Q. I have benefits in a final salary pension scheme. I like the sound of the new rules whereby I can draw the fund as a lump sum, as I want to buy a holiday cottage. How do I go about this?
A. The new rules offering greater flexibility to draw your fund all at once apply to defined contribution pensions such as personal pensions, not to final salary schemes. It is possible to transfer from your final salary pension scheme to a personal pension plan to take advantage of this flexibility, however this decision should not be taken lightly and may not be in your best interests. Most final salary pension schemes produce income and tax free cash which is often of far greater value than any transfer value offered, so tread carefully and if you do still wish to find out more consult an Independent Financial Adviser who specialises in pension transfers, to have your own particular circumstances evaluated.
Q. I have a business that employs around 50 staff. I have been advised that I must enrol these into a compulsory pension on or before 1 April 2015. A competitor of mine, who happens to be sited on the same industrial estate, is much bigger employing nearer 100 staff and she has suggested she doesn’t have to enrol her staff until 1 October 2015. I had assumed the bigger you were the sooner you had to comply with these new rules, but apparently not in this case! I have double checked my start date and it is definitely correct, do you think she might be mistaken?
A. Whilst it might come as a surprise, both dates could be correct and this could be due to one of two reasons. Firstly, it was the size of your company (i.e. the number of people you employed) as at 1 April 2012 which determined your start date (or staging date as it is known) not the size of your company now. Secondly, the number of employees is determined by payroll reference number, and it is not uncommon for what appears to be one employer under one roof, having more than one payroll reference number, especially if there has been some sort of merger activity in the past.
Q. I have recently started in new job with a good salary, a pension scheme and life cover. Unlike my previous employer though there is no income protection scheme in place. My contract of employment states that if I am unable to work due to accident or illness I will only be paid for 6 months. As I am only 42 I want to put in place an income protection scheme. Can you advise on what I need to consider?
A. Income protection schemes are normally referred to as Permanent Health Insurance (PHI). These schemes are designed to pay out a certain level of income to a pre determined age of say 65 or state retirement age, when you would plan to retire, if you are unable to work due to accident or illness after an initial deferred period. In your case as you are paid a salary by your employer for the first 6 months of any accident or illness it would seem logical to have a deferred period of 26 weeks. If you are then off work for any longer than 26 weeks and assuming that you meet the PHI insurers terms and conditions the insures would continue to pay an income out until you either recover sufficiently to return to work full time or you reach the age at which you selected the policy to run to. If you are only able to return to work part time the insurers may make a proportionate payment. As income in payment from individual PHI policies is paid tax free it is usually limited to 50% to 60% of your gross salary plus state benefits. The range of PHI schemes and their terms and conditions do vary so I suggest that you should take Independent Financial Advice so that they can guide you to the scheme that is most suitable for you.
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
