Serious saving

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 turn 50 on 5 June and have a pension with Pearl. It's valued at £11332 and I can take £2833 tax free now and the remainder would get me an annuity with Pearl of £371 per annum. It's a joint life annuity and will remain at £371 till I die then my wife will get 50% till she dies.

I have the open market option.

What I would like to know is who would give me a bigger annuity and where do I invest my annuity. I was thinking of putting it into a long term fixed bank account or an ISA or even into my AVC with my work pension or even stocks and shares.

If I go to an IFA it will cost me a lot of money and since this is only a small pension I was going to go it alone

Stephen Gribbin

A. When you decide the time is right to take benefits from the Pension Fund you have built up you have several options. As you rightly say you can use the Open Market Option, which means that you do not have to purchase your annuity from the company that you have been using to build up your fund.

So in your case your pension is with Pearl but if Standard Life or AXA is offering a better annuity rate then you are free to buy your annuity there. You then have to decide how you would like your annuity to be paid - either level or increasing with inflation, and either to stop when you die or to carry on being paid to a dependent after your death.

Each of these options will affect your monthly payment. Where you invest your tax free cash really depends on how much risk you want to take with it and how long you are likely to want it to be invested. While you are correct to say that an IFA will charge for the work they do it may make sense to have someone help you give you a better overview of your options and how best to manage your money going forward. If you want to check out a better open market option figure then there are several websites that will help you to do that.

Q2.

I have been a local council employee for 31 years and will be 50 years old in June this year. I make monthly contributions of £163 to the Strathclyde Pension Fund from my salary. My annual salary is £26,644.

I have heard that because of tax relief on pension contributions that it would be very beneficial for me to make additional contributions to my pension and I am very interested in doing so. I did speak to SPF but unfortunately didn't really find them particularly helpful in terms of advice and the best way to do this.

Can you help at all?

Drew Marsham

A. If you are not going to qualify for a full pension at retirement then you can make Additional Voluntary Contributions to most Schemes, or you can set up your own Personal Pension to top up your employer's scheme benefits. You may also be able to 'buy back' service from your employer's scheme, which means that you will pay more every months but effectively have some extra years service added n to your benefits when you retire. Which option is best for you will depend on your personal circumstances and you really need to take advice based on these circumstances before making a decision. Your employer is probably not authorised to give that advice and you should, therefore, find and Independent Advisor who specialises in pension to help.

Q.

I have a stakeholder pension which is due to become payable in June of this year when I retire at age 65.

Can I make a lump sum payment into this pension scheme just now, of say £5000, and when I retire take it out as a lump sum with the tax relief received when I retire in June?

Alistair Fergus

A. You can, within limits, invest 100% of your income into a personal pension so assuming your income is more than £5,000 the simple answer to the first part of your question is yes. And if you are a basic rate taxpayer then you will receive back the tax you are deemed to have paid on your £5,000 investment so that the actual investment in your pension will be £6250. If you are a higher rate taxpayer (and are not caught by the Chancellor's new 'anti-forestalling' rules) then you will be able to claim back another 20% of higher rate relief via your tax return. But you won't be able to take all of it back out as cash since normal rules say that 25% of your pension fund can be taken as tax free cash when you retire and the rest has to be used to provide an income of some kind.

Q.

I have some capital that I would be interested in protecting but do not want to take any risks and wonder if you can help.

I would say I have roughly £20,000 in accounts at the moment which is doing nothing. I do not have a mortgage - I am in full time employment and really looking to protect my money for my retirement in 4 years.

Margaret Ferguson

A. You don't say whether you have access to an employer's pension or have your own at the moment but it could be that all of your £20,000 could be invested in a pension and that this might be a tax efficient way to invest your money. The problem is that, as stated above, you have to use the majority of that money to provide an income when you retire and so you won't have access to it all. Remember that money invested in pension can be held in cash so there is usually no need to take any risk with your capital just because it is invested in a pension.

If access is important it may be that you would be better investing £10,200 in a cash ISA this year (I am assuming you are over 50) with the remainder in another cash ISA at the start of the next tax year. This would at least mean that your investments are tax efficient and that you won't be taking any risk to your capital.

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.