Q. I have a deferred pension with my previous employer. It is a Final Salary Pension which I can draw in three years time. I have recently received a transfer value and am quite amazed at the size of it in relation to a transfer value I had quoted about three years ago. It is significantly larger. Is this just natural that the transfer value increases as I get older or do you think they may have made a mistake?
A. There are two reasons the transfer value is higher. Firstly, you are correct that transfer values tend to increase the closer you get to retirement age. However, any increase is not normally significant to the point of your surprise. The significant increase in the transfer value you refer to is likely to have more to do with current market conditions than you being three years older. In the current low interest environment we are in, GILT yields are at an all time low and as they are directly related to long term pension liabilities, this in turn has the effect of inflating current transfer values. It is possible that transfer values may reduce in the future, but this should not concern you if you are anticipating taking pension benefits directly from the scheme. This is because the employer carries all of the investment risk and you receive the pension owed to you regardless of market conditions. If, however, you are considering taking a transfer value to access the new pension flexibilities, then you should take financial advice from a suitably qualified independent financial adviser who is also a pension transfer specialist with specialist qualifications.
Q. As it is Burns Night this week, could you explain the Scottish rate for Income Tax, and who is affected by it?
A. With effect form 6th April, those living north of the border will pay 10% lower income tax than the rest of the UK, but instead they will pay the Scottish rate of Income Tax (SRIT) in addition. This is set by the Scottish Parliament, and gives the opportunity for a higher or lower rate of income tax to be levied in Scotland. In their budget in December it was announced that the SRIT would be…10%! Therefore a higher rate taxpayer in England will pay 40% income tax, whereas his counterpart in Scotland will pay 30% income tax and 10% Scottish income tax, total 40%. The end result is that we all still pay the same in total, for now. At the same time, with George Osborne having announced an extra 3% stamp duty for those purchasing a second residential property, the Scottish Government announced an extra 3% on the Scottish land and buildings transaction tax for those doing the same in Scotland, making this tax the same across the UK as well.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
