John Mortimer: Pension transfer deadline looming

From 2012, the government is proposing a ban on transfers from contracted out company pension schemes to personal pension schemes. For most people that will not be an issue, however it will affect some and it is this minority who probably do not realise the effect it could have on them.

Take, for example, someone who is single and may not therefore need a spouse's pension provided by their company scheme - it could be in their interests to have the value of their pension benefits transferred to a personal pension plan to allow the purchase of a single life income. This could result in a higher pension to them.

What about someone in ill health who could buy an enhanced or "impaired life" annuity from a personal pension plan? This option may not be available to company scheme members from 2012 due to the proposed ban. In addition, lump-sum death benefits can be higher under a personal pension rather than a company pension - a return of the pension fund is normally paid on death under a personal pension, whereas a multiple of salary is often paid from a company scheme.

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More recently there have been proposals for those who have a "minimum level of income" being paid to them in retirement to be allowed to "strip out" their pension fund as income rather than leave it in the plan where it could end up being taxed at 55percent on death. If you could strip out the fund by taking income which is taxed at 20percent or 40percent, then that not only makes good financial sense but also allows flexibility to plan finances in a way that suits the individual. Is this another unintended consequence of pension regulation? It looks like this perfectly legitimate form of financial planning will not be permitted post 2012 for those in company pension schemes, but for the rest, it will be allowed.

Lastly, as we are in recessionary times, if there is uncertainty about the financial security of a company, a member may wish to transfer his company pension scheme benefits away in case the employer becomes insolvent and leaves a deficit in the scheme funding. A transfer out would normally be to a personal pension where there may be greater control of these funds and an increased level of financial security - the Pension Protection Fund has been set up to alleviate this but the effects of this protection start to diminish for higher earners whose pension income is more than 33,000 per annum.

Bearing in mind that most company pension schemes do not allow transfers out in the final year before benefits are paid, and the proposed 2012 ban, now is the time to discuss with your IFA your future pension and financial plans.