Perplexed by the new rules on cashing in pensions, and facing difficulties from a company that won’t let him do what he wants, a retired reader in France seeks advice
Q. In light of the new government regulations regarding pensions I recently wrote to Aviva asking them for information regarding my options. They sent me back a raft of documentation which I have been attempting to digest.
In a nutshell, Aviva have given me two options; to purchase an annuity or to take the entire pension plan fund value as cash (approximately £60,000).
Neither of these options are attractive to me but what I find a little odd is that they have included a form which needs to be completed in order to “comply with Financial Conduct Authority (FCA) rules”. This form states that if I select any other option than taking an annuity then I must have taken financial advice, and the financial advisor must sign and complete a section of the form.
Is this a valid requirement? Since retiring 10 years ago, I have lived in Greece for eight years and spent the last year in France. It is therefore difficult for me to obtain official financial advice, if this is truly necessary.
I telephoned Aviva to ask whether there were other options open to me, such as a drawdown plan but the person I spoke to stated that if I wanted a plan like this then I would have to transfer the funds to another account and they couldn’t do this for me.
I also couldn’t do this myself but would have to enlist the services of a financial advisor to make the requisite recommendations and subsequent transfer.
Are Aviva being deliberately unhelpful and how can I transfer this plan to another which would allow me to take some cash out of the plan and leave the rest invested, living as we are, out of the UK?
We have filed a recent tax return with the French authorities but as our income is relatively low so is our tax exposure. I am aware that there could be French tax implications which is one of the main reasons that I do not want to cash in the entire fund.
Jeremy Lewis, France
A. Jason Porter, director, Blevins Franks (blevinsfranks.com)
The changes to pension regulations in April 2015 introduced a compulsory measure on trustees of UK pension schemes to ensure that a member looking to transfer out of a ‘safeguarded rights’ scheme was provided with independent financial advice, where the value of those ‘rights’ were £30,000 or more.
Independent in this sense means an adviser unconnected with the scheme itself. Safeguarded rights are mainly occupational defined benefit schemes and individual schemes with guaranteed annuity rates, minimum pensions, and/or guaranteed conversion options. However, many personal pension scheme providers also insist on this process where a member wants to exercise their ability to convert a “safeguarded rights” scheme to a flexi access pension, and Aviva are not alone in this.
Assuming this has been written into their internal procedures then I’m afraid they will insist on being satisfied that you have taken the appropriate advice. But the rub is the minimum level at which this requirement is set is relatively low, and quality advice is not cheap, to the extent the advice can eat significantly into the pension fund itself.
As to whether it’s necessary or not – does your pension contain guarantees or valuable benefits that would be lost on transfer? That, I feel, would be worth getting advice on before you decide.
As with many other providers, Aviva may not allow the degree of drawdown flexibility you require under the current contract. The only way of obtaining that flexibility is to transfer the pension fund to another plan that can. Drawdown is in itself an ‘advised’ function as far as the FCA is concerned. There are a few providers that operate on a ‘direct’ offer basis and will supply all the information for you to make an informed decision without advice. However, the majority operate on an advised basis, in turn requiring you to have obtained suitable financial advice from a regulated adviser.
Since April 2015, there have been many examples of people in the same position as you, who are frustrated by the lack of ability to make your own decisions within the new pensions flexibility. Ironically, the new pension freedoms in the UK have thrown up many new considerations for individuals who are living abroad and holding UK pension schemes.
France in particular, has an attractive tax rate which is applied to the receipt of a pension lump sum. Going down this road would obviously have to be weighed against the long-term implications of reducing your pension capital, and the additional responsibility it places upon you to deliver sufficient income in your retirement. Naturally, each case would need to be reviewed on its own merits, but you might consider this worth exploring with an advisory firm that is able to assist with advice from both a UK and French perspective.
The other members of our expert panel are:
Adam Thompson, tax manager, The Fry Group (thefrygroup.co.uk)
Justin Harris, managing director of Chase Belgrave (chasebelgrave.com)
Howard Bilton, chairman, The Sovereign Group (www.sovereigngroup.com)
Richard Musty, international director, Lloyds Bank (international.lloydsbank.com)
Daniel Abrahams, CEO, CurrencyTransfer, an independent foreign exchange marketplace (currencytransfer.com)
Lindsay Kinnealy, legal director, international property department, Slater & Gordon (slatergordon.co.uk) via telegraph.co.uk