Q. I am 55 years old and a member of the NHS pension scheme. Whilst I am not contemplating retirement yet, I am interested in the new pension flexibilities that are available where I could consider exchanging my pension for a one off lump sum. However, one of my colleagues has told me I am not eligible, is that correct?
A. Your colleague is absolutely correct. The vast majority of the new flexibilities are not available for Final Salary schemes such as the NHS pension scheme. It is true to say that many final salary pension holders can access the new flexibilities by transferring to a personal pension plan, but there are restrictions on doing so for the majority of public sector schemes. Of the seven main public sector schemes, NHS, Teachers, Fire Fighters, Police, Armed Forces, Civil Service and LGPS, only members of the LGPS scheme can transfer to a personal pension plan. The government took the decision to ban transfers from “unfunded” pension schemes to personal pension plans to avoid a sudden mass transfer for schemes with no fund to back them up, essentially placing the burden on the taxpayer. The LGPS scheme is a funded pension scheme, therefore transfers from this scheme are allowed.
Q. In a previous answer a few weeks ago you indicated that it is important to have the death benefit nominations up to date on pension drawdown plans. Would the scheme not simply pay out the fund in accordance with my will?
A. If you die as a member of a personal pension plan, whether in drawdown or not, the scheme provider/ administrator will usually have a degree of discretion over what they do with the fund. It is this discretion which ensures that inheritance tax is not due on the value of the fund. The scheme administrator can pay a lump sum to any suitable beneficiary, or they can pay an income from the fund to either a financial dependant of the deceased member, or someone else who may have been nominated for consideration by the member. This facility to consider an income to someone who is not dependant is new, since April, and offers the potential for a pension to be passed down the generations, remaining within a very tax-efficient environment. Any expression of wishes by the member is not binding on the administrator, but they will usually consider it carefully. The provider is, however, unable to pay an income to someone who is not a dependant, unless they were nominated by the member. Whilst the lump sum option is available, this takes the fund out of the tax-efficient pension rules. In the absence of an expression of wishes by the member, the scheme provider will usually request a copy of the member’s will, if there is one, for some guidance on what the member would have wanted to happen to the fund, or alternatively they might rely on the rules of intestacy. However the option to keep the fund within a tax-efficient pension plan for the benefit of future generations could be lost if the correct nominations have not been made. I recommend you speak to your financial adviser if you have one, or to a chartered financial planner if you do not, or if your adviser cannot help.
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
