Occupational and Personal Pensions
Money Purchase and Final Salary Schemes
Final Salary Occupational Pensions
The government’s fiscal policy of “Quantitive Easing” which is a financial instrument based on releasing money into the economy has had an inflationary effect on the price of gilts.
Pension funds rely heavily on gilts as a safe haven for their funds consequently a number of Final Salary schemes have encountered serious difficulties, which have caused some schemes to default with disastrous consequences for the pension fund’s members.
A review of your own pension may provide an early indication that your pension is under threat. On the other hand it may give you the re-assurance that your retirement income is in safe hands.
Conventional pension advice would always be to think very carefully before transferring from a final salary scheme to any other type of pension. There can be compelling reasons to do so, normally associated with death benefits which can impose severe penalties on single parents who die shortly after retirement. A number of Civil Service plans have no provision to provide any benefit whatsoever to dependents in cases where the retired employees family are over the age of 17 and not in full time education.
Occupational Money Purchase Pensions
Under conventional HMRC regulation there are strict rules governing the way you can access your pension. For example you can normally only access 25% of the value of your fund as a cash lump sum. The rest of the balance has to be taken in the form of an annuity. An Annuity is an insurance based product that provides a monthly or annual based income in return for a payment. The pension provided is taxed as income in contrast to your lump sum which is tax free.
You could double your income
There are significant differences between the amount of income offered by one provider when compared with its competitors. The Financial Conduct Authority is currently conducting a “Thematic Review” which is it’s title for a White Paper on the Whole Annuity Industry including why >only 40% of people exercise their open market option. A recent article in the Daily Telegraph highlighted this problem, click here to read the whole article.
It’s becoming increasingly common as our work patterns are changing, that people have 123 or 4 pensions from previous occupations. The term “Frozen Pensions” is routinely applied to the plans. The pension regulators quite rightly in our opinion disapprove of this term and has barred its use in promotional material. One reason is the majority of “Preserved Pensions” are not in fact frozen and may continue to increase in value.
Many of our clients have expressed the wish to transfer their Preserved Occupational Pensions into one fund. The Pension Review will provide an independent assessment of the pro’s and cons of transferring and recommend alternative options if appropriate.