Public sector pension transfer value request

dunstonh · 30 July 2010 at 9:28PM

Also, I live in Spain (residentially if not fiscally at the moment) so why would I want a UK PP, particularly?

Mainly as the fire brigade pension will wipe the floor with the alternatives.

Have you actually costed the differences? At the moment it just appears to be opinion that is guiding you rather than actual facts.

Ian_W · 30 July 2010 at 11:56PM

The article that JamesU has posted should be read by the OP, it fully covers the issues that other posters have alluded to. Namely, that transferring a final salary scheme to a QROPS pension (not that I'm any sort of expert on them) transfers the investment risk to age 55 from the employer to the OP.

However, the article was written in January before the author was aware that there is also a significant legislative risk to final salary schemes particularly in the public sector. Both Lib/Dems and Conservatives prior to the election indicated very strongly that "accrued benefits" (including index linking) were safe in their hands and that the changes they proposed would affect future benefits not those already earned.

However the ConDem government has now gone against those pre-election undertakings. I'm sure the OP for all his 18yrs service believed he was accruing a final salary pension index linked to RPI and has now seen those accrued benefits significantly changed. How can he have any confidence that over the next 13yrs they won't be further eroded? Does the legislative risk now outweigh or at least equal the investment one?

Perhaps the law of unintended consequences, but it seems to me that this new government in its first few months has done as much to undermine occupational pensions as Gordon Brown did. The "golden rule" of pensions legislation, that you can change future benefits but not those already earned, looks mighty shaky if the Govt's proposals become law, particularly for the OP or worse still for those already in receipt of a pension.

Personally, I think (given past court rulings that pensions = deferred pay) that the legislation is likely to be challenged in the courts though I wouldn't hazard a guess at the likelihood of success. Which leaves the OP in the unenviable position of deciding whether to take on the investment risk or risk the Govt "doing his legs" again further down the line!!

Final point OP, you mention "early retirement" but unless things have changed that is only available for ill-health or injury when a pension is payable straight away. All you need to do is resign to get a deferred pension but you may want to hang fire a little as I'm fairly sure redundancy packages may be winging their way to a Brigade near you in the not too distant!

exil · 31 July 2010 at 9:16PM

Final salary pensions, once you leave employment and have a deferred pension, have the advantage of having their value index linked (although now that's going to be CPI), and it may be hard to beat inflation in a private pension. However if there is a restriction on drawing your pension early you may be forced to transfer the value anyway. The pension is actually not yours - it belongs to the trustees who have a responsibility to make sure people taking money out of the scheme don't deplete the fund too much for those who remain.

The RPI to CPI change does of course reduce the transfer value as what your deferred pension is actually worth is now less. Which actually breaks one of the terms of the coalition agreement, which was that accrued pension rights would not be affected by any changes to public sector pensions.

jamesd · 1 August 2010 at 7:53AM

The transfer value will be greatly reduced by the change. So no chance of getting a value before the calculations based on the new rule are in place.

You're fairly young, so as long as you invest the money reasonably well you have a fairly decent chance of not suffering too badly by using the QROPS route. And you will gain the ability to take the money earlier, which can have great value even if it does reduce the pension payment value a lot.

cookiecrew_2 · 2 August 2010 at 9:21AM

Ian W, exil and jamesd, thank you for finally seeing the point! I did not post to this thread to discuss whether or not I was making the right decision to get out and take control of my own investment! It's not about costings, or trying to maximise my pension - it's about trying to go home to Spain, as planned seven years ago when I was erroneously led to believe I could retire at 50 (with a reduced pension, of course).

I'm tired of chasing the moving target. If I stay, I am likely to be here until I'm 60. And who knows if that will stay constant? Treasury finances are up the creek, and they are taking harsh measures to balance their own books. We've already lost out - my wife's pension fund is at two-thirds its previous value, our endowments are just about breaking even. We have tried and failed to be prudent, to save, to plan carefully for our chosen future, and all blown apart by spurious market dealings and gross Government overspending. I note that all those out there who spend what they earn (those that earn!), who save nothing, are not suffering this way!

Now, just as I'm about to implement my escape plan, there is an indefinite freeze on the CETV I need.
In my original question, therefore (#1), I asked why CETVs are being frozen now, so that the recalculation can be constructed to base on CPI rather than RPI, when the legislation isn't even in place? Surely this makes it retrospective? Perhaps I shouldn't have used the word "legal" (thanks, dunstonh, for your scathing reply) but I do question the morality of it. It appears to mean that my CETV will be based on CPI ahead of the legislation (April 2011??). This is what I question.

By the way - exil, I take your point about trustees needing to preserve the fund to make sure that there is enough for future liabilities, but surely my early exit helps in that they will not have to provide for me in the future for an undefined length of time (my family have a propensity to reach ninety years of age!)

cookiecrew_2 · 2 August 2010 at 9:29AM

Just one more thing - the QROPS pension wrapper that I've chosen is looking to yield around 7.5% nett per annum. While this is not guaranteed, it is still more attractive than leaving my fund to the vagaries of the UK Government!
And I will be investing from age 42 - 13 years' worth - before the potential to retire at 55 (may be 60, don't forget) mark.

Of course, it would be my luck now if they froze the CETV long enough to close the QROPS route in the interim.

markr007 · 2 August 2010 at 9:07PM

Just one more thing - the QROPS pension wrapper that I've chosen is looking to yield around 7.5% nett per annum. While this is not guaranteed, it is still more attractive than leaving my fund to the vagaries of the UK Government!

But in determining the transfer value they will discount it at a guaranteed rate that will mean you need to get at least something similar to 7.5% pa to stand still! Think about the value of the guarantee as well. 7.5% is not guaranteed, what if markets crash before your retirement? May mean you have to delay it for years.

wibbleme · 2 August 2010 at 11:56PM

cookiecrew wrote: »

I
In my original question, therefore (#1), I asked why CETVs are being frozen now, so that the recalculation can be constructed to base on CPI rather than RPI, when the legislation isn't even in place? Surely this makes it retrospective? Perhaps I shouldn't have used the word "legal" (thanks, dunstonh, for your scathing reply) but I do question the morality of it. It appears to mean that my CETV will be based on CPI ahead of the legislation (April 2011??). This is what I question.

The changes so far announced do not require legislation, even though they change the value of your "accrued rights" -- as they do those of many in both public and private sectors.

Increases in public sector pensions (and some private sector ones) are tied to increases in the State Second Pension through existing legislation that goes back to 1971 and 1975 and beyond. The State Second Pension is adjusted annually by a Statutory Instrument (an Order) made by the Treasury on behalf of the Secretary of State for Work and Pensions. All else follows from that. For an example, Google "The Pensions Increase (Review) Order 2009".

Although the numbers in that order (and orders under predecessor legislation) have been based on RPI for at least 60 years, the Secretary of State (currently Iain Duncan-Smith) can in principle write in any number he fancies. As we have just found, he can in practice write in any number that won't get him sacked.

Private sector schemes which offer defined benefits are subject to legislation passed by the previous government which mandate minimum levels of increase; those minima, until now based on RPI, can be changed by issuing another Statutory Instrument and it is the present government's stated intent to issue such an Order changing the basis of calculation to CPI.

That's how much legislation works these days - the legislature (Houses of Parliament) passes laws that enable the executive (Ministers and their Departments) to deal with the "details" as they see fit.

For completeness, I should mention that some private sector schemes actually specify RPI as the basis of index-linking and these will probably not be affected by changing the minimum standard. A group of pension providers and employers are pressing the government to pass new legislation which would substitute CPI for RPI in the relevant contracts. Government interference in contracts freely entered into by informed parties is not entirely unknown, but this does appear to move such actions into entirely new terrain.

seven-day-weekend · 3 August 2010 at 4:36AM

cookiecrew wrote: »

Ian W, exil and jamesd, thank you for finally seeing the point! I did not post to this thread to discuss whether or not I was making the right decision to get out and take control of my own investment! It's not about costings, or trying to maximise my pension - it's about trying to go home to Spain, as planned seven years ago when I was erroneously led to believe I could retire at 50 (with a reduced pension, of course).

I'm tired of chasing the moving target. If I stay, I am likely to be here until I'm 60. And who knows if that will stay constant? Treasury finances are up the creek, and they are taking harsh measures to balance their own books. We've already lost out - my wife's pension fund is at two-thirds its previous value, our endowments are just about breaking even. We have tried and failed to be prudent, to save, to plan carefully for our chosen future, and all blown apart by spurious market dealings and gross Government overspending. I note that all those out there who spend what they earn (those that earn!), who save nothing, are not suffering this way!

Do you think Spain is in any better a position?

I understand that you hve planned your finances this way so that you can live comfortably in Spain (we are there on my husband's Teachers' Pension which he took at 55), but please don't make the mistake of many expats by thinking everything there is better than the UK. It most certainly is not. Unemployment in some places is 40% and overall I think it is 20%, and for the few jobs there are you normally need fluent Spanish.

Not trying to rain on your parade, just saying to go in with your eyes open and don't jepardise your Fire Service Pension in any way.

seven-day-weekend · 3 August 2010 at 4:38AM

cookiecrew wrote: »

Ian W, exil and jamesd, thank you for finally seeing the point! I did not post to this thread to discuss whether or not I was making the right decision to get out and take control of my own investment! It's not about costings, or trying to maximise my pension - it's about trying to go home to Spain, as planned seven years ago when I was erroneously led to believe I could retire at 50 (with a reduced pension, of course).

I'm tired of chasing the moving target. If I stay, I am likely to be here until I'm 60. And who knows if that will stay constant? Treasury finances are up the creek, and they are taking harsh measures to balance their own books. We've already lost out - my wife's pension fund is at two-thirds its previous value, our endowments are just about breaking even. We have tried and failed to be prudent, to save, to plan carefully for our chosen future, and all blown apart by spurious market dealings and gross Government overspending. I note that all those out there who spend what they earn (those that earn!), who save nothing, are not suffering this way!

Do you think Spain is in any better a position?

I understand that you hve planned your finances this way so that you can live comfortably in Spain (we are there on my husband's Teachers' Pension which he took at 55), but please don't make the mistake of many expats by thinking everything there is better than the UK. It most certainly is not. Unemployment in some places is 40% and overall I think it is 22%, wages are lower than the UK and for the few jobs there are you normally need fluent Spanish.

Not trying to rain on your parade, just saying to go in with your eyes open and don't jepardise your Fire Service Pension in any way.

Public sector pension transfer value request

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