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Other types of Pensions
Saving Towards a Pension

PENSION

Buy Out Bond

(Also called Transfer Plan 32, Job Changers Pension Fund , Early Leaver Bond)

If you leave your job for a new one or are made redundant, you can transfer the value of your pension rights from your job scheme to an individual fund where the money accumulates tax free until retirement, normally to the age when you would have retired at your former job. At retirement, when you start the pension, you can take part as a lump sum. Schemes have bonuses added, like Life Insurance With-Profits Endowment, are linked to a unit fund, like Life Insurance Mixed Bond or Life Insurance Property Bond or give a fixed return.

Instead of transferring to a Buy Out Bond, you can usually transfer the money from a job pension to a Personal Pension. A Personal Pension will normally give better results than a Buy Out Bond for younger employees and is more flexible. Get advice before you decide. The Pensions Advisory Service is a charity which can advise job changers on problems related to pension transfers but it cannot give financial advice. For more advice on pension planning turn to Saving Towards a Pension.

Who can invest An employee who has left a job pension scheme. You can only put in money transferred from a previous job pension fund.

How worthwhile This depends on what terms you are offered as an alternative, either by the pension scheme you are leaving, or if you are joining a new scheme with a new job, what terms your new employer offers. If you want to transfer to your own individual scheme, consider instead aPersonal Pension which gives you a choice of starting to receive the pension between age 50 (55 if you were born after 5 April 1960) and 75 whether or not you retire.

Maximum None.

Suitable Lump sums.

Money back As pension and lump sum starting on retirement until you die. Widows' or dependants' pensions are available and you can choose between a level pension or a (lower) rising pension. If you die before you start the pension, the value of your money then plus any interest may be returned .

Interest Variable (except non profit schemes which say at the outset what you will get). Income is accumulated.

Interest paid When the scheme matures at retirement age, mostly as a pension. See also Money back above.

Tax There is no tax on the 25% lump sum you receive nor on the interest or capital gains accumulated. Basic rate taxpayers pay 20% tax on pensions in payment; higher rate taxpayers pay 40% or 50%. However money drawn down in excess of the 25% lump sum is liable to income tax..

Fees to pay Charges are deducted from your investment. With schemes which add bonuses, the charges are hidden. With unit linked policies the charges may be disclosed, say ½% to 9% initially, usually ¾% to 1¼% yearly. You may be able to negotiate a reduction for a large investment.

Passbook None. Policy issued.

Children Not eligible.

Risk Depends on the investment to which the scheme is linked. Run by life insurance companies which are UK authorised and covered by a 90% compensation scheme.

How to invest Ask an independent financial adviser specialising in pensions, preferably a fee based one, to help you choose.

Where from Life insurance companies.

Other Types of Pensions
Saving Towards a Pension

Last updated 6 November 2011.