Pension Planning - Serps and Backdated Contributions

VinylHead

Hi everyone.

This is my first post here.

Firstly, I put my hands up to being somewhat less than organised in the pension planning department.  I’ve left this late and have never been very organised, however I’m trying to work out a plan now and need a little help to get started.

I’ve just turned 54.  I work for a small company that I helped start-up nearly 30 years ago. I don’t have any formal stake in the company but have an informal agreement that I’m due a large chunk of money somewhere down the line.  The size of that chunk depends on how much the company is worth and could be 0 but could also be £1m+.  I’ve never been able to get my boss to agree to anything formal but I trust he won’t let me down - not an ideal situation I know but I can’t change it.  So this, in combination with the likelihood of a healthy inheritance of approx £500k (depending on my parents' circumstances I know) have meant that throughout my working life, the urgency to sort pension arrangements has been lacking.

I contracted out of serps back in the 90s without really understanding what benefit doing so would bring.  The serps pension has a current value of £58k.  The HMRC website shows that I’ll receive the full state pension.  It also lists a COPE amount of £45.89 per week - I can’t get my head around exactly what this means!

The serps pension projects out to an estimated annual pension of £5.3k a year according to Scottish Friendly who hold it. How does the serps pension work with the state pension?  Does this mean that I have benefitted from contracting out to the tune of approx £100 per week ie it comes in addition to a full state pension?  I guess what I mean is have I ‘won’ by contracting out or do I just end up with the same as everyone else?

In addition, I am enrolled in a workplace pension with the People’s Pension which is currently valued at £28k.  My wife has a private pension currently valued at £78k and full SP.

Finally, this is the main part of the question.  My boss has too much money in the company and has decided that a tax efficient way of taking it out of the company is to pay it into my pension.  He says that this can be backdated by 3 years and can be a maximum of approx £42k per year less whatever has already been contributed in those 3 years.

So he’s planning on paying me 3 x 42k (less contributions already made) but before doing this he wants me to speak with an IFA because it’s not advisable to pay this additional pension contribution into my workplace pension.

I’m not sure what I should be asking of the IFA and want to educate myself before contacting him.

Readers, if it were you, what would you do with this additional pension contribution?  Is there a particular type of pension I should be considering.  Are there things I need to consider like making sure my wife gets the benefit if I die?  I think after the first consultation, the IFA will be chargeable per consultation or I place my trust in him and he takes a percentage cut of whatever my pension makes?

Thanks for any advice

molerat

It also lists a COPE amount of £45.89 per week - I can’t get my head around exactly what this means!

In the real world it is a meaningless number, it was only ever used in deciding your new 2016 state pension starting amount.

The serps pension projects out to an estimated annual pension of £5.3k a year according to Scottish Friendly who hold it. How does the serps pension work with the state pension?  Does this mean that I have benefitted from contracting out to the tune of approx £100 per week ie it comes in addition to a full state pension?  I guess what I mean is have I ‘won’ by contracting out or do I just end up with the same as everyone else?

Yes.  COPE, and the SERPS pension, has no effect on your state pension. Your forecast will show what you already have, what you can achieve (the full pension ?) and what you have to do to get that and you will get that estimated £5.3K on top.

dunstonh

Finally, this is the main part of the question.  My boss has too much money in the company and has decided that a tax efficient way of taking it out of the company is to pay it into my pension.  He says that this can be backdated by 3 years and can be a maximum of approx £42k per year less whatever has already been contributed in those 3 years.

Those figures are not correct.

Carry forward with an employer contribution would be £60,000 for this year, £60,000 for last year and two lots of £40,000 for the two years before that.  So, the maximum is £200,000 minus what you paid in over the current and previous 3 years.

I’m not sure what I should be asking of the IFA and want to educate myself before contacting him.

If you are not going to use the workplace pension, where did you intend to put it?
The IFA would probably question the contributions as they do not match the maximum allowable.

Readers, if it were you, what would you do with this additional pension contribution? 

Does that matter?      We all have different timescales, objectives, risk profiles etc.  So, what is right for one person isn't going to be right for another.

 I think after the first consultation, the IFA will be chargeable per consultation or I place my trust in him and he takes a percentage cut of whatever my pension makes?

IFAs are not investment managers and do not take performance fees.   The IFA will have a charge, and the IFA will select the type of pension and the investments and they are required to make sure that it is suitable for you.    Only if you don't use an IFA do you need to make those decisions for yourself.

NlghtOwl

Firstly it sounds like you need an accountant more than an ifa? Secondly Is there any chance of getting the future company payout agreed in writing, a promise is worth nothing unfortunately, anything could happen which would result in you getting nothing. Good luck 

Marcon

VinylHead said:

I’ve just turned 54.  I work for a small company that I helped start-up nearly 30 years ago. I don’t have any formal stake in the company but have an informal agreement that I’m due a large chunk of money somewhere down the line.  The size of that chunk depends on how much the company is worth and could be 0 but could also be £1m+.  I’ve never been able to get my boss to agree to anything formal but I trust he won’t let me down - not an ideal situation I know but I can’t change it.  

...and if the company goes bust before this unicorn prances into its stable...?

VinylHead said:

My boss has too much money in the company and has decided that a tax efficient way of taking it out of the company is to pay it into my pension.  He says that this can be backdated by 3 years and can be a maximum of approx £42k per year less whatever has already been contributed in those 3 years.

So he’s planning on paying me 3 x 42k (less contributions already made) but before doing this he wants me to speak with an IFA because it’s not advisable to pay this additional pension contribution into my workplace pension.

Limited to the amount you are earning in the tax year the contribution is made. Are you earning at least £126K? If more than that, see comments above from dunstonh.

Why is it 'not advisable'? What is his logic is saying this?

Why exactly do you trust this man at all, let alone in respect of financial matters?