Pension Case Studies

Problem

David was one month away from his 55th birthday and had an old pension scheme with a former employer with a Normal Retirement Date of 55. His current planned retirement date was now set at age 60. David was a higher rate tax payer, unmarried, and without children and he wanted to transfer his benefits from his old employer's scheme to his current employer's scheme.

The Trustees of his old pension scheme were refusing to allow his benefits to be deferred until his 60th birthday and insisting that he take them at age 55. Further, the Trustees of his current employer's scheme were now indicating that their scheme would not be able to accept the transfer even if it was granted, a position that had been caused by a lack of attention to the timescales involved and the technical requirements of the actuarial advisers to his current employer's pension scheme. David had previously been given different options but action had to have been taken three months prior to his 55th birthday and as this had not been the case these options had now disappeared.

It looked as if David had run out of options and would now have to take his benefits at 55, suffering a potential loss on the future growth of his benefits and incurring 40% income tax on the benefits received. David was unhappy with this situation and approached us for advice.

Solution

At first glance this looked like a case to be taken to the Ombudsman, however, having looked at the rules of the schemes involved and consulting with our legal advisers, we advised David that it might be possible for him to transfer his benefits out of the original scheme if an extension to the transfer period could be granted within the scheme rules. The benefits would however have to be invested in a new pension product as it did not seem possible to affect the transfer to the new employer's scheme. With his agreement, our legal advisers then contacted the Trustees of David's old scheme and persuaded them to allow an extension of the 3 month period in order for us to have time to properly asses the situation. Following a robust legal argument, it was agreed that a three month extension would be granted and a current Transfer Value was subsequently generated to allow David to transfer his benefits out of his old scheme into a new pension arrangement specially tailored to facilitate the transfer.

The immediate benefits to David of this arrangement were that his Tax Free Cash entitlement was increased and he avoided a 40% tax charge on the income from the pension. Going forward, the SIPP arrangement which we put in place would also offer increased flexibility at age 60, when he intended to draw his benefits, while giving him personal control of his investments during the period prior to that. And looking even further ahead the SIPP arrangement allowed for him to keep the scheme outwith his personal estate and gave him control over how his benefits should be distributed on death.

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