Protected Tax Free Cash

LateStarter

My works pension is with Legal and General, and I was considering moving some amount of it into long term gilts, which L&G do not offer, so I thought about transferring some of it into my SIPP for that purpose.

I did an online chat with L&G last night, and they said my pension had an element of "Protected Tax Free Cash", and any transfer out (however small an element) would result in the total total loss of the protected cash. But they couldn't tell me how much the protected element was. I ended the chat then as I wasn't sure what I was dealing with.

Does anyone have any experience with this - is it right that protected cash is all lost after a partial transfer? Any advice?

dunstonh

Does anyone have any experience with this - is it right that protected cash is all lost after a partial transfer? Any advice

Yes. it would be lost on a partial or full transfer. Only bulk transfers can retain the protections. So, if you know someone else who wants to transfer out of that scheme, then the protection can be retained using a bulk transfer. However, it would need to be a full transfer for both of you (or however many decide to do it).

But they couldn't tell me how much the protected element was. 

It requires a calculation, and the front-line staff are not skilled in that respect. If you have an IFA, they can do it. L&G will also do it at retirement commencement.

LateStarter

https://forums.moneysavingexpert.com/discussion/comment/81916865#Comment_81916865

Thanks so much dunstonh, a couple of follow up questions, if you don't mind.

• Does this mean I'm stuck with L&G forever forever then, unless I'm willing to lose the protected element?
• Does "retirement commencement" begin when I stop working, so when I start drawing the LG pension (as I have a SIPP i plan to use as a bridge from 62-67, and only start using the L&G when the SIPP runs out)

dunstonh

Does this mean I'm stuck with L&G forever forever then, unless I'm willing to lose the protected element?

I haven't done an L&G one. So, I don't know the contract options specifically. However, most other providers that offer protected tax-free cash have started allowing the tax-free cash to be taken through them, with the remaining amount transferred as flexible benefits. So, at retirement, you could be able to move it.

However, there are still some that will not do that which effectively gives you a choice of buying an annuity or transferring and losing the tax free cash. Or finding a co-worker who wants to transfer out at the same time and doing a buddy/bulk transfer.

Until then, you are stuck with L&G if you want to retain the protected TFC.

Retirement commencement is when you commence benefits on that pension.

DRS1

Is it possible to request a calculation of the protected tax free cash amount now so that you can see if it is significant? I suppose it may change between now and retirement especially if you are still contributing to the scheme but at least you could come to a more informed decision about whether it is something worth preserving.

dunstonh

Is it possible to request a calculation of the protected tax free cash amount now so that you can see if it is significant? 

All it needs is the "A day" figures (April 2006) for Value/PCLS, which the provider will have along with the current fund value. Then the calculation can be done.

All providers will provide the data for the calculation, but I am not sure if all would do the calculation themselves, as they could be straying outside their permissions or putting themselves at risk of liability. However, the calculation method is available online.

Aylesbury_Duck

I've done exactly this calculation recently. Aviva provided the A-day information and how to do the calculation. I ran it through Excel, then asked AI to work it out, to check my workings.

LateStarter

I've just had the figure and done the calculation. The "extra" protection is worth about £4500, on a total pot size of about £500k (hopefully with growth to come).

As this is less than 1% of the pot, it hardly seems to be the factor which should decide if I stick with L&G.