Options at retirement

You can take all of your defined benefit MNOPF as a regular income paid for life. This is a valuable benefit which also provides for a widow/er’s or civil partner’s pension and dependant’s pension when you die.

Pensions are usually taken at your Normal Pension Age, but you can take your benefits earlier, or later than this date if you wish to. You may also be able to take your benefits if you have to retire early due to ill health.

You have the option to exchange part of your MNOPF pension for a cash lump sum, which would be paid to you tax free. Approximately 25% of the value of your benefits can be exchanged in this way – the maximum amount that applies to you will be shown on your Retirement Statement which will be sent to you as part of the retirement planning process. The Statement will also show the reduced MNOPF pension that would then be payable. Sometimes the amount of tax-free cash you can take may need to be limited to make sure there is enough pension left to meet the minimum amounts set for contracting out of the old State Second Tier Pension, i.e. your GMP pension. We will let you know if this applies to you.

You may be able to take your whole DB MNOPF pension as a cash lump sum. If you do this, up to 25% of the sum will be tax free and the rest will be subject to Income Tax.

You can do this from age 55 (or earlier if you’re seriously ill) and in the following circumstances:

• You can take the whole of your pension as cash if the total value of all your pension savings (not just those from the MNOPF) is less than £30,000.
• You can take your MNOPF pension as cash if it’s worth less than £10,000, (your annual rate of your pension would be small – usually a few hundred pounds a year) regardless of how much your other pension savings are. You can do this for up to three different pensions.

If this applies to you, details will be included in your Retirement Statement.

If you choose to have all your MNOPF benefits paid as a one-off lump sum, there would be no benefits for your spouse, civil partner or dependants on your death.

If you wish to draw income from your pension fund on a flexible basis after retirement, you will need to transfer your benefits out of the MNOPF to a registered defined contribution pension arrangement that offers a flexible income drawdown facility, such as the maritime industry scheme, Ensign .

This facility allows you to access your pension savings flexibly throughout your retirement and arrange your income exactly to your needs, as well as receiving a tax-free cash lump sum immediately (up to 25% of the value of the fund transferred). You could, for example, take a series of different lump sum amounts each year (perhaps with none in some years) and then might use the amount left at an older age to purchase a pension with an insurance company and secure a level of income at that time.

What tax is payable?

If you have already taken your tax-free cash amount, tax would be payable on any additional lump sums or income drawn down at your marginal rate at the time. In the event of your death before the age of 75, any funds left in the arrangement may be paid to dependants tax free.

Where are the funds invested?

Under a flexible income drawdown policy your funds would be invested and you would need to decide how to do this – there may be a limited number of options available to you and charges would apply for different investment funds. A financial adviser can help you choose which investments are most suited to your circumstances.

If you wish to withdraw all your benefits as an immediate cash lump sum on retirement and the value of your benefits is greater than the limit for a one-off sum payable from the MNOPF, you will need to transfer your benefits out of the MNOPF to a registered defined contribution pension arrangement that offers this facility. 25% of your fund would be tax free with the remainder being taxed at your marginal rate.

This type of retirement benefit is very different from the pension payable from the MNOPF and there may be tax implications; in particular, taking benefits as one lump sum could affect your marginal rate of tax. Also, if you still want to make future pension savings, you need to be aware that once you have taken the lump sum, the maximum amount you can pay into a defined contribution pension arrangement in any year will reduce from £40,000 to £4,000 (the 'Money Purchase Annual Allowance').

If you transfer your benefits to an insurance company, you can still take a tax-free cash lump sum of up to a maximum of 25% of the amount transferred. This tax-free cash amount might be higher than that provided by the MNOPF. The remainder of your transfer value would then be used to buy a pension (sometimes known as an annuity). This pension can be tailored to suit your own personal circumstances. For example, you can purchase an increasing pension, rather than one where only part of it increases in payment, and you do not have to buy an attaching spouse’s pension payable after your death. If you have health issues, or you are a smoker, you may be eligible for an enhanced pension.