Questions of Cash: Should I be starting to draw my pension now?
Saturday 17 July 2004
Q. I'm 56, recently redundant. If I wait until 60 I should get a pension of £8,000. I'm thinking it might be better to start drawing it now to ensure I get it.
Q. I'm 56, recently redundant. If I wait until 60 I should get a pension of £8,000. I'm thinking it might be better to start drawing it now to ensure I get it. I have options now of £7,480, or £5,636 plus a lump sum of £21,796. Would you advise taking the lump sum option?
BG, by e-mail.
A. On the assumption that yours is a final salary occupational pension, John Shackleton, pensions specialist at Worldwide IFA, says: "For taking the benefit three years early, the actuarial reduction seems very low, reducing the annual income by just £466 per annum. This means that you will receive three years' income (£22,440) for forgoing an additional £466 for life from age 60. Simple maths shows that if you delayed taking the income until age 60, you would need to live to age 108 to get your money back."
Whether you should take a lump sum now and forgo some of your annual income depends on personal circumstances, including existing debts, state of health and whether you have dependants. Mr Shackleton says that if you are married and your scheme includes a 50 per cent spouse's pension, then taking cash may be the best option. But if you are single, do not have debts and do not need the cash, then you would probably be best off not taking the lump sum. You should take independent advice from a pensions specialist IFA, particularly if you are concerned about the ongoing viability of your pension scheme.
Q. I was sold a Scottish Provident endowment in 1990 by M J Palfrey & Co, which has gone into liquidation. This policy matures in 2015, when I will be 70. If I had not been advised to take out an endowment I would not have bought the house.
I applied for mis-selling compensation from the Financial Services Compensation Scheme because I will not have the means to make repayments during the later years of the policy. But the FSCS rejected my claim on the basis that I took out a second endowment in 1999 to produce a lump sum when I reach 64, demonstrating that I was aware of the problem and that I should have claimed within two years of that time. But during the 1990s I was living in Hong Kong and unaware of the endowment mis-selling debate. What can I do?
A. The Financial Ombudsman Service (FOS) has no remit to review decisions of the FSCS. But the FSCS has three levels of review available to complainants unhappy about a decision or the process. Where it is the decision being appealed you should write to the FSCS requesting the case be reviewed. If you remain unhappy you can seek a second review by a senior manager and if you are still dissatisfied you can ask the chief executive to review the case personally.
Another option is to seek a judicial review of an FSCS decision, but given the likely costs involved this is probably not practicable. It is not possible to sue the FSCS, as it was not party to your transaction. Some people in the industry suspect the FSCS takes a more conservative interpretation of alleged mis-selling than does FOS.
Q. I frequently see advice to reduce parents' inheritance tax (IHT) burden by making annual gifts of up to £3,000 to children on the assumption that the parent will live for seven years after the gift. Can each parent make the gift, and can it be to each of a number of children, and also what documentary evidence is needed to prove to the Inland Revenue that the gift has been made?
A. Ian Luder, tax partner at the accountant Grant Thornton, says: "Everyone has a £3,000 annual exemption for IHT. This means that you and your wife can each gift up to a maximum £3,000 per year free of IHT, independent of surviving longer than seven years after the gift. The £3,000 exemption is per donor, not per donee. Thus you cannot gift £3,000 to each child, but £3,000 spread among them.
"If you did not use your £3,000 exemption last year, you can bring it forward and gift £6,000 this year. This applies only to the last tax year. There is the Small Gift Exemption, whereby you can make an unlimited number of gifts of up to £250 per donee. However once this limit is exceeded, the exemption is removed. Thus you cannot gift £3,000 plus £250 to a child, even if you have only one child.
"Regular gifts to children which can be demonstrated as having been made out of your income, and which do not reduce your standard of living, may also be exempt. These do not have to be cash: they might be premiums on a life policy.
"IHT exemptions are available for gifts to couples planning to marry. Parents can gift up to £5,000 each, and grandparents up to £2,500 each, without any IHT liability. Friends or other relatives can gift up to £1,000. Although there is no statutory requirement to keep any documentation as evidence of a gift, it is good practice to make gifts by cheque, and keep a formal record. A letter to the beneficiary is often useful, although inappropriate if the child is very young. Your executors will appreciate a clear record of gifts in your financial records."
* If you have questions, write to Questions of Cash, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail firstname.lastname@example.org. We can reply only to letters published. Please send copies, not originals.
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Shock poll shows voters believe Ukip is to the left of the Tories
Nigel Farage's approval rating hits record low as popularity suffers in wake of Ukip sex scandal
Ukip candidate jokes about 'shooting peasants' in racist and homophobic rant
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
Germany sees 'visible rise' in support for far-right extremism in response to perceived 'Islamisation' of the West
iJobs Money & Business
£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...
£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...
£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...
£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...
Day In a Page
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens