Transferring company pension

CURLYSANDY · 19 March 2017 at 10:19AM

Hello all - I am taking early retirement later this year at 57 years old. I have been paying into my Centrica company pension for 39 years and have a pension pot of £700k. They have sent me my pension options which I am now reviewing.

However, we recently met with an independent Pensions Advisor who stated that my £700k Pension Pot would disappear upon my death, ie Centrica would pay me a monthly pension, but when I die the Pension Pot goes with me. The Pension Advisor then stated that if I transfer my £700k pension pot to, say for example, The Prudential, ie a private pension scheme, then I can continue to draw a monthly pension, but then when I die my Pension Pot is still there and can then be inherited by my children.

Surely this is a no brainer to transfer to a private pension or is this just a sales pitch, so he can earn commission from me?

Many thanks for any advice received.
Sandy

Linton · 19 March 2017 at 11:09AM

We need to know a bit more about your pension to comment fully. Is this a Defined Benefit Pension where you get a pension dependent on years of service or a Defined Contribution pension where £700K is held in investments for your benefit?

I assume the former as amassing £700K in a DC pension would be difficult unless it arose from generous guarantees. If it is a DB pension, where did you get the £700K figure from? Is it a Transfer Value (CETV) or the value for checking against the maximum pension size? What is the Centrica offer?

It may or may not be a no-brainer. Yes, the IFA is correct that the £700K could be used to provide you with an income with the remainder on your death going to your children. However the money would need to be invested with a degree of risk, and the investments managed by someone. Do you have the skills to manage £700K of investments? If not you would need to pay an IFA to manage them for you. Can you accept that the value of the £700K would drop, possibly significantly, at times? You may need to vary your income depending on the economic situation,

On the other hand, the Centrica pension is guaranteed to pay out the stated amount for the whole of your life with full or partial guaranteed inflation linking, no matter how long that is. But, in most circumstances, the money stops when you die. The scheme is taking the risk that you dont live to be a 100+.

Your decision should be based on the balancing of advantages, disadvantages and risks. It will depend to a great extent on the actual numbers. All this should be fully explained by the IFA before you agree to transfer.

xylophone · 19 March 2017 at 11:43AM

we recently met with an independent Pensions Advisor

You and your spouse? If so, and this is the Centrica DB Scheme ( likely if you have been contributing for 37 years and did not opt to change to the DC Scheme) there will be widow/er benefits.

If what you are proposing is a transfer out of a DB Scheme to a DC Scheme with Prudential, you are going to need advice from a Pensions Transfer Specialist - is your independent Pensions Advisor one such?

http://www.pruadviser.co.uk/content/knowledge/technical-centre/pension_switches_transfers/

https://www.royallondon.com/Global/documents/GoodWithYourMoney/COMPANY-PENSIONS-FIVE-REASONS-TO-TRANSFER-OUT-AND-FIVE-REASONS-NOT-TO.pdf

Silvertabby · 19 March 2017 at 1:48PM

As xylophone says - but did the IPA say that your Centrica pension would die with you because you are not married, as he knew that Centrica don't pay co-habiting partners pensions?

If so, that's another point to consider - if your only reason for leaving Centrica would be the lack of a partner's pension, then there's one easy answer to that problem.............

CURLYSANDY · 19 March 2017 at 7:00PM

Many thanks all for your advice. My hubby and I are married, so assume if I die first he would still collect some of my pension if I left it with Centrica.

The £742k is the "Transfer Value" and it is a Defined Benefit Pension.

I don't think I want to take too many risks, so feel I might just keep it with Centrica Pensions and take my 25% tax free and then start taking my pension.

Thanks again

bigadaj · 19 March 2017 at 8:41PM

CURLYSANDY wrote: »

Many thanks all for your advice. My hubby and I are married, so assume if I die first he would still collect some of my pension if I left it with Centrica.

The £742k is the "Transfer Value" and it is a Defined Benefit Pension.

I don't think I want to take too many risks, so feel I might just keep it with Centrica Pensions and take my 25% tax free and then start taking my pension.

Thanks again

So you don't a pension pot you have a promise to oay a set amount, what is that amount and what are the spousal benefits?

The db convention is normally something like three times the annual pensions rather than 25% as the isn't really a pot.

bikeman · 24 March 2017 at 3:42PM

Whenever someone asks this question there is a hail of 'can you manage your pot?' and 'what if the stock market crashed?'.

These are valid considerations but with transfer values exceeding 40x the annual pension offered, the pot doesn't really need managing for growth and can be safely kept in building societies. And you get your hands on the full 25% tax free.

Or transfer it to a drawdown pension, again take 25% tax free if you want, and enjoy tax free wrapper and growth.

Draw the pot down at the rate of the pension offered and it will last 40+ years, and you'll be safe in the knowledge that should you get struck down the day after you retire your kin will inherit it.

mgdavid · 24 March 2017 at 7:43PM

bikeman wrote: »

Whenever someone asks this question there is a hail of 'can you manage your pot?' and 'what if the stock market crashed?'.

These are valid considerations but with transfer values exceeding 40x the annual pension offered, the pot doesn't really need managing for growth and can be safely kept in building societies. And you get your hands on the full 25% tax free.

Or transfer it to a drawdown pension, again take 25% tax free if you want, and enjoy tax free wrapper and growth.

Draw the pot down at the rate of the pension offered and it will last 40+ years, and you'll be safe in the knowledge that should you get struck down the day after you retire your kin will inherit it.

Some CETVs are only 20-odd times the anual pension, we don't have that info.

The OP is 57 and has a 50/50 chance of living another 30 years. Do you have the slightest idea what inflation will do over 30 years if kept in building societies with lamentably low interest rates?
That's after throwing away £200,000 in tax as it cannot be held in bld socs inside a SIPP.

The drawdown option could work - see other threads - but again the OP would either have to learn all about investments and DIY in a SIPP (and take all the well-known risks) or pay for it to be managed, which still does not guarantee anything being left to inherit, it could well run out before death.

bikeman · 27 March 2017 at 2:58PM

I was being a bit flippant but obviously transferring it to a drawdown product would be preferable to a building society for tax reasons.

I don't accept that people should be frightened of ongoing investment decisions. Most pension products have very limited investment choice and even with a SIPP the selection of a few index trackers is very straightforward.

Maintaining growth in line with inflation should not be a problem for most and there would be considerable benefits.

As someone who has a defined benefit pension CETV of over 47 times annual pension I am personally frustrated that I can't get hold of it without extortionate fees and !!!! covering by IFAs.

kidmugsy · 27 March 2017 at 3:05PM

Silvertabby wrote: »

if your only reason for leaving Centrica would be the lack of a partner's pension, then there's one easy answer to that problem.............

You old romantic you.

kidmugsy · 27 March 2017 at 3:08PM

bikeman wrote: »

Maintaining growth in line with inflation should not be a problem for most and there would be considerable benefits.

Once again the word "should" bears a considerable burden. So does "would". I commend "might".

Transferring company pension

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