Money

Our experts

Pension rules, Additional Voluntary Contributions and inherited SERPS

John Husband

John Husband runs the Money clinic for Saga Magazine and has been writing about business and personal finance for 40 years. John is on hand to answer your money queries. Here is a selection of your latest questions, which first appeared in the March 2008 edition of Saga Magazine:

Q: I am saving into a pension and an Individual Savings Account (ISA). If I were made redundant, how would my savings affect my entitlement to any benefit?

A: It would not affect your contributions-based Jobseeker’s Allowance, currently £59.15 a week. But any savings, including your ISA, would be taken into account if you wished to claim income-based Jobseeker’s Allowance because, for example, you had dependants such as a non-working spouse or children still at school.

Money invested in a pension is ignored as you would not normally have access to it, but if you are in receipt of pension income of more than £50 a week, that might reduce anything you would otherwise get.

Q: Can you explain what gifts you can make out of income without attracting inheritance tax and is there a limit?

A: No, there is no limit. The Revenue decides each case on its merits, normally after someone dies. The rule is that you can gift as much as you like, as long as it genuinely comes from income and does not reduce your – potentially taxable – personal wealth.

There’d be no problem with regular payments – to an insurance policy or for someone’s pension, for example. Nor with payments for the maintenance of a child or a close relative – such as helping someone through college.

But, if you are potentially liable for inheritance tax and you have some really substantial amounts in mind, it makes sense to take professional advice.

Q: My wife and I have our bank, building society accounts and our home in joint names. Is there any need for us to make a will?

A: Where joint accounts are concerned the half belonging to the deceased automatically passes to the survivor without need for a will. This also means the survivor should be able to make use of the account without having to wait for grant of probate.

A will may still be useful to cover the possibility that you die together, or within a very short time of one another, to establish who would inherit in that situation.

Q: Is it true that the rules to qualify for the state pension have changed?

A: They will be changing in two years’ time. At present men and women need a complete national insurance contribution record for at least a quarter of their working life to qualify for any state pension and 90% to get the full basic state pension.

From April 6, 2010 the minimum requirement will be scrapped and the maximum pension will be available after 30 years of contributions.

Q: What is the maximum amount of SERPS pension a widow can inherit from her late husband?

A: If her husband reached retirement age before October 6, 2002 she would inherit it all. Since that date is has been progressively scaled back. It is currently 70 per cent but will reduce to 50% from October 6, 2010, bringing it into line with the state second pension.

Q: Our son and daughter have received a Child Trust Fund voucher for our grandson and don’t know what to do with it. Is there any advice we can pass on to them?

A: As it is an 18-year investment they should consider investing it in a shares-based child trust fund plan as this is more likely to produce returns that will keep it comfortably ahead of inflation.

The ones I like are 'lifestyle' plans where the money is put into shares initially and progressively transferred into safer investments, such as bonds or cash, as it approaches their 18th birthday.

Q: I see lots of advice for married couples on the best means of minimising inheritance tax but none for single people with no children. I will be leaving a large estate to my nieces and nephews but only after the taxman has taken a bite out of it. Have you any good advice for someone like me?

A: Certainly. Somebody in your situation should seek tailor-made advice from an independent financial adviser. But much of the advice you’ll get will be broadly along similar lines.

First, you should take advantage of the main tax exemptions. These allow gifts not exceeding £3,000 a year and gifts on marriage of up to £1,000 to any person.

Most important of all, any gifts made seven years before you die are fully exempt and reduced rates apply for lifetime gifts made within seven years. An IFA will explore more complex tax planning arrangements with you.

Q: For many years I had been drawing my pension from a local sub post office. I have since moved and would find it more convenient to have it paid into my bank account. I asked my new local post office for a number to contact but they could not help me. Can you?

A: Certainly. Call the Pension Service on 0845 60 60 265.

* John Husband answers your personal finance questions every month in his ‘Money clinic’ column in Saga Magazine.

* Email John your personal finance questions at web.editor@saga.co.uk. John's opinions are his own and for general information only. Always seek independent financial advice.

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