Pension transfer left me in crisis

MAISHA FROST

Michael D was in an employer’s pension scheme until he lost his job in the Eighties. He was advised to transfer his £5,479 pot into a with-profits pension which matures in 2014. That involved contracting out of the second State pension (Serps).

But the fund has stagnated at £37,500 since 2001, and if Michael leaves he will face a £10,600 penalty.

With-profits investments depend on bonuses awarded at the company’s discretion. Michael is trapped in a fund where the value on paper is less than the underlying assets, hence the market value reduction (MVR) fee if he moves.

Danny Cox of adviser Hargreaves Lansdown, h-l.co.uk, says: “MVRs do not usually apply after the scheme has matured, so Michael should check and not leave the scheme until then.”

Michael’s policy also has an element of Guaranteed Minimum Pension (GMP), a replacement for the earnings-related part of the State pension within a contracted- out final salary scheme. His pension company took on that guarantee when the fund was transferred.

Cox adds: “It may be best for Michael to preserve the GMP by taking the maximum income when he retires, rather than shopping around for an annuity, or the tax-free cash option.”

Michael could be worse off because of the advice he was given, so he must first complain to the adviser and then the Financial Ombudsman (0800 023 4567, financial- ombudsman.org.uk). Contact Maisha Frost, Sunday Express, 10 Lower Thames Street, London, EC3R 6EN, or email maisha.frost@express.co.uk. Only send copies of your documents and include your phone number