Financial pension advice

[chrisbainbridge]

My pension summary report has come back as showing that i have reached the LTA.  I am now applying for the individual protection.  My union (BMA) has retained financial advisers but they do not do Skype and want to come and spend time with me.

I simply want to know what happens now.  i presume that there is no point still paying into the pension pot? is that correct?

Should I withdraw from the pension arrangement or take 24 hour retirement?  I do not want advice about anything else.

Is there anywhere else I can go for such advice?

[Whitedown Man]

Chris, go to:

www.pensionwise.gov.uk

They're the body George Osborne (don't let that put you off) set up when he introduced 'pension freedom' to provide free advice. They're industry-funded but government-controlled. They may not be able to answer all your questions, but they're a good place to start.

[rogerzilla]

If you've reached the LTA there is no more tax relief.  ISAs are an option (although only the return is tax-free, not the contribution) and there are many other ways to save, but you won't get tax relief at source.

I would use your pension advisers.  It can be quite complex, and your situation is unusual.  Most people won't get near the LTA.  I might, if I could be arsed to work to 65, but I'm not going to.

[yoav]

No, it doesn't work like that in the NHS. I assume you're a doctor in the NHS as you've mentioned the BMA but if not then ignore this.

In the NHS pension scheme, there is no pension pot. Your contributions just go into a general fund that pays existing pensions and yours in time. Your pension value for the purposes of LTA calculation is worked out by taking your estimated annual pension and multiplying it by 23 (lump sum plus 20 years of pension).
Doctors such as consultants and GPs who are old enough to be entirely or mostly on the 1995 scheme are quite likely to breach the LTA, which is currently £1m.

You can still pay into the pension scheme (and get all the tax relief) but when you crystallise your pension and it exceeds the LTA, you will be taxed quite heavily on the excess. However,

If your total pension exceeded £1m (this includes any private pension) as on 31/3/16 then you can apply for individual protection which means that any pension value between £1m and £1.25m will not be subject to the extra tax.

It is certainly possible to stop paying into the scheme when you reach your LTA. Your pension will be index linked until you do retire but you lose your death in service benefits. Another option is to take flexible retirement, collect your pension and negotiate a new contract with your employer on reduced hours. Or retire completely, of course.

You really do need to speak to an independent financial adviser who has knowledge of the NHS scheme. If you don't want to speak to the BMA then maybe you have colleagues who can recommend someone.

I don't know your individual circumstances but feel free to PM me if you wish as I have been through similar issues myself.

[ScumOfTheRoad]

Reviving this thread - does anyone know if pension providers keep the dividends from investment funds bought with your money?

Longer read: I have a Vanguard SIPP which I took out just over a year ago. I think it is excellent - they are transparent about how your money is doing and produce graphs online of each fund's performance. They are up front about the fees.
For other pensions I get a yearly statement and I find it hard to figure out how well or badly my pension is doing.  I have transferred all of my smaller pension pots to Vanguard which is dead easy.

Yesterday I noticed that Vanguard had messaged me about dividends being paid out by funds over the last year.
I have never seen notices like that for other pension providers - being cynical, my question is do other pension providers just say they are the ones doing the investing and keep the dividends?

[CommuteTooFar]

Pension companies generally use what are known as open ended funds.  Many years ago the financial regulators decided that the units of these funds could be either accumulation units or income units. Income units pay out the dividends at specified times. Accumulation units reinvest any income inside the fund so dividends are never (very rarely, I know of case when they are) paid.  Pensions sold by companies like Aviva only sell accumulation units.

SIPPs are different.  You can buy almost any type of fund or individual shares many of which do pay dividends. Most operators offer the option of DRIPs where they reinvest the income from a fund or shares back in the fund or buy more of that share. Now you can only own whole shares so there is some money uninvested. This is just added to the cash balance of your SIPP. After this has happened a few times you will have enough to buy some more shares of something.

It is illegal for pension companies to keep dividends for themselves.     

[CommuteTooFar]

From my point of view I do not like the Vanguard SIPP. It seems expensive to me at £375 a year. That is a lot when you can only invest in Vanguard funds.  I use Interactive Investor which charges a lower fixed fee and I can invest in a much greater range of funds including the Vanguard funds.

[ScumOfTheRoad]

Thankyou for that CommuteTooFar.  I will stick with Vanguard as I do like thier transparency. But I will keep an eye on the yearly charge.

[CommuteTooFar]

When your pension fund reaches  £160,000 you should switch to Interactive Investor (II).

Calculation II  fee 19.99 per month or £239.88
Divide that by the ad valorum fee used by Vanguard 0.0015 the cross over point when II becomes cheaper £159,920.

I despise ad valorum charges they are common in the financial industry they say isn't 0.15% small. Not when you have a big (normal pension) fund its not.

[CommuteTooFar]

I should correct the impression I have given that Interactive Investor are the cheapest.  If you just invest your Sipp in open ended funds or just in shares then AJ Bell YouInvest platform could be cheapest. If you have funds and shares then II is less expensive.