Page last updated at 12:03 GMT, Friday, 19 December 2008

Ask the Pensions Expert

Malcolm Mclean
The Pensions Advisory Service chief executive, Malcolm McLean
Malcolm McLean, Chief Exec of the Pensions Advisory Service, was on our last programme of 2008 to answer your pensions questions.

Here's his responses in full: click on a question to see the answer to that particular one or scroll down the page to read them all.

Next week's Ask the Expert will be on shares. Click here to send us your question.


Ron Carey wants to know, 'If you are already drawing your state pension can you change your mind and defer it?'

If you are already getting a state pension you can choose to stop getting it for a while to build up more money for the future. But you can only do this once.

If you choose to defer, the rate of increase is 1% for every 5 weeks (10.4% for a full year). Alternatively, it is possible to receive a lump sum instead of an increased pension. The rate of increase to calculate the cash sum will be broadly equivalent to an annual interest rate of 2% above the Bank of England's base rate. It is necessary to have delayed claiming your pension for at least 12 consecutive months to have the choice of a lump sum payment

For further informatiom about state pension withdrawal ring the Pension Advisory Service's Pensions Helpline 0845 6012923.


Margaret Mahoney from Merseyside is over 60 but has decided to defer taking her state pension in order to receive a higher pension later on.

She has now been advised by the Pension Service in Newcastle that because she is not actually drawing her pension or receiving any other qualifying benefit at the moment she will receive neither the Christmas Bonus of 10 nor the 'additional tax free payment' of 60 payable after Christmas. Is this correct?

Yes, unfortunately it is. The special one-off 60 is effectively an extension of the Christmas Bonus. This has been fixed at its present level of 10 since 1972 and is only payable to people actually receiving the state retirement pension or some other qualifying benefit which Margaret currently does not have.


Stewart Jones says that his wife reached state pension age this year but elected to defer her pension as she is still working part time. If she continues to defer her pension until after April 2010 will the new rules regarding the number of NI qualifying years required for a full pension apply to her, or are the application of these new rules based purely on date of birth?

Any woman reaching her state pension age before 6 April 2010 will normally need 39 NI qualifying years to obtain the full basic state pension.

For people who reach pension age on or after that date the number of qualifying years needed will reduce to 30. This applies to both men and women.

It is therefore your date of birth that is the critical factor not the date you actually choose to retire from work and start to draw your pension.

As state pension ages are changing if anybody is unsure of when their state pension age is, they may want to use our state pension age calculator:


David Pearson worked at a firm from the age of 18 to 21. He is now 49 and unable to work due to ill health. He paid in to the company pension scheme and one of his friends who worked at the same firm said he could get the money back in a lump sum because it was below a certain amount. Is this correct?

David is presumably referring to the rules about cashing-in small pensions sometimes called 'triviality cash sums.' This only applies to somebody aged between 60 and 75 whose total pension plans values do not currently exceed 16,500.

If David's ill health is such that it is unlikely he can work again, it may be possible, subject to the scheme's rules, for any pension entitlement he may have to be paid early on ill-health grounds, including a proportion in cash. He may wish to enquire as to the possibility of doing this with his scheme provider.


Allen from Pinner in Middlesex says he was made redundant (age 42) in 1986. He was told that his paid up pension was going to be invested in Friends Provident and the invested sum would grow to an estimated fund of 322,192. He has now been told that the figure may be as little as 73,000 on his retirement at age 65 in March 2009 when he has to take his pension to secure the guaranteed annuity rate he is entitled to. "How can you trust financial companies?" he asks.

At the time Allen made his original investment it was probably a time of high expectations with regards future investment returns. The figure of 322,192 is likely to have been a projection not a guarantee. The performance of his investment has obviously not matched expectations but that of course is with the benefit of hindsight. Investment performance on its own is not grounds for complaint. He may have grounds, if he was misled about the nature of the risk or received incorrect information, against whoever sold or advised him on the product.

The one bright spot in all of this is the fact that Allen has a guaranteed annuity rate which in the present climate is likely to be very valuable and better than anything he could obtain in the open market.


Nicholas Brashaw wants to know whether annuity rates are stable, falling or rising? He wants to use his pension pot (invested in cash for the last 3 years) to take an annuity before 2012.

Annuity rates depend on a number of factors including current interest rates, an insurance company's view on life expectancy trends as well as other factors which can include your state of health.

Earlier this year some annuity rates were at a 10-year high but recently there has been a sharp downward movement caused in part by the current economic climate. The overall trend is likely to be one of falling annuity rates given that it is now an accepted fact that people are living much longer and annuities will therefore be more expensive to provide.

That said, none of us including the experts in this field has a crystal ball and cannot predict with certainty future events. If Nicholas has a financial adviser he may wish to discuss his situation with him and jointly take a view as to what might be his best course of action.


Dave Sutton and Jim Sanderson have Navy and NHS pensions and want to know what exactly is the position regarding the alleged overpayments of pensions which have widely been reported in the press and elsewhere. Will their pensions be reduced and will they have to pay money back?

It has recently come to light that a large number of public service pensioners in the NHS, Teachers, Armed Forces, Judicial and Civil Service pension schemes have been overpaid, going as back as far as 30 years. This apparently relates to the way annual increases were calculated.

With the exception of some Scottish public sector schemes the pension will be reduced back to what would have been the correct level, probably from next April, but overpayments will not be recovered.

It must be emphasised that not every public service pensioner has been affected by these errors. The error affects 5% of public sector pensioners, approximately 95,000. Those affected will receive communications in due course.

Most of the schemes involved are publicising helplines which individuals can call for further information.

For further general information and advice ring the Pension Advisory Service's Pensions Helpline 0845 6012923.


Ian Shuttleworth was a member of the Woolworths pension scheme for 24 years until he left the company in 2003. He has recently in the past 8 weeks tried to transfer his pension across to his current company pension provider, but if he does so he will incur a 20% reduction in his transfer value. Can they do this?

It is permissible for pension scheme trustees to reduce a transfer value in certain circumstances. This would include where, as in the case of Woolworths, the company is in administration and there is shortfall in the funding levels of the scheme.

Whilst Ian needs to seriously consider whether transferring will still be in his interests he should take into account that should the pension scheme ultimately be wound up with insufficient funds, it is likely that the scheme will be covered by the Pensions Protection Fund. This will ensure that most members receive at least 90% of their expected pension.


John Latusek from Carmarthenshire says he is one of the many affected by the "ridiculous calculation" of Pension Credit, which presumes a 10.4%pa return on savings. Nobody is getting anywhere near that kind of return! Most people get less than a quarter of that.

Why does the DWP stick with deducting 1 a week for every 500 of savings?

1 for every 2000 would be more appropriate.

Why not link to the bank Base Rate?

Pension Credit is designed to ensure you have a minimum defined level of income. This takes into account existing income, such as pensions or earnings above a certain level with an assumed notional level of income being put on savings. The rules require that the first 6,000 of your capital/savings (10,000 if you live permanently in a care home) is ignored. Above that level you are deemed to have an income of 1 a week for each 500 or part of 500.

John is undoubtedly right in saying that 500 of savings is unlikely in reality to produce an investment return of as much as 1 a week. However, there are other factors that come into play, namely that the first 6,000/10,000 of an individual's savings is ignored completely and that the formula has applied consistently throughout, irrespective of whether interest rates were high or low.

The government will also no doubt argue that administratively it would be time consuming and inconvenient for everybody if pension credit payments had to be adjusted on each and every occasion that interest rates changed

That said, there is a substantial body of opinion building opposing the current formula and this may influence government to reconsider the rules in due course, although at present there appears to be no inclination on their part to do so.


Derek Bates wants to know why the first payment of your state pension is only paid from the Monday following your 65th birthday (60th for a woman) and not from the actual birthday itself.

This means that should your birthday fall on a Tuesday you do not get the pension until the following Monday resulting in a loss of 6 days pension. Is this fair and are the Government pocketing large sums of money in consequence?

It is correct that the first payment of your state pension will not automatically be paid on your birthday but on the first Monday following, except of course where your birthday falls on the Monday. This is probably primarily for administrative ease and avoids the Pension Service having to make manual calculations of part-week entitlement, e.g. 4/7ths of a full week's pension.

The same principle applies, of course, when the pension ends on the death of the pensioner and no adjustment or recovery is applied for the week in question.

The views expressed are not those of the BBC.

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