Readers lives: Can the pensions farce have a happy ending?

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The Independent Online
WHEN I was made redundant nine years ago I received a good lump sum pay-off and was referred by my ex-employers to a large, established and supposedly reputable firm of financial advisers. Part of their advice was to transfer my accumulated pension rights to a personal pension plan. It subsequently became clear that the advice was faulty, to say the least. I now have an offer of compensation. But I'm even less able to judge whether this offer is fair than I was to judge whether transferring to a personal plan was a good move in the first place. I have 28 days to accept the offer. Help!

BS, Derbyshire

Much has been written about the pensions mis-selling scandal: the sheer scale of it; the inordinate amount of time it is taking to sort out compensation; the attempts by the Government to name and shame insurance companies into action; the controversy over who is going to foot the multi-billion pound compensation. It's a farce.

Yet little has been said about compensation itself. Unless you are a pensions specialist, such as a pensions actuary, it is pretty well impossible to judge this sort of compensation offer. Bear in mind the growing revelation of the extent to which insurance companies got it wrong on projecting likely investment returns on endowment policies to pay off mortgages. How can you trust the assumptions and projections that underlie compensation for bad pension advice?

If a lot of money is at stake (and it often is, bearing in mind that you may be looking at a pension income, with annual rises, for many years of retirement) you should be prepared to pay a big fee to an expert to assess your offer. The Association of Consulting Actuaries, 1 Wardrobe Place, London EC4V 5AH (0171-248 3163) can provide a list of members.

Tax on perks is deducted from my monthly pay. My latest PAYE coding notice shows I'm now being taxed on subsidised membership of a sports club I joined last year, and I have been taxed on a company car through a PAYE code in the same way. Yet the contributions to my employer's pension scheme, also deducted direct from my pay, ignore the perks. I pay 5 per cent of my cash pay excluding these items. Shouldn't my employer take account of all my taxable pay?

MO, Sussex

No. What you pay to your employer's pension scheme depends on its rules. These must be compatible with the overriding rules laid down by the Inland Revenue, but they need not be as generous. There is a huge range of arrangements, and it is common for the formula for contributions to take account only of cash pay and exclude taxable fringe benefits.

The corollary is that if you're in a money-purchase scheme, where your eventual pension depends on the investment value of your fund, the percentage of your pay your employer makes as a contribution also excludes perks. And if you are in a final-salary scheme, where your eventual pension is based on a formula related to your salary, that formula probably won't take account of perks.

The same applies to other benefits, such as long-term sick pay and life insurance. Perks are excluded. All of which means that if you are ever offered the choice of a pay increase in lieu of perks, the choice is more complicated than it seems. Perks are less attractive than they appear at first sight.

With pensions, employees who belong to an employer's pension scheme can pay up to 15 per cent of their pay into the main pension scheme through additional voluntary contributions (AVCs). That 15 per cent limit does include the taxable value of fringe benefits, so you can choose to make extra contributions based on your perks. These can be made either to the AVC scheme run by your employer or to a free-standing AVC plan run by an insurance company or other provider of your choice.

My father recently died. My mother will get the marital home: my father's estate is worth about pounds 30,000 on top of that. We are reluctant to hire a solicitor to sort out probate. Is getting probate essential?

LB, Dorset

Getting probate is the process through which executors get the legal authority to distribute an estate according to a will. A similar procedure is involved in an intestacy (that is, where the person who died did not make a will) or where the executors named in a will cannot act as executors for some reason. You usually have to get probate for estates worth more than pounds 5,000. You can exclude assets owned as "joint tenants" from this figure.

Typically, though not always, a jointly owned home would be owned as joint tenants. Other assets may be owned as joint tenants, such as savings accounts and investments. Assets owned by joint tenants automatically go to the surviving joint tenant: they cannot be passed on through a will. Surviving joint tenants need show only the death certificate to get the asset registered in their name and remove the name of the person who has died. Assets passed to joint tenants do still count as part of an estate for inheritance tax purposes, but transfer of assets is exempt from inheritance tax, including assets passed between husband and wife - in life or in death.

For more information get a free copy of "How to Obtain Probate" from the Probate Department, Principal Registry of the Family Division, Somerset House, Strand, London WC2R 1LP. The Consumers' Association publishes "Wills and Probate" and "What to do when someone dies", each pounds 9.99; telephone 0800 252100. These may allow you to get probate unassisted, especially if your father's affairs were fairly straightforward. There is no obligation to use a solicitor, but if you want professional help, make sure you get a good idea of costs before you start.

q Write to the personal finance editor, 'Independent on Sunday', 1 Canada Square, Canary Wharf, London E14 5DL and include a phone number, or fax 0171-293 2096. Do not enclose SAEs or any documents you wish to have returned. We cannot give personal replies or guarantee to answer letters. We accept no legal responsibility for advice given.

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