Reader Question:
I am about to be made redundant and I have a pension with my employer. I have been told that my money purchase plan pension is to close yet I have received no further details. Can you give me an idea of what implications this may have on my pension? i.e. Can I be forced to transfer the pension? Will I get a financial incentive to transfer the pension etc..
My Response:
Wind ups do not affect money purchase schemes in the same way as they do defined benefit schemes. However, money purchase schemes generally do not contain guarantees as to what you will get when you retire and your eventual pension will depend on the investment return achieved and annuity rates when you retire.
Upon wind up of the scheme you are most likely to receive an option of a cash lump sum depending on the size of your pension pot/ the length of your membership; the option to continue with an individual pension contract or to transfer your funds to an alternative pension arrangement such as a personal pension. Whether you are offered financial incentives will depend on the scheme rules, although these are more prevalent when an employer is trying move final salary members to a defined contribution scheme (i.e. winding up a final salary scheme).
It's important that you speak to your employer ASAP and seek advice from a financial adviser with regard to your pension. If you do not have one then your employer may give access to one as part of the redundancy proceedings.
I hope that helps
Best Wishes
Damien
Money to the Masses
Website: www.moneytothemasses.com
Twitter: 'money2themasses
The material in any email, the Money to the Masses website, associated pages / channels / accounts and any other correspondence are for general information only and do not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation. See full Terms & Conditions and Privacy Policy
Thanks,
I should say that my employer has not said that it will be definitely closing the pension – although it has said that it is very likely and won’t be decided until after the factory closes.
Your comments help me better understand my options. – Thanks again.
Thanks Damien, this helps, however, why the need for a financial advisor? Won’t they simply charge a large lump sum for organising transfer of the pension when you could save this expense by organising another pension provider yourself?
Yes that is it certainly true.
If you are confident and understand the products etc then there is no reason you can not make a decision yourself. However, often pension providers require that a financial adviser transact a pension transfer even if you are driving it. But your employer may have something set up to facilitate a transfer.
Pensions can be a minefield so seeking financial advice is always the best default option.