes.

Not sure of the cost to reinstate you to the S2P I'm afraid. I would imagine it is equal to the amount of NI you have saved - but I'm really not sure.

Judwin

What transfer value have you been offered ?

At most, you'll get £640 of your £800 back, and it sounds like it'll be less than that once the other deductions are made.

If the transfer value includes any part of the matching employers contribution, then it could be worth up to £1600.

It would be folly to be repaid less than £640 if you can transfer up to £1600.

IMHO
Cheers,
Judwin