Soldiers sacked days before pension date

[Al R]

Hi Andie,

I'm not so sure that AFPS isn't looking ropey. Its still good, don't get me wrong, but by comparison, it isn't as straightforward, reliable or as generous as it used to be (maybe I should have made that clearer).

If AFPS15 doesn't start paying out until aged 60 and if the EDP deal changes, those disadvantages alone might well knock the benefits to some of the career average aspects of it into the shade. The proof of the pudding is in NEM I guess..? There are also some workplace Defined Contribution schemes that are breathtakingly good. Yes, your money is exposed to market sentiment, but that is not always a bad thing, and when you have some employers now chipping in 5% anyway, and matching contributions massively more than that (I'm thinking media organisations in particular), the Defined Contribution landscape is changing. It seems to be making itself more attractive as the Defined Benefit (Public Sector) falls in appeal.

Grim,

Yes, you're absolutely right, that is one aspect. But you certainly couldn't justify cutting away based on that alone because there are so many more (I'm not teaching you to suck eggs, I know you're clued up).

I guess, if you were a young Royal Marine who wished to get out after 6 years and instead, chase pirates around the Horn of Africa for BP and earn a fortune, then you'd have to suggest that here is a young client who is prepared to possibly embrace a little risk in return for possibly higher returns and more flexibility. If you had a middle aged client who was getting out after his time was up with terminal cancer, then the aspect that you mentioned might drive it to the top of the pile of items to consider. But you'd also have to bear in mind that once a personal pension fund was crystalised, it comes with a hefty tax charge if it is passes to your estate; it only passes over free of tax if it is not touched - the element that is not crystalised is free of tax, the element that is crystalised (ie; the amount you take tax free cash and - possibly - income from) gets hit with a 55% tax charge. But again, if you were an individual who had no dependents and weren't worried about inheritance issues, is that so important to you?

But for most clients; people who have grafted for 22 or 36 years and who don't have a lot of other pension provision, who have kids still dependent, who have partners who have no pension provision and who don't have a high capacity for investment loss, you just would not suggest it. The default setting must always be 'no' and take it from there. Thats not to say it would never happen and of course, the client makes the final appreciation and decision, but I would be very reticent indeed to suggest to any client that they take the money and run. Thats me though I guess, the trick is not overly influencing a client with my own personal feelings and always doing what is best and right for them - in the case of chopping out of a Final Salary pot though, I don't think the two are a million miles apart.

It could be that a halfway house option is considered. Flexible Drawdown offers greater flexibility to those able to demonstrate a secure annual income of £20,000. This ‘secure’ income will comprise of mainly State Pensions, but AFPS also counts. Those eligible for flexible drawdown will be able to draw any amount from their pension fund but it will all be taxed as income in the year it is taken.. so when do you take it - when your tax liability drops and just how much tax might you pay? Thankfully, military clients are trained to make appreciations and decisions based on objective facts and not sentiment, and they are quick to appreciate the pros and cons of a strategy.

Finally, I know this area isn't frequented by idiots, but to remain on the safe side of my compliancy guru, I should point out that I've tapped that out as generic info and not advice. As ever, take properly authorised and regulated advice that you trust and remember that whatever might best apply to you, might not apply to the bloke sitting next to you in the crewroom - and vice versa, what he or she is doing might not aply to you. Those stats are really saddening by the way - I didn't realise the numbers were that low.