Fergus Muirhead looks at pensions

Fergus answers money questions on Reporting Scotland and online

I'm Fergus Muirhead and I'm trying to answer any money or consumer problems you may be facing at the moment.

You can contact me by e-mail at [e-mail]

I will deal with a selection of your e-mails every second Monday on lunchtime Reporting Scotland, Scotland Live and on the BBC Scotland news website.

Q1. Dear Fergus

I understand you are to be doing a programme on pensions and would like some advice on my situation.

I am currently employed by a large mobile phone company (Vodafone) but will be TUPE'd out to another company on 1st May 2009. My current company operate a final salary scheme based on length of service in 1/60th's and up to the date of transfer I will have completed 23 years and 6 months unbroken service, giving me 23.5/60th's service.

The company I am being transferred to (Ericsson) operate a DC scheme (max 8% company contribution) no details have yet been provided. My current pension will be frozen on the date of transfer but as I am 54 years old I could have the option of taking early retirement but with a reduced pension, or two other very small pensions one from the MoD for 10 years service which I left in 1982 and another five year one from a company that went into liquidation and transferred to a Section 32 buyout.

I should also point out I do not wish to give up working. My current pension fund sits at approx £21,000 based on my last statement, some six months ago.

Given the above what would you consider to be my best option to try and maximise my pension return and also bearing in mind I have currently been offered no advice from either company and am unable to get adequate independent advice.

Many thanks for your time,

Douglas Wilkes

This is a very common type of question but unfortunately it is one that has no easy answer given the limited information you have provided.

You are moving from a final salary pension which includes important guarantees to one where your final pension will be based on the amount of money invested and the investment growth of that money between now and retirement. If you move your existing final salary pension to the new defined contribution scheme you are likely to lose these guarantees and you should not do so without carrying out a full analysis of the pros and cons of this course of action.

As you say you also have a couple of pensions from previous employments and it may be the case that they could be transferred into your existing final salary scheme, but again you should only make that decision after carrying out a full analysis of the options.

If you do not need the extra income at the moment then it does not seem worthwhile taking your Vodafone pension early since there will be a penalty for doing so.

What you need to do is sit down with a pension specialist who will look at your overall situation and pull together the information on all of your pensions before advising on the best way to make them all work for you. You need to look at all of the pensions you currently have and explore whether they can be rolled into one, and if so at what cost and whether this is worthwhile. It is a time consuming exercise but you do want to make sure that the money you have invested over the years, as well as the money you still have to invest over the next 10 years or so, is made to work for you!

Q2.

My final salary pension scheme has been 'frozen'. I decided to defer withdrawing any money when I reached 60. I am 62 years of age, still in full-time employment and have paid into the scheme for 17 years and wonder if it is now possible to withdraw 100% of my fund. If so how will this work?

Many thanks for your help,

May McNeill

I presume your pension has been frozen because you are now working elsewhere and so your pension at retirement will be based on a percentage of your salary at that time multiplied by the 17 years service you had in the scheme. The scheme rules obviously allow you to defer your pension beyond normal retirement but I don't have enough information to advise you on how that will impact any pension to which you are entitled.

You may also be entitled to a tax free lump sum based on your final salary and your 17 years service but this is the only lump sum to which you will be entitled. The rules do not usually permit all of your pension to be taken as a lump sum at retirement.

Q3. Hi Fergus,

I am thinking of retiring from the NHS with 40 years service, on Dec 2010. I will have a pension of £750 a month, and a lump sum of £27,000. I will have an Isa of £5,000, and I will have £5,067 left on my mortgage which I pay at £147 a month. Should I pay my mortgage off with my ISA. As living on £750 a month is not great, or any other advice what I should do with my lump sum etc?

Laurie Ferguson

It would probably make financial sense to repay your mortgage unless you feel that you could get a higher rate of return by investing the £5,067 than you are currently paying in interest. You will save £147 per month and it sounds from what you say that your monthly budget is going to be tight so it will be sensible to reduce this as much as possible by repaying your loan. I also think that it might make you feel better if you have no mortgage and often that is a good enough reason for paying it off!

The question is what money do you use to repay your loan? You are not paying tax on any interest you receive in your ISA but if you put your lump sum into a deposit account then any interest will be taxable so it would make sense to use the money from your lump sum to pay off your mortgage rather than taking it from your ISA, on the basis that once you have removed money from an ISA you can't put it back.

You want to find an account paying as much interest as possible for the balance of your lump sum.

You also want to make sure that you have carried out a sensible budgeting exercise to make sure that you work out whether your income is sufficient every month or whether you will have to dip into your savings to help.

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.