Pheonix Life question

LateStarter

My sister-in-law is in her mid-50s and is starting to look at retirement options - so I'm asking a couple of questions on her behalf. She has 2 small pension pots semi-abandoned over the years, and well as LPGS at her current job. SiL is wondering if she could use the small pots to retire before 67 - the larger pot is with Pheonix Life, and is called a Group Personal Pension Plan, With Profit. The latest pension statement has 2 figures - Guaranteed pension fund of about 12k, and Transfer Value of 20k. To her 20k is about 2 years early retirement, how could she go about getting it? Are there rules to govern such a small pot? And any idea why is the transfer value so much higher than the pot value?

Thanks

LS

dunstonh

The latest pension statement has 2 figures - Guaranteed pension fund of about 12k, and Transfer Value of 20k. 

20k means it does not qualify as a small pot.  So, you cannot use the small pots rule on that one directly.  It may be possible to use it indirectly if you were to transfer it to a provider that allows segmenting of pots.  I don't know which DIY providers do that but someone here will.

To her 20k is about 2 years early retirement, how could she go about getting it?

Will she need to use the small pots rule then?   If it is for earlier retirement then she could just use UFPLS split over 2 years (to reduce tax).

Are there rules to govern such a small pot? 

There are small pots rules but this is not classed as a small pot.

And any idea why is the transfer value so much higher than the pot value?

The final bonus accrued to date is not included in the current value.   However, it is included in the transfer value (minus any early surrender cost or market value reduction, if one).

LateStarter

Thanks dunstonh, if I get what you're saying 20k is above the small pots limit, but SiL could simply withdraw 10k per year as required? Will a transfer require any kind of financial advice (I think I got confused by reading somewhere that you need approval for transfers over 30k)? And as a general rule, would it make more sense to leave the funds in Phoenix for a couple of years and hope the transfer value goes up?

Albermarle

You only need financial advice if the pensions has some guaranteed benefits that you would lose by transferring and even then the rule does not apply below values of £30K .
Some people would prefer to employ an IFA for a pension transfer as they lack confidence and knowledge but the transfer is easy nowadays . In any case no IFA would be interested due to the lowish value of the pot.
As Dunston suggests probably the best way is to take £10K in two seperate tax years . 25% of this will be tax free and 75% taxable . But if your SiL will not be taxpayer in those years then she will not pay any tax as it will be below the personal alllowance of £12500 .
First you need to check with Phoenix if that is possible with them or do they have any other suggestions . Basically the older the pension the less flexible the options for taking the money.

xylophone

Has your SIL obtained a state pension forecast to help with planning?

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

Is the idea that your SIL would give up work at age 65?

Had she considered combining both her "semi abandoned" pensions into one and then continuing to contribute  for a few years with the aim of building enough to retire at say age 63?

https://www.moneysavingexpert.com/savings/cheap-sipps/

https://monevator.com/passive-fund-of-funds-the-rivals/

LateStarter

xylophone said:

Has your SIL obtained a state pension forecast to help with planning?
https://www.gov.uk/check-state-pension
Is the idea that your SIL would give up work at age 65?
Had she considered combining both her "semi abandoned" pensions into one and then continuing to contribute  for a few years with the aim of building enough to retire at say age 63?
https://www.moneysavingexpert.com/savings/cheap-sipps/
https://monevator.com/passive-fund-of-funds-the-rivals/

Hi yes she's done her state pension - think she's got 7 or 8 years to go for full SP, which takes her to about 63/64, so yes she was wondering if she could stop work at around 65, or even 64. The other old pension is from Halifax where she worked in the 90s - she's going to contact them  it may be final salary and she's not had a statement from them for years. As Abermarle pointed out, if it's less than 30k (it most likely is), then she may able to combine them in a SIPP as you suggested. And thanks for the links, I've passed them along.

Albermarle

 it may be final salary and she's not had a statement from them for years. As Abermarle pointed out,

If it is a final salary scheme then many do not send annual statements as such, but they usually send an update on how the scheme is doing generally.

A final salary scheme does not have a pot of money that is allocated to you ( like with a DC scheme) it instead guarantees to pay you an annual income from your retirement date . Often the scheme will try and buy you out and offer you a CETV ( Cash equivalent transfer value) and if this CETV is over £30K and you want to transfer it to a SIPP , then you have to find a specialist IFA and pay them a lot of money . DB schemes are very expensive to fund and even a pension of £1k pa would probably generate a CETV of over £30K .

xylophone

The other old pension is from Halifax where she worked in the 90s - s

Probably the Halifax  Retirement Fund  (DB closed 31 Dec 2000).

If so, then she is a deferred member of a scheme with safeguarded benefits - if valued at higher than £30,000 (quite likely), she would need to take the advice of a pension Transfer Specialist before any transfer out and anyway, such a transfer could well not be in her best interests.

https://www.lloydsbankinggrouppensions.com/assets/former_scheme_guides/HRF_Scheme_Guide-1051af25484d6c0abe3689ecb462750e2e2b05090a7ba911f14be75ccdda1318.pdf

7. LEAVING HBOS OR THE SCHEME

What happens to my pension?

You will be entitled to a deferred pension payable from your Normal Retirement Age calculated on the following basis:

1/60 x Final Pensionable Salary x Pensionable Service

If she is a deferred member of the above, then the Normal Pension Age is 60 - with this scheme pension and her small DC pension, retirement from the LA job at 60 could be feasible?

LateStarter

Okay, so she'll need to get the CETV (and benefits) of the Halifax pension. I'll pass that along. But crikey, the nineties, I can barely remember that far back, but salaries weren't great and she was front facing, so I wouldn't think it would be that large a value.

You lot are absolutely brilliant, SiL passes along her thanks to add to mine.

Albermarle

Lets speculate that she worked there 8 years on an average salary of £8Kpa and she left in 1998 .
Her pension on leaving would have been around £1300 pa + inflation for 22 years = approx £2000 pa .
So CETV could be expected in region of £60K .
Just as an example .

xylophone

so I wouldn't think it would be that large a value.

Don't be too sure of that - remember that the pension has been revaluing in deferment and will escalate in payment and the CETV must reflect those facts.

See Scheme Guide as in previous.

Will my deferred pension increase after I leave?

Yes. While you remain a deferred member (i.e. before your pension starts to be paid), your

pension in excess of GMP (refer to "10. STATE PENSION SCHEME") is currently increased

in line with the increase in the Retail Prices Index for each complete year to the payment

date up to a maximum of 5% a year.

Your Guaranteed Minimum Pension is re-valued in line with the rise in national average

earnings each year.

When in payment, your pension will be increased in the same way as other pensions (refer

to "6. RETIREMENT BENEFITS").

Has your SIL  kept  her Statement of Deferred Benefits on leaving?