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Last Updated: Friday, 28 May, 2004, 13:53 GMT 14:53 UK
Ask the expert: Pensions on divorce
Malcolm McLean

BBC News Online's Ask the Expert column gives readers a chance to have their financial questions answered.

This week, Malcolm McLean, chief executive of the Pensions Advisory Service (Opas) helps Your Money reader Neill Smith.

Mr Smith's parents are divorcing. His mother, who is 52, is being offered a pension lump sum as part of her divorce settlement.

Mr Smith says the insurance company is no longer willing to administer it and says she must transfer the money elsewhere.

Should his mother transfer it into an occupational scheme, a personal pension, or elsewhere? Is there any way through this minefield?

Malcolm McLean writes:

I am very pleased to try to provide whatever general advice I can to Neill about his mother's pension position.

He is obviously concerned about her and wants to help safeguard her position for the future.

This is very commendable and sets an example which others in a similar situation might well seek to emulate.

The first thing to confirm is that as the pension she is being offered is coming from a pension plan it cannot simply be taken in cash, and a transfer to some other approved pension arrangement will have to be contemplated.

DO YOU HAVE A QUESTION?

This could, in theory, either be an occupational scheme or a personal pension or stakeholder plan.

If Neill's mum is already a member of a good quality occupational scheme which has the backing of a stable and solvent employer that might be her best option.

She should first enquire, however, whether the scheme will accept such a transfer (schemes are not compelled to do so and many will not). And, if so, ask for a quote as to exactly what the transfer will buy her in the new scheme.

If this option is not available or, in the circumstances, not desirable, then the alternative is a transfer to a personal or stakeholder plan - either an existing one or one newly set up for the purpose.

HOW TO GET A PENSION FORECAST
People living in the UK, who are more than four months and four days away from the state pension age can obtain a pension forecast
You can print a forecast application form from the Pension Service website (see link on right)
Complete it by hand and post it to The Retirement Pension Forecasting Team: State Pension Forecasting Team, The Pension Service Room TB001, Tyneview Park, Whitley Road Newcastle upon Tyne, NE98 1BA
You can also request a forecast by phoning 0845 3000 168 (lo-call rate) (textphone 0845 3000 169 ). Office hours 8am to 8pm. They can also help with queries about completing the form

A stakeholder plan would normally be a better bet than a personal pension - as charges are limited to 1% of the fund value every year. Also, if she wants to take her pension early or transfer to another provider no penalties can be applied.

If she wants to, and is financially able to, she can continue to make further payments into the plan as part of her pension planning for the future.

Also, if she is not in an occupational scheme, she will be able to make annual contributions of up to 30% of her earnings into the stakeholder plan.

If she is in an occupational scheme, she can still contribute up to 3,600 per annum into the plan - provided her annual earnings do not exceed 30,000. (This and most other annual restrictions will be removed by changes to the pension tax laws from April 2006).

To choose a suitable stakeholder plan and to decide how to invest her money within it, Neill and his mum may wish to seek advice from an independent financial adviser, although they will, of course, have to pay for that advice.

Alternatively - or at least as a helpful first step - they can obtain a comprehensive list of stakeholder providers from the Occupational Pensions Regulatory Authority (Opra) by ringing 01273 627600 or from their website (see link on right).

If Neill's mum can not decide on a suitable fund to invest in, the provider will make the choice for her - known as the default option.

Whatever she decides to do in this connection, Neill's mum would also be well advised at this stage to check out her future state pension entitlement.

As a divorcee, this will be based on her personal record of National Insurance contributions over her working life but with the substitution of her former husband's National Insurance (NI) record for her own, if this would benefit her, for the years of her marriage - so long as she doesn't remarry before she reaches pension age.

She can obtain a forecast of her pension entitlement by completing a BR19 form, which is available from post offices or by ringing 0845 3000168.

Armed with all this information -and with the help and support of her son - she can then hopefully begin to plan her future and do what she can to pave the way for greater financial security and well-being in her later years.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.



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