If you have cash in the British Steel pension scheme you need to brace yourself for some tricky financial decisions about your retirement.
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You do not have to do anything, but will likely see your pension picked up by the safety net of the Pension Protection Fund.
The good news is the PPF will safeguard your savings.
The bad news is this comes at a cost of a 10% reduction in benefits for workers yet to draw on their pensions and a cap of £34,655 a year in payments, which is lower than many high earners might expect.
PPF index linking is also not as generous as the British Steel Pension Scheme, but the PPF could pay a larger tax-free lump sum than the BSPS.
Option B is to switch to the new BSPS that will not go to the PPF. This is a halfway house that is designed to pay lower benefits than the current British Steel scheme but more than the PPF.
Lastly, retirement savers can transfer out of the BSPS into a SIPP, or for expats, a QROPS offshore pension.
Time is running out for anyone planning to transfer out as once the old scheme is in the PPF, this option will not be available. The clock runs out on December 11, 2017.
A transfer like this is basically an offer to take 20 or 30 times the expected pension amount now as a reward for moving on.
For instance, for someone expecting a £20,000 a year pension, the transfer value offer is likely to be a fund of £600,000 today.
QROPS and SIPP options
Shuttling the money off to a QROPS would give a tax-free lump sum of up to 30% of the fund value and the chance to draw a tax-free income, depending on where a former British Steel worker retired to.
QROPS and SIPPS do not come with the same guarantees as a BSPS pension – no index linking to inflation and no benefits for spouses.
But these must be weighed against built-in pension freedoms from the age of 55 that allow taking retirement cash as and when wanted.
Both also come with inheritance tax provisions that allow unspent pension funds to be passed to loved ones tax-free under some circumstances.
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