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Divorcee’s dilemma

I am 57 and have been provided with a pension share valued at 400,000 of my former husband’s small self-administered scheme. I have been told that I must move my money out of his scheme. Can you suggest where as I have no pension of my own?

You are being told that you must move your pension credit to a new scheme. Your former husband’s scheme could equally have insisted that your credit remain in that scheme. A third possible route was that the decision could have been left to you.

As you are over 50 and your former husband’s scheme is a small self-administered one, there are no complicated issues concerning contracting out and one of the options you have is to take benefits immediately.

I assume there is no problem in moving £400,000 cash out of your former husband’s scheme. I say this because if the scheme invests heavily in property or other investments where it might be difficult to liquidate the assets, investments could be transferred in specie into a new pension scheme on your behalf. This prevents the need to cash in investments first as the actual assets owned by your former husband’s pension will be moved into your own pension.

When your pension credit has been moved to your own scheme, you will be able to take 25 per cent as cash while the remainder generates income either by making a one-off purchase of an annuity or drawing down an income from the pension fund.

Should you die before 75 while still in drawdown, the remainder of the fund would be available for your beneficiaries, less a 35 per cent tax. Following the introduction of new laws, if death were to occur after 75, it might be possible for your fund to continue to provide pension benefits for your beneficiaries. This is seen as a great advantage.

The important disadvantage of drawdown is that it contains no guarantees. Your income could reduce. However, you can change your mind and buy an annuity at any time. With an annuity, you receive guaranteed benefits for life although your annuity dies with you.

Income can also be provided through a combination of an annuity and drawdown.

If you are looking to build up your pension fund before taking an income, there are several choices. As your pension credit is coming from a small self-administered scheme, the best home will be a personal pension. Which type will reflect your attitude to risk and the resultant investment.

Under new legislation being introduced from next year, you can invest in many new areas such as residential property, holiday homes, art and yachts through a self-invested personal pension. This will also be the route necessary if an in specie transfer is required.

Alternatively, if your attitude to risk is low, I would recommend a low-charged stakeholder pension with its restricted investment choice. Between these two extremes there are many other options.

No matter which route you choose, the value of your pension credit will be transferred to whatever scheme you elect to be invested as appropriate for the future. At any time thereafter, you can choose to use some or all of your fund. New laws from 2006 allow you to take your tax-free cash but delay your pension, or vice versa, in any proportions. For example, you could move your £400,000 into a stakeholder pension, leave it there until 2006, take out your 25 per cent tax-free cash and leave the remainder of the fund until income is required. This is not necessarily the best route but a new route opened up by the new legislation.

Finally, this whole process needs to be dealt with quickly as I suspect that the small self-administered scheme will allow the trustees to automatically deal with your pension share as they see fit if you are not seen to be dealing with the matter.

To answer your question, therefore, I need to know more about you, in particular, whether you are looking for income today and, if not, when you might be looking to retire.

In addition, I need to know about your other investments and your overall attitude to risk but, in particular, how you would like to invest any pension monies which have not been used to purchase an annuity.

With this information I will be able to narrow down the options and put forward a proposition to deal with your pension share.

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