Many years ago I persuaded myself that, as I had become self-employed, it was important to take care of my aged self. Or at least, think about it. I don’t recall now whether this was from a call or a suggestion or I came to the conclusion without prompting. I had a pension from my previous employer that was generous but based only on the 20 odd years with that employer so it was nowhere near what we like to think of as a ‘full’ pension.
After some thought, and not a little discussion with a financial advisor, I signed up to pay a regular amount into a pension plan. I was at the time earning fairly well from my consultancy and thought that I could afford a regular £500 a month to build a substantial pension fund – I got tax allowance for this saving. This was some time in 1995 or 6 – I forget exactly when. The policy was with Standard Life.
By 1999 it became clear that my earnings had not gone into orbit and it was in fact getting a bit difficult to afford the regular payments. It had also become obvious that a pension fund was really not a good way to grow money if your income is so irregular. As the money paid into the fund had been paid before tax, it couldn’t be taken it out – I was too young to take it as a pension and even if I could, the payments would be very low indeed. It was just another entry in the spread sheet of my net worth.
Making such agreements forms a trap from which you cannot escape – the money is distinctly not liquid! In effect I was throwing dead money into a bottomless pit with no prospect of getting it out for a very long tome and then only bit by bit. All I could do was to reduce the payments to a minimum of about £30 a month to keep the account open, which I did.
Wind forward now to 2010 when we found ourselves in substantial consumer debt. The value of the pension fund by then was actually less than the total payments I had made! And although I was old enough to be able to take it as a pension, that would still be 2/5ths of nothing so was pointless. I could take 25% of it free of tax – this is a standard UK arrangement – but the rest was locked away in Standard Life. Goody for them but not for me.
After consulting another financial advisor, the solution was to move the fund to another provider which he found – Winterthur. This of course cost something but that provider did claim to have the appropriate facility to be able to withdraw the fund when certain conditions were met. These included being able to show that I had an alternative pension above a certain limit – not earnings but pension. How silly.
So now that, later this October, I will be able to meet these requirements, I approached Winterthur (now part of the Axa group) earlier this month to start the process of withdrawing the money. I sent them an email outlining my current and expected pension after my birthday and asked them to process the request.
A terse message came back:
“You would not be able to withdraw all [of] your pension fund as a lump sum as you do not meet the criteria triviality.”
WTF! That’s not what I understood but what on earth is (or are) ‘criteria triviality’? I asked for an explanation and got the following:
“Your policy in is [sic] full drawdown so there is no more tax free cash avaliable [sic] for you to take”.
WTF squared! I wasn’t asking for tax free money as I knew I had already had it. So I asked again. And heard nothing. Nada. Silence.
I suspect the individual concerned had not bothered to read my original email, nor looked in the file. If they had, they would have known that I had already taken the tax free sum before the fund was transferred and would have seen that I was indeed within my rights to ask for the remainder.
I prefer to email because there is a trail – in this case of silly statements – but eventually I gave up and spent some time today bouncing round the Axa telephone system.
Fortunately I found someone who did appear to understand the problem and said that a new system had just been set up to handle cases such as mine. She was most helpful and went off to consult her superior because it was new to her.
It transpired that I need to make the request via a financial advisor but otherwise I was right and some time shortly after my birthday in October I hope to be able to get my hands on the (taxed) fund. I immediately fired off an email.
But – excuse me. This promise was clearly known about when I transferred the fund three years ago. Two questions:
- Why did it take three years to put into effect a clear government directive?
- Why do people not read emails and letters?
And a conclusion:
- Particularly if you have irregular income, do not lock your funds away in a pension fund. You don’t need a pension – you need income.
There may be tax attractions (which of course you should not ignore) but you depend completely on the fund management which in my case did not manage to maintain the value of the fund during the (admittedly bad) financial crisis. The newer Self Investment Pension Plans can help but most people don’t have the time or inclination to manage their own funds so depend on fund managers to do it. They swallow the government’s propaganda yet the hidden fees in pensions can be enormous.
But the most important thing to remember is that it is crucial that any fund is liquid – you should be able to get the money out:
- if you desperately need it and
- at a suitable time of your choosing to maximise the value.
If you doubt this, remember that pension companies are some of the richest institutions around yet, unlike banks, they don’t make money by lending. They make money by investing – and taking a substantial chunk, thank you very much.
Pensions are a trap in two ways –
- you think in terms of giving up, putting your feet up, taking a rest. Now that may be all very well for a short while but it is easy to become a habit. And all the evidence is that once people stop doing things, whether it is physical or mental, they really do switch off and wait to pass on. People don’t get old so can’t do things – they stop doing things and therefore get old.
- by building a pension which disappears when you (or your spouse) pass on, you are stopping your survivors from building on your wealth.
Pensions are for people who are waiting to die.
If you want to live for ever, even if you know you can’t, build income. It is never too late.