Swap final salary pension for SIPP?

jamesd · 8 January 2008 at 9:38AM

kennyboy66, 8.1% is the target to beat. That's too high a target for fixed interest investments or really for say a balanced managed fund but not for equities. Even for equities it doesn't leave a really comfortable margin if it's just straight FTSE100 tracker. Fortunately finding funds with records nearer 13% long term is doable enough.

The offer definitely isn't generous and there may well be a better one around the corner if they don't get many takers. Particularly once they revise their longevity expectations.

dunstonh · 8 January 2008 at 10:03AM

8.1% basically rules out fixed interest, property, balanced managed, cautious managed (or lower), distribution and FTSE trackers. If you are going to do this you have to be willing to risk outperformance and look at a medium/high risk spread (or higher).

margaretclare · 8 January 2008 at 10:46AM

No, No, NO! Never give up on an employer's final salary scheme! They are becoming as scarce as hens' teeth. Ask yourself WHY is your employer 'offering incentives to transfer out'? Not out of the goodness of his heart, you can be sure of that.

If you want a SIPP, have one in addition, not instead of.

HTH

Margaret

moneyandmountains · 8 January 2008 at 7:05PM

goosander wrote: »

FYI, the scheme in question is Racal/Thales.

... Eyes glaze over, thinks of days back at RRL.

DennisRevell · 31 January 2008 at 7:36PM

Hi. I've got pretty much the same offer, but I'm ex-pat, US resident (yea, I know). As such I've found getting advice pertaining to my situation a bit hard to get. I've been a resident here since around about the mid 1990s.

Heath Lambert Consulting (HLC) have been given the offer to manage. I'd like to get a 2nd opinion on what I understand from them so far:

Initially HLC told me that I couldn't participate in the offer because I wasn't a UK resident or taxpayer, but they seem to have modified their position on that. I'm now told that any scheme purchased as part of the offer must be a US based scheme - they specify a 401k, but that may be because that's the most familiar option to non US residents.

Basically they're saying that I can not transfer to any UK personal pension scheme owing to my tax and residency status. So my understanding is that if I leave the money in the current scheme, I will sometime become eligible for a pension denominated in GB£s, but that I can not keep that denomination were I to take up the offer, but would have to transfer to a scheme obviously denominated in US$s; which I'm getting more and more to regard as eventually being of use as fire starters. In order of decreasing toxicity, we seem to have: $ - £ - € - I guess that's partly the price of the first 2 bearing the cost of attempting to steal all that ME oil.

It seems a little strange to me that tax status or for that matter residency status - I am still a British citizen - enables me to keep the GB£s denominated final salary pension scheme, but disallows me from transfer to a GB£s denominated personal pension. One of the Transfer Scheme options offered, btw, offers a transfer to Legal & General, I guess to make the transition easier for those who don't want to mess around hunting for another personal pension provider.

-1 Can an expert here confirm that that is the case? ie: that any transfer to take advantage of their offer must be to a US based US$ denominated scheme, and can not be to a UK based GB£ denominated scheme?

In addition, I noted that the first poster here (goosander) gives figures of £11,750 for Transfer Value with a Cash Payment Offer of £1,530. The documentation I have received from HLC gives the Transfer Value in my case of £18,317.16, but a Cash Payment Offer of only £1,275.

-2 Apart from feeling all miffed and picked upon ;-); out of curiosity as much as anything, why does my higher Transfer Value seem to have attracted a lower Cash Payment Offer? What other factor(s) might be at play here?

-3 Does anyone know if it's possible to purchase a pension scheme denominated in Euros (say from a Continental Bank/Company, French/Dutch/whatever). If so, any ideas/experience to offer how to go about it?

-4 From what I've read of the HLC documentation, I think as an option that, on retirement, I could take one quarter of the pension amount as cash. Would the relevant amount (if taken now) be one quarter of the £18,317.16 mentioned above, ie: £4,579.29?

Thanks in anticipation of better answers than I've got right now.

Dennis Revell, formerly RTSL.

jamesd · 1 February 2008 at 6:57PM

DennisRevell, tax considerations mean that you can only transfer to a US scheme if it meets certain UK standards if you're to retain the pension tax protections. There are some US pensions that do meet those standards but I forget the details. You must find out about those schemes first to see what investment options they offer you. Somewhere on the net there's a list of authorised US pension transfer receivers.

I can't tell you if it's mandatory to transfer ot a US scheme, just that your US scheme choices will be limited.

US tax law is extremely punitive when it comes to US people owning foreign-based collective investments. Don't be surprised if you see horrendous tax charges if you try to dodge US options.

You should really start your own UK to US pension transfer discussion to better attract the eye of those familiar with this area.

DennisRevell · 2 February 2008 at 9:16AM

Just thought in time not to make that "Thank you James" ;-) sounds a bit butlerish.

Thanks, good idea about another thread - wish I had more time. I wouldn't try to dodge any options, I know 401ks are quite punitive if you want to take money out early - though I think somewhat more flexible than with UK pensions.

Actually, this pin-money sized pension accruement had slipped way to the back of my mind, almost to the point of forgetting about it, until I got the packages of information from HLC.

About another thread - the $ is getting toxic (with the £ getting that way too) so I'd want to avoid any more involvement with it like the plague. Hence I'd probably more likely want to start one seeking advice on the possibilities of getting an acceptable (acceptable to Thales/Mercer/HLC) Euro-denominated scheme to get the Transfer Value shifted to. I am a Euro-citizen as well as still a British Citizen.

Oh, why, oh why didn't the UK shift to the Euro!?! Misplaced nationalism or europhobia or something, in my view ( hmm. probably some US pressure too?)

Thanks again
Dennis R.

EdInvestor · 2 February 2008 at 8:43PM

You need to transfer it to a QROPS.

Google for a reference the the HMRC (tax) website.

TRUSt_NO_1_2 · 2 February 2008 at 10:37PM

I am in a similar position, but am looking to transfer out into a SIPP through my own choice.
The only obstacle is I am looking for market value as a transfer amount, that is, how much would it cost me to buy the same pension in the market place.
They have currently offered me significantly less than market value,so I have refused …for now.
So I would find out what the market value (not their transfer value) is and base your decision on that.
If you are being offered market value, I would transfer it.
True inflation is running above 5% (over 10%..look at food,energy etc).Your FS indexation is capped at 5%, so your pension is being devalued each year.
If you get market value you just have to beat 5% perfoemance on your investments to gain .
If you take a lump sum from a final salary scheme, the scheme trustees will probably have a free hand to disproportionately reduce your pension.
My final salary pension scheme only allows approx 12% to be taken as a tax free lump sum, then my pension will also get clobbered …at the ‘trustees’ discretion
A SIPP allows 25% tax free,with no effect on the buying power of the remaining fund.
Also death shortly after retirement can leave your dependants well out of pocket if you have a company pension,depending on the scheme rules.
With a SIPP your dependants get the lot as a lump sum, less some tax maybe.
If your ex company goes bust you rely on the PPF.
The pension industry is going to have a crisis on it’s hands soon and the PPF will buckle under the strain.
I will put money on the PPF running into underfunding problems and the 90% of pension guarantee will go to 80% then lower…

In summary make sure you are getting market value as a transfer value and go for it.At least you will be in control.

Retired_I.F.A. · 3 February 2008 at 1:46AM

Trust No_1 ...

The transfer value is the current value of your final salary scheme as calculated by an actuary. Compound that by x% p/a until normal retirement date then look to buy the same annuity as the scheme offers and it will be very simlar. It's the x% that matters and can vary as it's the future growth expectation of the actuary. Get an IFA to in turn get a transfer value analysis done and it'll show what the x% is including the charges of your sipp. This x% is known as the critical yield and is the major factor in deciding if a pension transfer should take place or not. You may well find as the opening posteR did a critical yield of some 8% is needed and unlike him be happy to transfer expecting a better growth.

It seems to me your trying to do a TVA youself but unless you have mortality tables and a very good understanding of the mechanics behind everything your never going to do it. It took me 6 months to write on a spreadsheet a critical yield calculator for such transfers from 10pm to 2pm every night and about 20 hours each weekend some 1500 hours in total. I may only have cse maths but the actuary who gave me the mortality tables said I'd never do it on a spreadsheet.

In fact when I did he was so impressed he spent half hour on the phone trying to convince me to train as an actuary. Wish I had as a teenager them blokes earn a packet.

Swap final salary pension for SIPP?

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