‘Will pension rules block me from withdrawing £50k?'
Dear Charlene,
I've reached age 60, which is the retirement age for my Barclays pension. Part of my pension is in the old Barclays 1964 defined benefit scheme, and this will pay me an income for life.
The rest is in the 'Afterwork' scheme that replaced it. The scheme is made up of a credit account and an investment account.
My understanding was that Afterwork was a defined contribution scheme, and I would be able to simply transfer this part somewhere else to access drawdown, but I'm confused by the credit account element and what this means. It is referred to as a 'cash balance arrangement'. Does this mean it is also a defined benefit scheme?
The reason for asking is that the credit account is worth around £50,000, and I need to know if it comes under the rules requiring independent financial advice.
From reading your column, if it counts as a defined benefit, I think I am going to struggle to find anyone to give me the required advice. This risks leaving me with an annuity as my only option, which would drastically alter my plans. I really need access to drawdown to top up my income until I receive my state pension, at which point I will have enough for my needs in retirement.
I am hoping I am not going to end up stuck in limbo.
Kind regards,
Dear Carole,
The pension tax rules split pension schemes into categories based on the benefits they can provide. Cash balance pensions are classed as a type of defined contribution scheme. They differ from most other defined contribution schemes because the value of the end pot doesn't just depend on what is paid in (contributions) and investment returns. Instead, there is also usually a guaranteed sum at retirement. This could be a minimum pot value or a guaranteed amount built up each year.
While a guarantee might make it sound like a defined benefit scheme – and many resources online incorrectly label cash balance schemes as defined benefit – they are treated as defined contribution or money purchase.
Moving to the Barclays Afterwork scheme, the 'credit account' is the guaranteed element. According to my research, this would build up a guaranteed credit of 20pc of your pensionable salary each month if you contributed 3pc of your salary each month towards it.
The scheme also applied inflation-linked increases each year to the value of the credit account up to a maximum of 5pc. The money paid into the credit account is managed by Barclays, together with the scheme trustees, to ensure you can benefit from the full guarantee at the scheme retirement age. As you've mentioned, Barclays Afterwork has a normal retirement age of 60, and it is currently closed to new entrants.
You could also make additional contributions to the second section of the Afterwork scheme, known as the investment account. You picked how much extra to pay in (as a lump sum or regular contributions), and Barclays would match this up to 3pc of your pensionable salary. If you chose to pay into the investment account, you'd have chosen a fund for the cash to be invested into. This section would move up and down in value, depending only on how your chosen fund performed and how much was paid in.
As you are already at the scheme's retirement age, the trustees should have set out your options and what you need to do to access your pension in the way you'd like to.
Drawdown can only be paid from cash balance pensions and other money purchase schemes. That doesn't mean a scheme must offer a drawdown, but it is another difference between defined benefit schemes, which cannot offer a drawdown.
If your scheme does not offer drawdown, you should be able to transfer the total account (both credit and investment sections) to a scheme that does. You can request confirmation of the transfer value from the Barclays Afterwork trustees.
Now that you've reached retirement age, there should not be a difference between the total account value and transfer value. People transferring before reaching the age of 60 should take care, as an adjustment can often be applied to the credit account to reflect early retirement.
When you must get advice
You must get specialist financial advice to transfer, cash in, or convert a plan that contains 'safeguarded benefits' worth £30,000 or more. This includes converting these funds to provide a flexible income using drawdown. The definition of safeguarded benefits includes defined benefits (like your Barclays 1964 scheme) but also casts a wider net, including other pots with guaranteed minimum pensions and/or guaranteed annuity rates attached to them.
The legal definition of safeguarded rights (which can be found in the Pension Schemes Act 2015) appears to specifically exclude cash balance arrangements.
While there might not be a legal requirement to get advice, you can still engage a regulated adviser to help you find the best way to bridge your income between now and reaching state pension age. An adviser can help you understand which option is best for your individual circumstances, recommend a provider, and even recommend an investment strategy to help you support your withdrawals, should you decide to move forward with drawdown.
There is plenty to double-check with the trustees of the Barclays Afterwork scheme here, but I'm really hopeful that you will not be left in limbo as you initially feared.
With best wishes,
- Charlene
Charlene Young is a pensions and savings expert at online investment platform AJ Bell. Her columns should not be taken as advice or as a personal recommendation, but as a starting point for readers to undertake their own further research.
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