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Public sector pension transfer value request
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# 1
cookiecrew
Old 26-07-2010, 7:36 PM
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Question Public sector pension transfer value request

Hi, all -
This is a request for opinions on the legality of the following -
My home and family are in Spain, and have been for the last seven years. For the last 18 years I have worked as a firefighter in the public sector.
We have planned that I take early retirement from the brigade this August (so that I can go home) by transferring my pension fund into a QROPS scheme, which would allow me to draw benefits at 55. If I leave the brigade and merely freeze my fund than I am told I will not be entitled to draw benefits until I am 66.

So I have asked for a transfer value, but I am being told that, due to the changes afoot (eg: RPI to CPI basis) then the governement are freezing all valuations and transfers now - maybe for the next few weeks, maybe for six months!

Can this be legal? It is, after all, my fund, and surely I have the right to ask for a transfer whenever I wish? Can anyone throw any light on this for me, please?
Many thanks!
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# 2
dunstonh
Old 26-07-2010, 8:20 PM
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Quote:
Can this be legal?
If you think its illegal then you phone the police. If you believe its unlawful then you contact a solicitor.

Quote:
We have planned that I take early retirement from the brigade this August (so that I can go home) by transferring my pension fund into a QROPS scheme, which would allow me to draw benefits at 55.
As would transferring it to a personal pension or SIPP. although no option is likely to be as good as leaving it in the scheme.

Quote:
If I leave the brigade and merely freeze my fund than I am told I will not be entitled to draw benefits until I am 66.
Have you had that confirmed in writing?
Quote:
surely I have the right to ask for a transfer whenever I wish?
Have you reached age 55 yet?
Have you terminated your employment yet?
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 3
Pixieboy
Old 26-07-2010, 9:50 PM
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I assume you are in the Firefighters Pension Scheme and not the New Firefighters Pension Scheme, because of the length of service. If so a deferred pension would be payable at 60; even under the NFPS it would currently be 65, so I'm not sure where 66 has come from.
Regarding the response to your request for transfer details - this is correct, HM Treasury have issued an instruction that all public sector schemes should not use the current factors for transfer calculations while they are being reviewed in light of the announcement that future increases will be based on CPI rather than RPI. It is not clear, at present, how long it will be until the matter is resolved.
HM Treasury statement is on the front page of this document http://www.hm-treasury.gov.uk/d/publ...ions110908.pdf
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# 4
cookiecrew
Old 28-07-2010, 8:34 AM
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Pixieboy, thankyou for the link to that document.
Yes, I am in the original Pension Scheme. To clarify, I am 42 years of age with 18 years' service. I am not looking to draw benefits from the scheme until I am 55, but would prefer the fund to be placed in a QROPS to grow in the interim.
Excuse my ignorance (I am a firefighter without a financial background!) but how does the tweaking of calculations for future increases affect the size of the current pot? Are we likely to see a serious downsizing of the fund value I had at 30 June 2010?
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# 5
dunstonh
Old 28-07-2010, 10:11 AM
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As you have not reached 55 and have not terminated your employment yet then that explains why you cant transfer it at this time.

Quote:
but would prefer the fund to be placed in a QROPS to grow in the interim.
On what justification would you want to do that?
Quote:
how does the tweaking of calculations for future increases affect the size of the current pot?
Its a defined benefit scheme so it doesnt have a "pot" or fund value. The only time values come into it are when you want to transfer. I doubt the changes would have a serious impact on the transfer values. The most damaging thing is the fact you are looking to transfer it into an almost certainly inferior option.
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 6
vbm
Old 28-07-2010, 1:59 PM
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OP, you are almost certainly making a very serious mistake in looking to transfer your preserved pension.

My advice is seek out an advisor, who may well be able to help you achive your goals (income from 55 ? ) without taking this course of action.
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# 7
Jacka87
Old 29-07-2010, 3:29 PM
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I have to say that I have always been told that a final salary (defined benifit) scheme is by far the best scheme posible and the only way I could see any reason why you may wish to move to any other scheme is if you felt you where not going to live very long and thus not take the advantage of the rest of your life income!
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# 8
cookiecrew
Old 30-07-2010, 12:45 PM
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Thanks, all - I appreciate your advice, which overwhelmingly favours leaving the pension where it is.

However - when we moved to Spain originally, all of our careful money planning was built around the fact that I would retire at 50, as was the case then.
Things have changed, and are changing still, and look set to change yet again. We're tired of chasing a moving target and would rather move what we have into an investment vehicle that allows us more control and will certainly allow me to commence drawdown at 55 (regardless of any more rolling goalposts in the UK) while in the meantime I may live and work in my home in Spain.
Public sector pensions have become a popular scapegoat (hardly fair at the bottom end of the scale, where we have always accepted lower wages than those available in the private sector for an equivalent job, but happy to know that our pensions would make up for it) and who knows how things will change further?
Therefore I need to try to make my situation a little more controlled, and I need to do it before the window of opportunity that is QROPS closes too.

I'm now reading that CETV figures are expected to be frozen for around three months. This seems harsh considering that a date for implementation of the CPI basis for evaluation hasn't even been determined officially yet!
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# 9
vbm
Old 30-07-2010, 4:45 PM
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Does your Spanish QROPS allow drawdown ?

Why not transfer to a PP in the UK and commence drawdown from there ?

I assume you have contacted the scheme and asked about early retirement. Even with the actuarial adjustments, you still still likey to be better off and with a fixed level of income.
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# 10
cookiecrew
Old 30-07-2010, 6:09 PM
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vbm - yes, drawdown is acceptable after 55 years of age, as long as it doesn't deplete the fund too soon - it has to remain a pension fund, after all, although it wouldn't die with me.

The main reason originally for choosing a QROPS rather than a UK PP route was the avoidance of eventual annuity purchase. I know that there is a lot of talk about changes there, too, but frankly I'm sick of the uncertainty in the UK. And if I opt for a PP there and then there are further changes to take the private pension age to 60?

Also, I live in Spain (residentially if not fiscally at the moment) so why would I want a UK PP, particularly?
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# 11
JamesU
Old 30-07-2010, 7:04 PM
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Quote:
Originally Posted by cookiecrew View Post
Also, I live in Spain (residentially if not fiscally at the moment) so why would I want a UK PP, particularly?
In addition to OPs' comments above, remembered a similar discussion elsewhere and found it! Link below covers similar ground on fire brigade pension and QROPS. Worth a read:

http://www.candidmoney.com/questions/question107.aspx


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# 12
dunstonh
Old 30-07-2010, 9:28 PM
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Quote:
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.
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# 13
Ian W
Old 30-07-2010, 11:56 PM
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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!

Last edited by Ian W; 30-07-2010 at 11:59 PM.
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# 14
exil
Old 31-07-2010, 9:16 PM
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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.
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# 15
jamesd
Old 01-08-2010, 7:53 AM
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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.
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# 16
cookiecrew
Old 02-08-2010, 9:21 AM
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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!)

Last edited by cookiecrew; 02-08-2010 at 9:23 AM. Reason: wrong name!
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# 17
cookiecrew
Old 02-08-2010, 9:29 AM
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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.

Last edited by cookiecrew; 02-08-2010 at 9:33 AM. Reason: Additional
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# 18
markr007
Old 02-08-2010, 9:07 PM
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Quote:
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.
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# 19
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Old 02-08-2010, 11:56 PM
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Originally Posted by cookiecrew View Post
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.
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# 20
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Old 03-08-2010, 4:36 AM
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Quote:
Originally Posted by cookiecrew View Post
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.
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