Cashing in Pension

Conology

A friend of mine is cashing in a company pension, which she had with a previous company. The pension was handled through a broker/agent.

The broker/agent is asking for a ( termination ) fee for representing her with the Pension provider.

Can anyone advise
1) what grounds the Broker has for requesting a termination fee.
2) should any fees the Broker has (if applicable ), be paid for out of his normal fees for representing the person during the course of the pension.
3) should any fees (if applicable ) be paid for by the Company which the person was working for previously.

Thank you

Corkbah

there's always gonna be a fee, your friend might need to check everything though ….apparently theres lots of UK companies encouraging "cashing in" pensions and charge a huge fee for doing so.

I think its called pensions liberation fraud … its kinda a legal scam (kinda like those offers to buy pensioners homes for cash up front now a few years ago…. its like the people are giving you a loan of €1000 cash now but it could take €20,000 out of the pension fund).

anyway … I'd say ask your friend why they are cashing in and check out if its financially an option …. it might be a trap.

Conology

Corkbah wrote: »

there's always gonna be a fee, your friend might need to check everything though ….apparently theres lots of UK companies encouraging "cashing in" pensions and charge a huge fee for doing so.

I think its called pensions liberation fraud … its kinda a legal scam (kinda like those offers to buy pensioners homes for cash up front now a few years ago…. its like the people are giving you a loan of €1000 cash now but it could take €20,000 out of the pension fund).

anyway … I'd say ask your friend why they are cashing in and check out if its financially an option …. it might be a trap.

Hi
(The cashing in of the pension is financially an option)
Thanks for the reply - but it does not really answer my friends questions.
So if anyone can answer the questions specifically - I'd appreciate it

keeponhurling

If it is a company penion plan, and she can legally cash it in, then just contact the company. Not sure a broker is necessary.

But is cashing it in a good idea? Probably only if they are serious financial difficulties and need the moola right away, so they will lose any tax benefits they may have gained building up the fund.

Also not clear if they can only cash in their own contributions, or also part from company contributions (if any)

coylemj

Unless the OP's 'friend' is using the new facility to cash in up to 30% of their AVC, I would be very wary of dealing with a broker to 'cash in' a pension. There are lots of cowboys at it in the UK, it involves a complicated device which inevitably means lots of commission for the broker and a very bad deal for the punter.

Conology

coylemj wrote: »

Unless the OP's 'friend' is using the new facility to cash in up to 30% of their AVC, I would be very wary of dealing with a broker to 'cash in' a pension. There are lots of cowboys at it in the UK, it involves a complicated device which inevitably means lots of commission for the broker and a very bad deal for the punter.

The broker is the Company broker. The person cashing in the pension was an employee of the company - so any dealings in relation to the pension are handled by the broker.
Should the broker be requesting fees (if applicable??) from the Company - not the employee ?

OU812

I thought it wasn't possible to cash in a pension. Are they not locked until retirement date ?

Conology

OU812 wrote: »

I thought it wasn't possible to cash in a pension. Are they not locked until retirement date ?

Sorry - I'm unable to answer your question.

CarrickMcJoe

I am aware of a guy who got a doctors note stating, due to illness he could no longer pay into his pension, he then cashed it in with no penalties.

Phoebas

OU812 wrote: »

I thought it wasn't possible to cash in a pension. Are they not locked until retirement date ?

I think you can cash them in (maybe not employer contributions), but all of the tax relief you got on the contributions is unwound.
Its normally a very bad idea.

Phoebas

CarrickMcJoe wrote: »

I am aware of a guy who got a doctors note stating, due to illness he could no longer pay into his pension, he then cashed it in with no penalties.

Is that something like an early retirement on health grounds? Did he get the cash in full or did he have to buy an annuity?

Podge10

OP can you provide more information?
Is this in the UK or Ireland?
It the pension was attached to a previous employer I assume it is an occupation pension scheme. Can you confirm if it is defined benefit or defined contribution. Also what age is your friend?

Thanks

Liam D Ferguson

There are a lot of theories and possibilities flying around this thread. Here's a list of the circumstances in which a person can access funds from a pension scheme. For the purposes of this, I'll assume that the pension scheme in question is an Occupational Pension Scheme.

• If the member has less than two years' service and leaves the employment, they can receive a refund of the value of their own contributions, less tax. The employer will also receive a refund of the value of their contributions.
• If the member is 50 or over, they can retire.
• If the member is in serious ill-health - not likely to work again - they can apply for ill-health early retirement, even if they're not yet age 50.
• There have been schemes advertised by companies outside of Ireland offering to transfer pension funds to other countries to avail of different retirement rules in the other countries. These are unregulated, of questionable legality and extremely risky. Revenue pretty much closed off this in Ireland by insisting that any transfers abroad must be for bona fide reasons, e.g. the person is emigrating.

Conology - can you confirm which of the above circumstances apply here?

Podge10

Agree with the above. However, if the member holds a benefit in an insolvent/underfunded defined benefit occupational pension scheme and is over age 50, the Trustees are unable to grant early retirement. This is the case in the majority or DB pension schemes in the country.

In this instance it is possible to take a transfer out of the scheme. The transfer value is a sort of cash equivalent of the expected pension benefit calculated by the scheme Actuary and would be reduced by the solvency position.

A member may transfer their benefit to a Personal Retirement Bond (PRB) with a life company eg. Irish Life, Zurich etc. and take early retirement from here post age 50. PRB's are governed by the rules of the transferring scheme, but are not impacted by solvency.

All of this is legit, however this is typically where fees come in. The previous employer will cover the admin costs for the pension scheme and thus the transfer out process, but they will not pay for setting up the PRB, any admin costs for the broker or any commission the life company wants on it. So there may be a separate fee payable to the broker, or there may be commission dedcuted from the fund to cover the cost.

_Kaiser_

I have a pension from a previous employer that I was with for 7 years that's presumably sitting in limbo ever since.

I then have 4.5 year's worth of contributions from a public sector role

I'm now eligible for the pension scheme in my current company but to be honest I'm not sure if it's worth it when you read about how schemes have been decimated and the govt can dip it's hand in anyway.

Any advice? Could I tie all 3 together somehow? I presume cashing the earlier 2 out isn't a runner based on the above?

Conology

Liam D Ferguson wrote: »

There are a lot of theories and possibilities flying around this thread.

Conology - can you confirm which of the above circumstances apply here?

Hi Liam D
Thanks for your comments / questions.
I agree with you that there are now lots of theories and possibilities flying around which do not relate to my questions.

ie
1) what grounds the Broker has for requesting a termination fee.
2) should any fees the Broker has (if applicable ), be paid for out of his normal fees for representing the person during the course of the pension.
3) should any fees (if applicable ) be paid for by the Company which the person was working for previously.

for the benefit of these questions please assume that my friend can legitimately cash in her pension.

Thank you

Liam D Ferguson

Kaiser2000 wrote: »

I have a pension from a previous employer that I was with for 7 years that's presumably sitting in limbo ever since.

Would need to know if this was a Defined Benefit (DB) pension scheme or a Defined Contribution (DC) scheme.

Kaiser2000 wrote: »

I then have 4.5 year's worth of contributions from a public sector role

Assuming that the other two are private-sector pensions, there's no transferability between private and public sector pension schemes. There's no fund underlying a public service pension. All you have is a promise from the Government to pay you a pension when you retire, out of day-to-day exchequer income at that time.

Liam D Ferguson

Conology wrote: »

Hi Liam D
Thanks for your comments / questions.
I agree with you that there are now lots of theories and possibilities flying around which do not relate to my questions.

ie
1) what grounds the Broker has for requesting a termination fee.
2) should any fees the Broker has (if applicable ), be paid for out of his normal fees for representing the person during the course of the pension.
3) should any fees (if applicable ) be paid for by the Company which the person was working for previously.

for the benefit of these questions please assume that my friend can legitimately cash in her pension.

Thank you

Which of the four bullet points from my previous post applies to your friend?

Conology

Liam D Ferguson wrote: »

Which of the four bullet points from my previous post applies to your friend?

Point 2 is relevant, but again I don't think this refers to the questions which were raised.

Thanks for your input.

Liam D Ferguson

Conology wrote: »

Point 2 is relevant, but again I don't think this refers to the questions which were raised.

Thanks for your input.

Okay so your friend is retiring and the scheme broker wants to charge your friend a fee for processing the retirement. Typically, a retirement involves the member taking a lump sum and perhaps a pension and/or Approved Retirement Fund (ARF) thereafter.

There are no rules or laws as to who pays for what. It would be unusual for a broker to charge a fee solely for processing a retirement claim. Perhaps the broker is charging a fee for processing the retirement claim as well as financial advice and/or implementation of the financial products that follow, e.g. the annuity or the ARF.

If this is an insured scheme (i.e. the scheme is with one of the life assurance companies e.g. Irish Life, New Ireland etc.) then your friend can bypass the broker and deal directly with the pension company. However, s/he'll get no advice as to which of the various options is most suited to their specific circumstances.

If your friend is going to end up with an annuity, an AMRF or an ARF as part of this transaction, then the broker will usually get paid commission for arranging these products.

As the law doesn't prescribe who must pay for what, then the only way to get specific answers to your three specific questions is to ask them of the broker in question.

1) what grounds the Broker has for requesting a termination fee.

Ask what exactly the termination fee is paying for.

2) should any fees the Broker has (if applicable ), be paid for out of his normal fees for representing the person during the course of the pension.

Only if the broker has been paid a fee during the course of the pension. While this is commonly paid by way of commission, it's not always the case. So without knowing the specifics of how the broker is paid for services, it's impossible to answer this.

3) should any fees (if applicable ) be paid for by the Company which the person was working for previously.

An employer has no legal obligation to pay fees of any sort for a pension scheme. In smaller schemes, fees are often charged to the member through commission. In larger schemes, the employer often pays fees to the broker. So this would also depend on the specifics of the scheme.

_Kaiser_

Cheers for the reply Liam..

Liam D Ferguson wrote: »

Would need to know if this was a Defined Benefit (DB) pension scheme or a Defined Contribution (DC) scheme.

It's a Defined Contribution scheme according to the paperwork I received from the company.

Assuming that the other two are private-sector pensions, there's no transferability between private and public sector pension schemes. There's no fund underlying a public service pension. All you have is a promise from the Government to pay you a pension when you retire, out of day-to-day exchequer income at that time.

So how can I find out the value or tell how much that will (in theory) pay me when I retire?

Sorry for what might be stupid questions but I know very little about pensions generally

Kristopherus

Conology wrote: »

Point 2 is relevant, but again I don't think this refers to the questions which were raised.

Thanks for your input.

Conology, I think you are being somewhat flippant with your replies to Liam D. Its not that he is nosey, he is an expert in this field and has an excellent reputation among posters here and on askaboutmoney.com.

Conology

Kristopherus wrote: »

Conology, I think you are being somewhat flippant with your replies to Liam D. Its not that he is nosey, he is an expert in this field and has an excellent reputation among posters here and on askaboutmoney.com.

Hi Kristopherus

Liam D has answered my friend's questions now and she is happy with the information supplied.

Conology

Liam D Ferguson wrote: »

Okay so your friend is retiring and the scheme broker wants to charge your friend a fee for processing the retirement. Typically, a retirement involves the member taking a lump sum and perhaps a pension and/or Approved Retirement Fund (ARF) thereafter.

There are no rules or laws as to who pays for what. It would be unusual for a broker to charge a fee solely for processing a retirement claim. Perhaps the broker is charging a fee for processing the retirement claim as well as financial advice and/or implementation of the financial products that follow, e.g. the annuity or the ARF.

If this is an insured scheme (i.e. the scheme is with one of the life assurance companies e.g. Irish Life, New Ireland etc.) then your friend can bypass the broker and deal directly with the pension company. However, s/he'll get no advice as to which of the various options is most suited to their specific circumstances.

If your friend is going to end up with an annuity, an AMRF or an ARF as part of this transaction, then the broker will usually get paid commission for arranging these products.

As the law doesn't prescribe who must pay for what, then the only way to get specific answers to your three specific questions is to ask them of the broker in question.

1) what grounds the Broker has for requesting a termination fee.

Ask what exactly the termination fee is paying for.

2) should any fees the Broker has (if applicable ), be paid for out of his normal fees for representing the person during the course of the pension.

Only if the broker has been paid a fee during the course of the pension. While this is commonly paid by way of commission, it's not always the case. So without knowing the specifics of how the broker is paid for services, it's impossible to answer this.

3) should any fees (if applicable ) be paid for by the Company which the person was working for previously.

An employer has no legal obligation to pay fees of any sort for a pension scheme. In smaller schemes, fees are often charged to the member through commission. In larger schemes, the employer often pays fees to the broker. So this would also depend on the specifics of the scheme.

Hi Liam D
Thanks for the detailed reply - it's very helpful