Pensions scandal

Hi Graham,
Think of the money that has been paid into your pension like savings that you would pay into a bank account. Say you decide you want to buy a new car so you save up for it by paying into a bank savings account. When the time comes to buy the car, you don't have to buy it from the bank you have saved with. You have the option to shop around and get the best deal available to you.

Its just the same with a pension. Once you decide to "cash in" the pension by buying an annuity, you don't have to buy it from the company you have been "saving" with. And your entitlement to an enhancement is determined by your health at the point you decide to buy the annuity, not what what your health was while you were going through the "saving up" phase.

Hi Graham,
From what you have told us, and I am sure Shadwell would agree, it is probably pretty important that you should seek independent financial advice as your situation is far from the standard one. There are many options open to you and, even if you have to pay for the advice, I think the benefits that you would gain from professional advice will outweigh the costs many times over.

JamesA said:

The other pensions question I think would be how easily you can get the money if you get ill and know you're on your way out before you get to your retirement age and want to go on a spending spree :wink:

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Hi James,
If you mean can you take the pension money as cash and spend it, I'm afraid the answer is no. Current legislation surrounding pensions says that you can't just cash the pension in. You can only use the money to buy an annuity. You are allowed to take 25% of your pension fund as cash (tax free) but the rest has to be spent on an annuity.

If you knew that you had very little time left, then you would be best to leave the pension fund where it is rather than buy an annuity, because when you peg it all the money in the fund will be paid back to your executors as part of your estate. What you could do of course (and this is just a thought not advice to you!) is borrow the money you want to splash out from a friend or relative, and leave them the amount you borrowed in your will. They then get paid back the loan after you die!

Just for information, the Financial Services Authority (FSA) on Friday 1st August published their findings on their investigations over the open market option (OMO) and how pensions companies try to cheat their customers out of getting a better annuity. This is an extract from a summary of the FSA report:

"Almost 40% of firms failed to meet the minimum requirements set by the FSA. These include not explaining what the OMO is or that it can lead to a higher pension income. Very few firms mentioned the advantages of shopping around for customers with health problems that could lead to an enhanced or impaired annuity.

Issues with prominence of the OMO information in 'wake up' letters was also indentified, where in some cases it was hardly mentioned or left until late in the letter.

Some companies claimed in their literature that there is no such thing as ‘the best rate’ mixing up the best type of annuity with the best rate.

In terms of transferring funds, delays had occurred in over 60% of annuity transfer cases reviewed. The complexity of the process and confusion caused by the diversity of forms used to complete transfers were identified as key reasons for delays.

The FSA made individual recommendations to those firms and work on these issues needs to be completed by December 2008."

Well done to the FSA for reinforcing what I have been telling you. It's now official, but remember you heard it here first!!