IBM Legal & General Pension Scheme - loss of Enhanced Protected Tax Free Cash

Law_man

I’d like to bring to the attention to anyone who holds an IBM Defined Contribution pension that you cannot “easily” access your Enhanced Protected Tax Free Cash if you were fortunate to have that as a preserved benefit. 

12months ago a process took place to migrate from the previous platform to L&G and promised all kinds of improvements.

Surprisingly these improvements do not include Flexi-Access Drawdown (FAD) on the L&G IBM scheme, which means that the only way to get the EPTFC is to do one of the following: -

- take the full cash lump sum which would allow you to get all the tax free cash that you are entitled to and you would be emergency taxed on the rest
- the other option would be buy an Annuity. 

I was told that “the IBM trustees have set this plan up with the members best interests at heart.” Laughable.

Well I’m sorry but who in their right mind would allow a migration to a scheme that does not facilitate Flex Access Drawdown whilst preserving existing benefits? 

This seems grossly unfair given that pension freedoms were announced in 2015.

I had anticipated that the transfer to Legal and General would have allowed for greater flexibility while preserving my enhanced benefits.

There is an option to “transfer” into the L&G Mastertrust at Retirement to access drawdown. L&G would need to transfer the funds and by doing so the protected tax free amount would be lost. 

Doing this I will still be entitled to the standard 25%, but I would sacrifice the EPTFC.

The Enhanced Protected Tax Free Cash benefit is not a huge amount compared to what I can extract as 25% TFC. 

However this is matter of principle. 

I have decided that since there is no benefit in staying with L&G I have initiated a move of my full IBM DC pension to Vanguard who treat their clients far better and provide a much easier to use front end.

The actual historical information relating to the IBM pension scheme contributions is quite frankly appalling compared to what was available with the previous provider. There are no historical charts or information relating to your pension like there was before. 

I raise this EPTFC issue and the poor front end GUI to highlight what many IBM DC pension holders may not be aware of.

I hope this helps people understand that they no longer have the benefits that they thought they had - well not without being impacted greatly.

gm0

A disappointing surprise.  But not at all uncommon. 

This kind of Master Trust product is a "drawdown offer" to corporate schemes from the likes of L&G alongside basic helldesk and pension team admin of the "legacy bit".  Skimpy data conversions are not unusual either.  Low cost bid.  A transfer out (and loss of unique terms) is baked into the drawdown offer.  Keep the EPTFC (and the old access methods alongside).  Or move to drawdown with 25%.  You are not alone.  I didn't have this particular issue as we don't have EPTFC but it became clear that is "just a transfer" albeit to a product unavailable other than to existing members on the specific terms negotiated.  Fund list, fund cost, platform cost appear to be "configurable" between the trustees and L&G when this gets setup alongside the admin outsource transaction and its costs.

So as you observe your quarrel is really with the trustees.  But they would retort that nobody was offering them a "no transfer" drawdown product option that could keep this intact for you.  So they held a competition and added drawdown.  Rather than wait for something delaying drawdown being available that may not come or pay for something unique to them.  Rejected rolling their own.  Not actually unreasonable from where they sit.  Disappointing yes.  Unreasonable no.

My only suggestion - take a look at the use of partial transfers to make best use of retail SIPP, the legacy scheme, or the L&G MT (if you like the cost on an insured funds basis of what your trustees landed).

My plan was this - some to L&G MT (100% insured funds basis), some to Vanguard or iWeb (85K SIPP basis) and the uncrystallised residue in the legacy scheme for another 20 years (insured funds).  Mileage varies as to whether multiple providers, the extra admin, the minor protection nuances and arbitrage cost differences are worth it - to you.  

You need to be willing to put up with basic L&G IT and their let us politely call them old school trading processes for rebalancing.  Which matters more to some people than others.  Given lack of trading - I can tolerate it to a degree for the other benefits (cost, 100% protection). More sophisticated trader types would not enjoy it and likely reject it on that basis alone

dunstonh

Surprisingly these improvements do not include Flexi-Access Drawdown (FAD) on the L&G IBM scheme, which means that the only way to get the EPTFC is to do one of the following: -

- take the full cash lump sum which would allow you to get all the tax free cash that you are entitled to and you would be emergency taxed on the rest
- the other option would be buy an Annuity. 

3 - Arrange a bulk transfer.
4  (potential - done it with other schemes that are like this but not tested on this one).  take the TFC from the scheme and transfer the benefits as flexible benefits.   A bit like an open market option except its going into a drawdown plan with crystallised funds only.

IvanOpinion

That happened to one of my pensions schemes as well.  Like yourself I took the opportunity top transfer it, picked my own funds and track it against my old pension scheme.  The net result is that the additional benefit/returns since I took control myself far outweighs the protected rights I would have had under the old scheme.

green_man

I’m also in this scheme, but don’t have those protected rights so pretty easy decisions for me.  

I actually transferred out my AVC portion of my DC just before the transfer to L&G, the company gave no indication whatsoever that a move was imminent and that in fact I may have been able to do what I needed without moving any money If waited a couple of months!!   The only transfer options available were AVCs only or everything, no other splits were allowed.

I transferred  to Halifax SIPP which has very low costs and access to most of the market. My intention is to leave the rest of the fund with L&G and access in approx 20 years, it will live in one of the higher equity funds in the meantime.