Q. I've recently been made redundant with only a relatively small payout. Together with my meagre savings I will still qualify for benefits. However I will not be able to service my overdraft, credit-card, loan, etc. However I took out a personal pension straight after leaving university 20 years ago, and it is now worth close to £100K. Is there any method to free-up even a small portion of this in order to clear my outstanding debts? Sean, London
I am afraid that it is not normally permitted by law to take any of the proceeds of a tax-approved pension plan under the age of 50. This age will increase to 55 from 6 April 2010.
Q. What will happen to RPI linked retirement pensions, both state and private, if the index goes into a prolonged negative decline? Martin Smith, Alnwick
The basic state pension is increased each April in line with the preceding September RPI annual inflation figure. This year's increase based on last September's RPI is actually 5% bringing the pension for a single pensioner up to £95.25 a week from April 2009, the biggest rise since 2001. The next few years are unlikely to match this but as the Government has recently confirmed its commitment to increasing the state pension by a minimum of 2.5% each year pensioners are likely to gain not lose in the event of continuing very low or even negative inflation (deflation).
Company pensions are also protected from deflation as they cannot normally be reduced and a proportion of pensions are increased by fixed percentages, usually between 2.5% and 5% per year.
Pension annuities (i.e. those derived from a personal or stakeholder plan) sometimes have fixed percentage rises built in to them which will continue. There is however a risk that annuities that are linked to RPI could reduce in the event of deflation, but this will depend on the terms of the policy.
Q. My husband and I have a final salary pension which we are currently drawing. I am 56 and my husband is 55. What would happen if our pension scheme went into liquidation? Trina Fraser, Altrincham
We now have the Pension Protection Fund (PPF) which was set up to provide a lifeboat for salary related schemes where the employer has gone into insolvency and there are insufficient monies within the scheme to meet all the pension liabilities. The PPF aims to pay 100% of pension entitlement to those members of the scheme who have reached or exceeded the scheme pension age. For people under the scheme pension age, the compensation is limited to 90%, subject to a cap of currently £27,770 per annum.
For further information about the PPF go to www.pensionprotectionfund.org.uk .
Tom Hanrahan (r) came to the roadshow from London to question Malcolm
Q. My Prudential Stakeholder pension matures on 5 March 09 on my 65th birthday. My pension fund is decreasing rapidly and I wonder whether to buy an annuity now or wait for an upturn in interest rates. What do you advise? I am married and in good health and have a good family history of longevity. Hazel Powell, Huntingdon
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.
Towards the latter end of last year some annuity rates were at a 10-year high but more 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.
On the other hand, the older you are when you apply for your annuity, the better the rate is likely to be. There is also the possibility of your fund value increasing over time if, as expected, share values which have substantially reduced of late do recover in the fullness of time.
The problem is that frankly none of us including the experts in this field has a crystal ball and cannot predict with certainty future events. If you have a financial adviser you may find it helpful to discuss your situation with him and jointly take a view as to what might be your best course of action.
Q. I have an old final salary pension plan with Compass , which has been put on hold for about six years since I left the company. Is it worth me keeping hold of it or should I try and join it with my current pension plan with the Prison Service.Nick Williams, Warrington
It is usually possible to transfer former pension rights into your current employer's scheme or into a personal or stakeholder pension plan arrangement.
Transfers should only be considered where there is some clear advantage in doing so. Obviously the main factors to take into account would be a comparison of the pension being given up and the credit offered in return. But you should also take account of associated benefits such as death cover and the level of increases in payment, which may vary from scheme to scheme.
Another factor could be the financial viability of the respective employers and the potential risk of insolvency. The degree of protection has been considerably improved in recent years due to the introduction of the Pensions Protection Fund but the enforced closure of a scheme because of the insolvency of the employer could still result in some financial loss for members, particularly those under the scheme's normal pension age.
Before arranging a transfer you should normally therefore consider seeking independent financial advice. These are complicated matters and it is important you understand all the pros and cons. For more general information you can obtain a leaflet about transferring from the Pensions Advisory Service via its Pensions Helpline 0845 601 2923.
Q. I opted out of Serps (state second pension) more than 10 yrs ago and am 50 yrs old now. I would like to know is it better to stay opted out or opt back into Serps in your opinion. Gary, High Wycombe
The decision as to whether you should be opted in or out of Serps (now called the state second pension or S2P for short) is only relevant if you are currently in employment and are receiving wages or salary on which you are paying National Insurance (NI) contributions.
And if you work for a company that provides a final salary type scheme then the decision is not yours as it is the employer not the individual who decides whether the employees are in or out of S2P (in most cases it will be out as both the employer and the employee gain from reductions in the rates of NI payable).
In other situations, where for example you have a personal pension or stakeholder plan, you have a choice whether you wish to build up an entitlement to S2P or forego that and instead receive a rebate - a sort of cash discount - from the government paid at the year end into your private pension pot.
The decision which way to go on this is often finely balanced. There are advantages and disadvantages to either option which you can change from year to year and need not therefore be a once-and-for-all choice.
S2P is paid in addition to your basic state pension age when you reach your state pension age and claim your pension. You cannot therefore get at the money before then unlike a personal pension which you can start to draw at any age between age 50 (55 from April 2010) and 75. There is also the option of taking part of your money as tax free cash with a personal pension which you cannot do with S2P.
On the other hand the value of your private pension arrangement will depend on how well your pension provider manages the investment, how the stock market changes, the size of the charges made to run your plan, and the annuity rates at the time you decide to convert your fund into an income.
This is all potentially very problematic whereas the S2P alternative is more certain in that it is based on a defined formula and does not depend on investment returns. Many insurance companies have taken it upon themselves in consequence to suggest to older people closer to retirement who are contracted out to give serious consideration to contracting back in.
The Government has also given notice that it intends to end opting -out as an option for so-called money purchase schemes (personal pensions, stakeholder pensions and some occupational schemes). This is currently scheduled to happen from 2012, at which point contracting-out will only apply in salary related occupational schemes.
A useful booklet called "The state second Pension - should you be contracted out?" can be obtained from the FSA. For more general information on the options you can also ring the Pension Advisory Service's Pensions Helpline on 0845 6012923.
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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