Malcolm McLean knows plenty about pensions
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Find out if you're making the most of your pension with our expert Malcolm McLean from the Pensions Advisory Service. Click on one of the questions in blue below to skip straight to that answer, or scroll down the page to read them all.
VIEWER QUESTIONS
I am 65 in June 2010. My wife is 7 years older than me and will be 73 in April 2010. She receives a state pension but does not get the full rate - she was 8 years short in her stamps. But the Government says she will not be able to draw on my stamps when I retire as you will not be able to claim for a wife or any dependents after April 2010. Is this right? - John Not quite. From 6 April 2010 it will still be possible for a wife who has reached her state pension age to claim a state pension, where necessary, based on her husband's national insurance (NI) record when he reaches his state pension age. The maximum that can be claimed this way is approximately 60% of the husband's basic state pension. But where a wife has a pension in her own right which exceeds 60% of her husband's pension (as would appear to be the case here) she will not be able to claim a further pension based on her husband's NI in addition. If her own pension is less than 60% of her husband's pension then she can have it topped up to that level. It's possible that the enquirer here is getting confused with the new rules which also come into effect from 6 April 2010 and affect situations where the husband has reached 65 but his wife is under state pension age (currently 60). At the moment it is possible in such a situation for a husband to claim what is known as the Adult Dependency Allowance of up to £57.05 a week. This provision allows men who are aged 65 or above to claim an increase to their pension, in respect of wives who are under 60 and earning or receiving benefits of less than currently £64.30 a week (if they are living together) or £57.05 (if they are living apart). The change is that this will not be available to men reaching state pension age on or after 6 April 2010 and will be phased out for existing recipients over the next 10 years.
I am age 28 and have a company pension which I paid for 9 years but am now redundant. I have a private pension which I have paid for about the same length of time and am still paying. What should I do? Can I combine them? Can I withdraw any? - Ross It won't be possible for Ross to withdraw any of his pension benefits. Legislation does not normally allow pension benefits to be paid earlier than 50 years (55 from 6 April 2010) except on grounds of ill-health. It may also be possible to draw benefits earlier if you had an unfettered right to early payment written into the scheme rules but there are other conditions that also need to be met, which are unlikely to apply in Ross's case. Further details about the change to the law in relation to early retirement rights and conditions effective from 6 April 2010 can be found on the Pension Advisory Service's website www.pensionadvisoryservice.org.uk Ross's options will be either to leave his pension benefits where they are, for payment when he retires, or transfer them. The transfer option will depend on a number of things, the type of company pension scheme he is in, where is contemplating transferring to, his attitude to risk, pension options offered by future employers, and other factors. Before contemplating this he may want to consider consulting a financial adviser.
My question relates to the amalgamation of two different pensions. Currently I have a personal pension and an occupational pension with my current employer both of which will mature at age 65. Would it be in my interest to transfer the personal pension fund into my final salary pot? I will be retiring in 5 years. - Colin There is a fundamental difference between a final salary occupational pension scheme and a personal pension. In a final salary scheme your benefits are based on a defined formula and a member bears none of the investment risk which is carried wholly by the employer. With a personal pension plan, the benefit you will one day be paid will depend largely on how much you can afford to put into the plan and how well your investments perform. The investment risk is essentially all yours and what you will be paid by way of a pension ultimately will not be known until you retire. By transferring you will at the very least be exchanging the 'risk.' You will also be swapping an unknown benefit for more of a known one. However, whether this will be a good deal will depend on what the receiving scheme is prepared to offer you in exchange for the transfer. To help make your mind up you should seek a transfer quotation (known as a transfer value) from your personal pension plan provider together with their estimate of the annuity you could buy when you retire. With the transfer value you should then find out from your company scheme the credit they will give you in their scheme. Bear in mind that your final salary scheme does not necessarily have to accept a transfer-in. If in doubt consult an independent financial adviser before making a final decision.
I am 55 and believe that I will not be entitled to receive my state pension until I am 63. I have therefore decided that I will try and work until that age so far as my private pension is concerned. Over my working life I have accrued differing amounts with four Group pension schemes. I am just about to have all of the pots (about £250,000) moved into a SIP and the fund will then be "managed" rather than a series of "passive" funds. The annual charge will be 1.5% as opposed to an average 0.6% in the present group schemes. Am I being wise? - Patricia Presumably Patricia has been advised to combine her pensions into a SIPP (Self-invested Personal Pension) in order to get better investment performance than she got from her previous pension plans. As the name suggests, a SIPP allows you greater freedom to choose and manage your pension investments. However, they can be more expensive than other pension plans, because more active funds carry higher charges, as Patricia has found out. You would expect a so-called "passive" fund to be cheaper than an active "managed" fund, because the passive fund is usually designed just to track the performance of the stock market in general - fewer decisions are being made about what shares will be a good bet. But, do not assume that a managed fund will always beat a passive one - if anything recent experience has shown that the opposite is often the case, Generally speaking, the lower the charges on your pension fund, the better because the charges will eat into your pot as it grows. If you do opt for a fund with relatively high charges, you need the pot to grow at a better rate than your previous fund - in Patricia's case by 1% a year better. Patricia would be advised to keep an eye on the performance of her funds, as only time will tell whether they beat the passive funds.
Could I please ask about the Conservatives' proposals to raise the retirement age to 66 in 2016 for men? I will be affected by this as I was due to retire in April 2018 and having taken early retirement have worked out my finances to get my old age pension at 65 not 66, so this will leave a 1 year hole I now have to fill. My wife despite being only 2 months younger than me and only paying a fraction of my N.I. contributions will get hers in September 2016 nearly 3 years before me. How is this right? It is surely sex discrimination of the worst kind. - Edward Currently, the state pension age is 60 for women and 65 for men. However, these are changing: firstly, between April 2010 and April 2020, women's pension ages will be gradually brought into line with men's. Then, from 2024, the state pension age will increase for everyone approaching pension age, from 66 to 68 (by 2046). There has always been a difference between the state pension age for women and men, since the current system was introduced in 1948. We have only just started to address that position. There is much debate at present about the ifs, hows and whens of raising the state retirement age sooner than the current legislation allows. But as Edward says, bringing forward the increase in the state pension age for men to 66 as soon as 2016 (if that were to happen) will cause problems for people like him who have planned their retirement on the basis of receiving their state pension at age 65. In relative terms the notice period would be quite short. Previous proposed increases in state pension age have always had a much longer "run in" period sometimes as much as 20 years (the changes to bring women's state pension age in line with men's by 2020 were, for example, announced and enshrined in legislation as long ago as 1995) and for this reason it may ultimately be decided that a change in 2016 may not be possible.
I am drawing my occupational pension which is contracted to reduce by the state pension when I reach 65. If the Conservatives come to power I will not get the state pension until I am 66. How will I be able to fill the shortfall for that one year? - D Johnson One would hope that those occupational schemes that have this sort of state pension offset will arrange to change their rules where necessary so that the reduction takes place from state pension age rather than 65. It might be worth Mr Johnson checking with his scheme what the rules currently say in this respect and what changes if necessary are contemplated.
I am a 21 year old university student. I work at Tesco and have 2 other jobs teaching swimming and so am just approaching using up all of my annual tax free allowance. I want to know if it is worth me starting saving in a pension with Tesco as they still have a final salary scheme as I hear the pensions market is getting a lot of bad press. Are there any tax benefits if I save in a pension? - Simon The starting point for Simon is to check whether in point of fact he can join the pension scheme. This may be possible if he is a regular part time worker but unlikely if he is classified as a casual employee. Assuming he is allowed to become a member of the scheme, it is generally a good idea to join as soon as possible bearing in mind what is on offer is a rapidly declining final salary scheme. This may depend, of course, on how long he plans to stay in this employment bearing in mind if he leaves after less than two years in the scheme, he will only get either a refund of his contributions or a transfer to another pension scheme which he must use within a few months or lose the option. The tax benefits of putting money into an approved pension scheme are usually very worthwhile. Contributions would be taken off Simon's salary before income tax, so he would not pay any tax on the percentage of pay he puts into the scheme.
In October 2008 I qualified for my State Pension and like my wife, who had qualified in March 2008, decided to defer drawing the Pension until a later date in the form of a lump sum. It recently crossed my mind that were one of us to die the accumulated lump sum would form part of the deceased estate and therefore in due course would be to the benefit of the surviving spouse. How wrong I was - according to the Department of Works and Pensions, who I contacted by phone, the surviving spouse would only be entitled to 3 months of the deferred sum no matter how much the accrued sum was! Having read the State Pension information book, I can find no trace that such an arrangement is in place and it is odd that they have not informed the general public if this is the case!!! Can you clarify the position please? - John I do not believe that the information that John has been given would apply in the case of a married couple. The rules are that if one of a couple dies after putting off claiming their state pension, their widow or widower would, in John's situation, be entitled to either extra state pension or a lump sum payment for the period they had put off claiming. The exact entitlement and manner of payment would depend on whether a choice (between the lump sum or extra pension) had actually been made at the point when the death occurred. For the lump sum, the deferment would have to have been for at least 12 months. A detailed guide to putting off your state pension can be obtained from the Pension Service or downloaded via the leaflets, forms and guides section on their
website.
I am a self-employed, twenty-five year old woman who has not yet started saving for retirement and would like some advice on the best way to start. - Sarah First of all, it is good that Sarah is thinking well ahead as to how she is going to finance her retirement in perhaps 40 or more years hence. Everybody at almost any age should really have a plan as to how they are going to do this. A pension is not the only way to save for your retirement. Property, ISAs and other savings or investments are all other options. But the benefit of a pension plan is that the government gives you good tax relief on your contributions and the way compound interest works saving in this way affords the opportunity of building up a substantial level of income over the years up to when you eventually do retire. As Sarah is effectively her own employer, she will not have access to a company pension scheme, and will have to make her own arrangements. This would involve choosing and setting up some form of personal pension or stakeholder plan. Deciding which type of pension to take out and how much to pay in etc are key questions which Sarah may need to take advice on. She probably therefore should consult an independent financial adviser for this purpose. She can, however, do quite a bit of research herself by contacting personal pension providers (normally insurance companies) and/or looking at the various general leaflets and guidance notes that are available on websites such as those for the
Pensions Advisory Service,
the
and the
Pensions Regulator.
I joined my company final salary pension scheme in 1969 and retired in 1997 on an agreed annual pension & indexation at RPI up to 5% due to ill health. In 2007 my ex employer went into administration and the pension scheme is now under assessment by the Pension Protection Fund. During the assessment period, and if the scheme is finally taken over by the PPF, I lose my RPI Indexation of up to 5% per annum. If the pension scheme had been wound up in accordance with the rules of the scheme I joined there would have been sufficient funds to secure annuities for pensions in payment. How can my pension be hijacked by the PPF without it paying proper and full compensation? - Tony Prior to the Pension Protection Fund being introduced in 2005, many people, particularly those who were under the scheme pension age lost most, if not all, of their pensions when an employer went bust and left behind a substantially underfunded pension scheme. This lack of funding sometimes resulted in the very anomalous situation of the scheme's pensioners continuing to receive their pensions in full at the expense of other scheme members who had not yet retired and claimed their pensions. The PPF was designed as a lifeboat fund to provide compensation on a more equitable basis for all members of the scheme. Under the PPF rules, members who had reached or exceeded the scheme pension age at the point where the employer had become insolvent, would receive 100% of their pension entitlement, albeit with any future pension increases limited to that part of the pension which had accrued (built up) from 6 April 1997. For members under the scheme pension age, 90% only of the pension entitlement would be allowed and this would be subject to a cap of approximately £28,700 a year at normal retirement age. In Tony's case, he may well be slightly worse off going forward than he might have been had the PPF not come into existence, although pension increases were fairly low down on the priority list for pension schemes in wind-up. But in any event, the PPF compensation levels are laid down in law and providing his entitlement is correctly determined in accordance with that law, he probably has no alternative than to accept the situation as it is. Full details of the PPF and how it operates can be obtained from its
website.
The views expressed are those of Malcolm McLean not the BBC.
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