Q. My wife and I, who are both approaching retirement age, used to work for the same employer that provided us with a generous final salary pension scheme. Unfortunately neither of us were there very long so our forecasted pensions are quite low. We have both recently received information from the scheme, and whilst the information provided suggests my wife may be able to cash hers in entirely, it appears that I am unable to do so. I rang for an explanation and they said I didn’t qualify under the Triviality rules, but couldn’t explain any more than that. Does this sound correct or should I make further investigations?
A. Without knowing more about the exact level of pensions you and your wife have I will have difficulty answering this. However, a feasible answer could be that your wife’s annual forecasted pension from the scheme is below £1,500 per annum and yours is perhaps slightly over this value. This is because under Triviality rules for final salary pension schemes, the annual pension is multiplied by a factor of 20 and if the resultant figure is below £30,000 you may be entitled to cash it in under Triviality rules. I say you may be able to cash it in, because to be eligible to do so, this pension would need to be the only one you have and you would need to be over age 60.
Q. As we were planning a house move my wife and I arranged to see a mortgage adviser at our bank where we have our existing mortgage to see what the maximum was that they would lend us.
The logic was that with the expected equity from the sale of our existing house we then had an idea of the price band that we could look at in searching for a new house. They gave us a figure and we put our house on the market.
We started looking in our known price band for a new property. We found one and put in an offer which was accepted, this offer was close to our price limit.
As we also had an offer on our existing house we returned to the mortgage adviser who asked a lot more questions than on our previous visit and despite me having had a small pay rise we were told that the maximum amount we could borrow was £30,000 less than what we had been told us just a few month earlier!
All they said was that the lending rules have changed. Can you explain why please?
A. It sounds as if you have been affected by the Mortgage Market Review (MMR) which came into force on 26 April 2014.
Prior to the MMR, lenders would mainly take into account your income and any debts such as car loans, credit cards etc. to determine the maximum amount you could borrow on a mortgage.
Now they also ask much more searching questions about personal expenditure and lifestyle, for example holidays, hobbies and other area’s of discretionary spending such as how often do you eat out?
The MMR has been introduced as a result of the financial crisis that started in 2007 and is designed to make lenders much more responsible. The end result is that we are generally seeing people being able to borrow less than before MMR.
Q. I work part-time and my salary is below the Personal Income Tax Allowance. My husband works full-time and is in a pension scheme and between us we have some spare income we can put aside to fund for retirement. Should I consider an Individual Savings Account (ISA) or a personal pension?
A. This is a very common question. Both ISAs and Personal Pensions offer tax-efficient ways to save for retirement. ISAs have the advantage that you can access the funds at any time, and in any way you wish, and the fund is protected from tax. Personal Pensions, however, offer tax relief on the contributions at your marginal rate of tax. Even though you are a non-taxpayer, you get basic rate (20%) tax relief on contributions up to either the level of your earnings or £3,600 if higher. If you are likely to be a non-taxpayer in retirement, this means you could turn every £80 saved into £100 just with the tax relief, before considering any investment growth. The extra flexibility at retirement announced in this year’s budget, has made pensions more attractive to many people, although the disadvantage is that you cannot access the fund until you are 55 under current rules, with a proposal to raise this age from 2027 so that it is 10 years before State Pension age.
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.
0191 217 3340
