Guidance for National Grid Pension Schemes

The National Grid Pension Scheme appears currently to be providing generous transfer values.

If you used to work for National Grid and have an old pension scheme with them, the following information could be of interest to you.

Background:

The National Grid Pension Scheme is known as a Defined Benefit pension scheme and is therefore an extremely good pension with valuable benefits.

  • When you reach retirement age 65, the National Grid scheme will pay you a regular pension income for the rest of your life (subject to Income Tax), which will increase each year. You may have the option of receiving a reduced pension in exchange for a tax free lump sum.
  • If you die at any time only a ‘financial dependent’ such as a spouse would receive any money back and even then it will only be a fraction of the pension income you would have received.

Transfer to a Personal Pension:

You are entitled to transfer your pension scheme away from National Grid to a Personal Pension and currently they are providing very generous transfer values. This means that when they calculate how much your National Grid pension is worth, the equivalent value they are prepared to give you is high; in other words good value for you.

  • Once the money is in your own Personal Pension, you will be allowed to benefit from the new pension freedom rules introduced from April 2015. This means once you reach age 55 you could release the entire pot as a cash payment (subject to tax* and leaving you with no future pension income) or, simply take out what money you need, when you need it. Taking benefits early will almost certainly reduce your pension income in retirement and is only suitable for a limited number of people and circumstances. This should not be seen as an easy option for raising cash.
  • If you die at any time the entire fund remaining would pass on to anyone you want, not just a financial dependent so it could go to your grown up children, and it would be tax free if you die under the age of 75; any money left after age 75 would be taxed**.

Case Study: Mr L from London

Mrs L, age 55 from London, needed to clear debts in order to save several hundred pounds a month in repayments; these including credit cards and a loan. Her plan was to semi-retire by reducing her working hours and then fully retire in the next 4-5 years. She also wanted to give her daughter an amount towards a kitchen for her new home.

She was unable to take her benefits direct from the National Grid scheme as she was not yet 65, however, by transferring it to a personal pension she was initially able to release a lump sum of £36,000, which was enough to do everything that she wanted to do whilst leaving a further £183,000 invested in the personal pension for use later on.

By leaving the rest invested she felt safe in the knowledge her money could pass on to both her partner and even her daughter if anything was to happen to her AND because of the generous transfer value offered by the scheme, even with a ‘cautious’ type of investment the eventual retirement benefits will probably not suffer as a result of moving her pension and releasing part of her lump sum early.

*25% of the fund value is tax free; the balance would be taxed at your marginal rate depending on your circumstances and could be subject to change in the future.

**The beneficiary would be taxed at their marginal rate depending on their circumstances at the time of death.