Case study: Drawing funds from an occupational pension

The client

Our client approached us as she had received a pre-retirement pack from an old company occupational pension scheme, from a well known high street name.

This was for a relatively small plan value, and the pension offered was only £70 a year. Our client asked if we could arrange for her to draw the whole fund as cash. Alternatively she wondered if we could transfer the fund to add to her existing sizeable pension benefits that we manage.

Our solution: drawing funds from an occupational pension

We examined the data and advised that it was in her best interests to draw the fund. There was quite a sizeable penalty on making a transfer, but not on drawing the funds directly from the scheme. The latter option was clearly preferable. The transfer would only be a last resort.

The retirement paperwork gave options for drawing the fund as a one-off payment under the triviality rules. However our client did not qualify to use these as her overall pension savings were too high.

We therefore considered drawing the benefits under the small pot rules, where you can draw plans of up to £10,000 as one off payments. There are various versions of these rules depending on the type of scheme, but they are quite straightforward for occupational schemes.

The challenge: changing the rules

There was no option for this in the paperwork, so we contacted the scheme administrators to ask for this.

The administrators confirmed our understanding that we could use these rules, but they then advised that the scheme have chosen not to adopt the rules that actually allow this. They also advised that they thought the scheme had a lot of members in a similar situation, with small pots, who would probably prefer, or have preferred, to draw the funds as cash.

We thought this was worth challenging, as it would actually cost our client quite a sum of money if she transferred her benefits instead. We drafted a letter for her to send to the scheme trustees to ask them to change their stance.

The occupational pension administrators then advised us that they had reviewed our data. As a result they chose to adopt the rules which would benefit our client.

This decision meant our client was better off. But crucially it also opened up this option for other members of the scheme.

Please note though, drawing a cash payment rather than a pension is often not the right choice. Advice is important, as shown by this case, where we were able to provide an option our client would have not known was even available.

If you would like advice on your occupational pension please contact us on 01543 410 512 or email us on enquiries@acuityfinancial.co.uk