The question, from Diane Cox, 58 from Wokingham
I have a Scottish Widows personal pension due at 60 and an LGPS pension due at 66. Also buying avcs . I want to find out if transferring the personal pension into the LGPS is a good idea or not and how the new pension changes affect this decision.
The answer, from Richard Wadsworth CFPTM, Carbon Financial Partners
The main attraction of transferring the Scottish Widows pension plan to the LGPS arrangement would be to remove the investment risk associated with the Widows plan and, instead, receive the promise of an additional income in retirement from the LGPS. To that extent, transferring might be seen as the ‘safer’ option.
By transferring you would, of course, also simplify your administration going forward by having only one pension arrangement rather than two.
However, on the other hand, a safe option tends to be expensive and this would be expressed in the amount of pension that could be bought for the transfer amount versus the alternative of investing via the Widows’ plan and buying an annuity.
In addition, if you were to transfer, you would likely reduce your flexibility. You will be able to take benefits from your Widows’ pension at any time (while the plan may be set for age 60, you are very likely to be able to access it from age 55), whereas you could only take benefits from the LGPS at age 66.
Furthermore, from April next year, you could take out whatever amount you want from your Widows plan, at any time. If you transfer to the LGPS, you would, under current rules, only be able to take a lump sum at age 66, and the rest of your benefits would be doled out as a steady income for life.
Finally, if you did not need the income, or some of it, from your Widows plan, the value of the plan could pass very tax efficiently to your children, grandchildren or others on your ultimate death after 5 April next year. The additional LGPS benefits would not give you the same ability to pass money on tax efficiently.
Overall, therefore, transferring to the LGPS is potentially the safe, but inflexible option. Leaving your money with Scottish Widows (or another personal pension provider if you wish) gives you a lot more flexibility. What you choose to do is likely to depend on how important these factors are to you, and in the absence of a strong view either way, keeping some in a personal pension and some with the LGPS, as you have now, gives you the benefit of both sets of rules.
Richard Wadsworth CFPTM
Carbon Financial Partners