The importance of advice

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

This was for a relatively small plan value, and the pension offered was very small, at about only £70 a year. Our client asked if we could arrange for her to draw the whole fund as cash, or alternatively if we could transfer the fund to add to her existing sizeable pension benefits that we manage, as she could not see any value in such a small pension.

We examined the data and came to the view she was right, and it was likely to be in her best interests to draw the fund, as the break even point was so far away into the future she was unlikely to benefit from the pension.

There was quite a sizeable penalty on making a transfer, but not on drawing the funds directly from the scheme, so the latter was clearly preferable. The transfer would only be a last resort as an option.

The retirement paperwork gave options for drawing the fund as a one off payment under the triviality rules, but 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.

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

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

We have today had a reply from the adminstrators to advise our request, together with other data we had provided, was reviewed at the last scheme trustees meeting, and they have chosen to change their stance and will now be adopting the small pot rules, subject to some further processes.

Not only does this mean our client will be better off, but this also opens up this option for other members of the scheme, which could be to the benefit of many members.

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 pension please contact us on 01543 440 300, email us on enquiries@acuityfinancial.co.uk or have a look at our website.

S Nokes

MD
14/12/16