Some more pension advice please?

Nelson1100

Pat38493 said:

If your Zurich original contract said that you would be able to take the money out of the pension tax free at the end, feel free to post the full text in its original context.  This would be extremely surprising but if this turned out to be true, rather than you misunderstanding the terminology and context, you might have a legalcase (although I'm not sure if you could go back that many years legally if this was 30 years ago).

Ok so this is it exactly as it appears in the "Key features of the Allied Dunbar Adaptable Pension Plan"

"The Funds themselves are exempted from all uk taxes on income & capital gains."
"Any lump sum that you take when you retire is free of tax. A lump sum is not permitted under an Additional Voluntary Contribution Pension Account"

In the last 4 years absolutely everyone I've shown this to, family, friends, colleagues etc agrees that if that doesn't mean "tax free" it's certainly worded in such a way that it could be sold to a layman as "tax free".

Pat38493

Nelson1100 said:

Pat38493 said:

If your Zurich original contract said that you would be able to take the money out of the pension tax free at the end, feel free to post the full text in its original context.  This would be extremely surprising but if this turned out to be true, rather than you misunderstanding the terminology and context, you might have a legalcase (although I'm not sure if you could go back that many years legally if this was 30 years ago).

Ok so this is it exactly as it appears in the "Key features of the Allied Dunbar Adaptable Pension Plan"

"The Funds themselves are exempted from all uk taxes on income & capital gains."
"Any lump sum that you take when you retire is free of tax. A lump sum is not permitted under an Additional Voluntary Contribution Pension Account"

In the last 4 years absolutely everyone I've shown this to, family, friends, colleagues etc agrees that if that doesn't mean "tax free" it's certainly worded in such a way that it could be sold to a layman as "tax free".

OK so now I understand a bit why you might think this but there are a couple of things going on here.  It is not the pension scheme or Zurich that have changed the rules - it is the law that has changed in the meantime.

This is all my understanding but there are better experts than me here who will probably jump in if I'm wrong.

When you signed up to this pension back in the 1990s, it was the law that you could only take out up to 25% as a (tax free) lump sum on retirement and no more.  The rest of the money would have to be used to purchase an annuity which would provide an monthly income for the rest of your life.  

I would be surprised if it doesn't say somewhere in your original documentation that you can get 25% as a lump sum and the rest would deliver an annual pension for your remaining days, but even if it didn't say that, I think that was basically the only legal option at that time.  The monthly income you received for life would have been taxable at your marginal rate of tax.

(Keeping in mind that this is what you signed up for at the time in return for getting back all the tax you had paid on that money).

In 2013, the law changed so that pension companies can allow flexible options to take out your money.  I actually think it might have partially changed some years before that but not before year 2000.  At this point, pension schemes were allowed to offer you other options e.g. take out all your cash immediately on retirement.  However, the original 25% that you could take out tax free would still be allowed but it is now specifically labelled as your "tax free cash" rather than just lump sum.  These days you can take out a lump sum and it may or may not be taxable depending on current laws in force.

So that clause on its own was correct at the time, but I can see how you might misunderstand it in the light of the current regime.  That said, I would be surprised if it's not made more clear in any case even in your original AB documentation - there should be a section that explains how you will get your pension on retirement.

If you were trying to argue that this meant that based on this document, Zurich has to pay all the income tax due on your pension, I don't think you will win on that legal case.

Further, you might think that you have lost out by these legal changes but you haven't - they worked to your advantage.  If the original laws were still in place, you would have been able to take a lump sum tax free of a quarter of the value, and then you would have been forced to take a (very low at current rates) annual income with the remaining 75%.

So to recap, at the time when you signed this contrract "lump sum" per definition meant only 25% of the fund because that was all that was legally allowed.

Nelson1100

xylophone said:

The fact that there isn't a  branch (agency?) of Zurich round the corner does not change the terms of your pension.

If you  held an account with Barclays and your branch was closed, would you consider that  the terms of your account had changed?

Erm Yes!

Especially if they changed their name from Barclays to the Ponzi Bank of Nigeria and told me that if I wanted to withdraw any of my hard earned money they're going to give their mates in the government a big chunk of it.

Lets say you bought a Range Rover on finance and after you made a couple of years worth of payments a man in a tow truck rocked up and took it away because Range Rover had been taken over by Lada. They're saying its ok though cause they've given you a rusty old Riva instead. And when you complain they tell you its exactly the same as a Range Rover cause its got 4 wheels and an engine and it'll get you to Tescos and back no problem! I think most sane people might ask for their money back!

Even if they gave you a Range Rover with a Lada badge on it, its not the car you bought and you'd be perfectly within your rights to ask for a refund or at the least compensation.

In my line of work contracts are everything, sure you can change details, terms, names or even renege on them altogether but any changes have to be agreed by all parties, one individual entity can't change a thing without everyone's consent.
But from what I can tell these pension companies can do what they like, change the terms & conditions with the weather and the only recourse you have as an individual is the pension company backed ombudsman who will completely ignore every scintilla of evidence no matter how damning and side with his paymasters. And where do you go to complain about the ombudsman? Another faceless ombudsman who doesn't have a surname or an address and doesn't even reply when you send registered letters to his PO Box. 

Nelson1100

Pat38493 said:
Further, you might think that you have lost out by these legal changes but you haven't - they worked to your advantage.  If the original laws were still in place, you would have been able to take a lump sum tax free of a quarter of the value, and then you would have been forced to take a (very low at current rates) annual income with the remaining 75%.

So to recap, at the time when you signed this contrract "lump sum" per definition meant only 25% of the fund because that was all that was legally allowed.

Ok Thanks Pat, that makes a bit more sense now. 

But whether the government changed the rules or Zurich did and whether or not it was in my favour I should have been told and I should have been given the opportunity to withdraw from my agreement with a refund as it was not what I signed up to. 

dunstonh

But whether the government changed the rules or Zurich did and whether or not it was in my favour I should have been told and I should have been given the opportunity to withdraw from my agreement with a refund as it was not what I signed up to. 

Your agreement hasn't changed.  The pension still does the same as when you took it out.  It is what you signed up to.  Additional options available due to change of law have not changed your contract.  They haven't taken anything away. They just added choice.

xylophone

Erm Yes!

 I think that you are labouring under a misapprehension. Please can you explain how the terms of your current account would change if a local branch closed?

Especially if they changed their name from Barclays to the Ponzi Bank of Nigeria and told me that if I wanted to withdraw any of my hard earned money they're going to give their mates in the government a big chunk of it.

Changing the name of a Bank does not change the terms of an account.

If Barclays were bought out by another bank it would not necessarily change the terms of your account.

The new owner might not choose to offer the same account but you would then have the chance to move your account elsewhere.

You do now apparently have the opportunity of moving your pension elsewhere.

and told me that if I wanted to withdraw any of my hard earned money they're going to give their mates in the government a big chunk of it.

 Well, I suppose the government could legislate to appropriate the assets of every citizen but we must hope not....

With regard to taking benefits from a pension, it is simply the case that after taking the maximum tax free that the law permits, the balance is taxable income.

A pension company must comply with HMRC rules on this point.

Presumably you accept that your salary is taxed on that portion that is in excess of your Personal Allowance?

To turn to the question of

Any lump sum that you take when you retire is free of tax.

Any pension policy must have been written to comply with legislation.

You now need to read the whole of the policy to check on what is said about how and when benefits may be taken and in particular to the section on the Pension Commencement Lump Sum.

It will be to this lump sum that the clause you cite refers.

In certain policies there was a right to take a PCLS that was higher than 25% (but it should be noted that such a right could be lost on transfer to another pension scheme).

If you have any doubts on this score you should ask Zurich to state the maximum PCLS available under the terms of the policy..

Nelson1100

So as it turns out I can't actually directly pay 100% of my wages into the L&G anyway, my company will only let me put a max of 50% in and only when the company benefits window opens in August. 
My payroll dept are saying I can get my wages paid in the usual way and then just pay 100% into L&G myself but I won't get the tax benefits unless I apply to HMRC.

As I don't trust the revenue any more than I do the pension companies I think its a risky strategy because I'll be paying tax twice, once when I get paid and again when I try to get it out of the pension.

Dazed_and_C0nfused

Nelson1100 said:

So as it turns out I can't actually directly pay 100% of my wages into the L&G anyway, my company will only let me put a max of 50% in and only when the company benefits window opens in August. 
My payroll dept are saying I can get my wages paid in the usual way and then just pay 100% into L&G myself but I won't get the tax benefits unless I apply to HMRC.

As I don't trust the revenue any more than I do the pension companies I think its a risky strategy because I'll be paying tax twice, once when I get paid and again when I try to get it out of the pension.

If you are making contribution using the relief at source method, which is highly likely, then you don't have to contact HMRC.

The pension provider will automatically add 25% to whatever you contribute.  You have absolutely no role in that other than making the pension contribution.  Some providers add the tax relief immediately others a few weeks later when they receive it from HMRC.  But you aren't involved in that part of the process.

If you are paying some higher rate tax then you may be able to claim some additional tax relief.  That is personal to you and does not get added to your pension fund.  You would be responsible for contacting HMRC to get this relief (or including the pension contributions on your tax return if you complete one for some reason).

Nelson1100

Dazed_and_C0nfused said:

If you are paying some higher rate tax then you may be able to claim some additional tax relief.  That is personal to you and does not get added to your pension fund.  You would be responsible for contacting HMRC to get this relief (or including the pension contributions on your tax return if you complete one for some reason).

I pay 40% on my wages - is that what you mean by higher rate?

Dazed_and_C0nfused

Nelson1100 said:

Dazed_and_C0nfused said:

If you are paying some higher rate tax then you may be able to claim some additional tax relief.  That is personal to you and does not get added to your pension fund.  You would be responsible for contacting HMRC to get this relief (or including the pension contributions on your tax return if you complete one for some reason).

I pay 40% on my wages - is that what you mean by higher rate?

Yes it is.

As a general principle it is good practice to understand the method used to get money into your pension.

There are 3 common methods and although the end outcome is usually the same tax wise they all work in slightly different ways.  And some can involve more contact with HMRC.

The methods are,
Net pay

Relief at source (RAS)
Salary sacriifce