Think carefully – and take advice – before transferring pension

Published on Friday 12 June 2009 20:14

CASH Clinic

Q I worked for the NCR in Dundee from 1979 to 2004. I was made redundant in 2004 and have since worked for an Aberdeen firm, joining their pension plan in 2006.

I left my pension pot in NCR's pension fund but I am becoming concerned that it will close its Dundee operation altogether.

I was wondering how safe my pension pot is, and whether I should transfer it to my current employer.

I am 47 years old and married. I also have a sizeable Additional Voluntary Contributions (AVC) pot with Prudential from my years at NCR. The pension pot I have with NCR is mostly defined contribution, except for a few years of final salary, although these were 100ths. What advice can you give me?

PD Aberdeen

A If you are concerned about the future of the company providing your pension benefits, it is important to seek independent financial advice. The consequences of making a wrong decision are significant.

A qualified expert can undertake formal calculations, assess the potential risk of alternative strategies, including the loss of benefits, whilst taking into account your own requirements, including your anticipated retirement age and attitude to risk.

Careful consideration should be given before transferring your NCR pension to your new employer.

Some factors to consider are the charges being applied and the investment choices available from both schemes. Although it is for a relatively small proportion of your pension fund, you should ask a suitably qualified adviser to undertake a transfer value analysis, which would identify what an alternative pension arrangement must produce (the critical yield) to match the benefits currently on offer from your years of final salary funds. This helps the adviser assess whether or not it is sensible to transfer the benefits to a money purchase arrangement.

It is vital to consider the financial strength of the employer company in question also. The usual process if a company goes into liquidation is that the trustees of the pension scheme would make an application to transfer assets and liabilities to the Pension Protection Fund (PPF). An assessment by the PPF would determine whether the scheme is eligible for protection.

Once this assessment process begins, it is not possible to transfer your pension, unless the member had previously received an offer of a transfer value and accepted it. However, trustees can still reduce the transfer value available.

If the PPF does not accept the scheme, no transfers out are available and the member will be entitled to PPF-level benefits when they reach retirement. There are limitations to this fund, however, including a compensation cap.

In the current economic climate, increasing numbers of people are transferring their pensions. This is a big decision and it is crucial to seek professional advice in weighing up the benefits and drawbacks of your present scheme compared to any alternative.

&#149 Gregor Munro is a financial adviser at HBJ Gateley Wareing.

&#149 If you have a question you need answered, write to Jeff Salway, Personal Finance Editor, The Scotsman, 108 Holyrood Road, Edinburgh, EH8 8AS, or e-mail: [e-mail].

This above is for general purposes only and is not tailored for individual use. It does not constitute legal, financial or investment advice on any particular matter and must not be treated as a substitute for specific advice. No action should be taken in reliance of the information given. The Scotsman Publications Ltd and HBJ Gateley Wareing accept no liability on the basis of this article.