Pension

[Fran5678]

I'm divorced and before the pension scheme will start the transfer process they want fees up front from me and my ex. Would you pay £1200 cash (my half) or have the fee deducted from your benefits? My share is £120k, estimated from current CETV. I've only got 10 years left until retirement and was hoping to find a better scheme to move it into. I'm thinking of getting fee deducted but am worried I'm missing something? Help please.

Why are you transferring a pension? Is that a requirement from the divorce?
Is it a defined benefit scheme, sounds like it probably is, so even paying the fee does not guarantee that the outcome is that a transfer is recommended.

Usually most tax efficient to have any fees paid directly from a pension fund as opposed to paying from your own pocket.

This is arising from a Pension Sharing Order, yes? Where the original scheme requires you to take your share elsewhere instead of setting you up as a member in your own right?

Thanks nannynick and sunseed. Yes its my defined benefit scheme, split by a Pension Sharing Order 50 50. Ex has to have external transfer. I can leave mine in or transfer out. My scheme recently closed and seems to be encouraging transfers out. Due to caring responsibilities, I needed to stop work 7 years ago but now chronic illness stops me returning to any paid work. Its 10 years til they'll pay the pension, thats all I'll have (until hopefully eventually a full state pension). It is my idea to transfer the pension out, I was thinking transferring to a new scheme for 10 years might leave me better off than keeping the defined benefit on my old salary which looks small compared to current salaries. Just don't know what to do about it all.

nannynick not sure what you mean "paying the fee does not guarantee that the outcome is that a transfer is recommended." Do you mean I'll pay up and the scheme trustees might still not action the pension sharing order and enable me to transfer out if I want to?

@Fran5678 How old are you now?

If you are below 54, so not within 12 months of being able to draw your pension benefits, then you will probably struggle to find any reputable DB adviser who will look at your case. The FCA regulations mean that we just don't go there unless there are very special circumstances to do so.

Don't underestimate the value of the benefits that you have and the guarantees they include. They've got another 10+ years to grow from the sound of it, and at no risk to you.

I don't know about pension sharing orders. My guess is that the trustees would do the transfer out to your ex but it may not be in your interest to transfer out.

I'm 55 and last year's pension forecast said £10800pa & £30500k lump sum. Not sure if I'll get half of that, £5400pa and £15250 lump sum. If I have the fee taken out of it, presumably I'll get less. Looking like all my attempts at planning for retirement have gone wrong. Bit worried that pension scheme haven't issued a benefit forecast again this year? I don't understand pensions and I thought that it can't grow anymore as it is based on my salary when I left. The CETV has increased 250% since I left, which was why I was thinking moving it would be a good idea.

@Fran5678 What you have with a defined pension is a promise from the scheme to pay you an annual income based on the years of service and your salary when you left the job.

Statements will show you what this amount was, at the date of leaving, and they should also tell you what measure is used for increases every year in deferment, helping the pension at date of leaving to grow each year and retain its buying power against inflation.

Was your forecast indicating what you might get if you wait till the scheme's Normal Retirement Age? If so, then yes, to take benefits now they would apply an early retirement reduction factor to take into account that they'd be paying out for longer. You need to ask for an Immediate Retirement Quote to get a more accurate picture of what you could get now than just guessing it would be half.

CETV values go up and down frequently and represent the sum of money the scheme trustees think that they would need to put aside now in order to deliver the annual pension benefits you are entitled to. You will have seen it grow because your benefit has increased each year in deferment and will keep growing till you claim them. It will also have grown when interest rates and long term gilt yield rates fell a few years ago, amongst many other factors and actuarial assumptions.

Your question was about whether to pay your share of the fee from the scheme or from your pocket. I am guessing that this is your share of the fee charged by the scheme administrators for their additional work in preparing figures for the divorce hearing and sorting out applying the Pension Sharing Order. Obvious first question is do you actually have £1200 at hand that you could use now to make the payment? If not then you'll probably have to tell them to take the payment from your pension, but ask them to show you what the effect of that might be on your annual income figure before you authorise it.

Thanks Sunseed for taking time to help me, I really appreciate it. Yes the fee is for what you thought, and yes the figures were for normal retirement age, but half is transferring to my ex. I hadn't thought about trying to take it early but don't think I'd want to do that. I haven't got a spare £1200 but can jiggle things about to raise it. I'll ask the scheme administrators to show me the impact of taking the fee from the pension on the forecasted figure, as you suggest. Please can you explain more about it being more tax efficient paying directly from the fund?

Pay from the pension and if you're still single, look to transfer out as a) the pension value includes a spouse's benefit you don't need and b) the trustees are encouraging transfers out which means it's likely to be on the ropes and they need to get shot of their liabilities. I still rue the day we held out hoping for an enhanced transfer value from DH's pension and then it ended up in the PPF.

Re: tax efficiency - if you are a basic rate taxpayer then to have £1200 in your hand you would have had to earn £1500 gross and pay £300 in tax (ignoring personal allowance).

But a fee payment made directly from the pension fund to the administrators could be paid as £1200 gross and no deduction for tax. Therefore, netted down, it technically only costs you £960 to do it this way.