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  • FIRST POST
    • CURLYSANDY
    • By CURLYSANDY 19th Mar 17, 8:19 AM
    • 7Posts
    • 0Thanks
    CURLYSANDY
    Transferring company pension
    • #1
    • 19th Mar 17, 8:19 AM
    Transferring company pension 19th Mar 17 at 8:19 AM
    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
Page 1
    • Linton
    • By Linton 19th Mar 17, 9:09 AM
    • 7,450 Posts
    • 7,184 Thanks
    Linton
    • #2
    • 19th Mar 17, 9:09 AM
    • #2
    • 19th Mar 17, 9:09 AM
    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
    • By xylophone 19th Mar 17, 9:43 AM
    • 20,605 Posts
    • 11,778 Thanks
    xylophone
    • #3
    • 19th Mar 17, 9:43 AM
    • #3
    • 19th Mar 17, 9:43 AM
    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
    • By Silvertabby 19th Mar 17, 11:48 AM
    • 787 Posts
    • 842 Thanks
    Silvertabby
    • #4
    • 19th Mar 17, 11:48 AM
    • #4
    • 19th Mar 17, 11:48 AM
    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.............
    Last edited by Silvertabby; 19-03-2017 at 12:30 PM.
    • CURLYSANDY
    • By CURLYSANDY 19th Mar 17, 5:00 PM
    • 7 Posts
    • 0 Thanks
    CURLYSANDY
    • #5
    • 19th Mar 17, 5:00 PM
    • #5
    • 19th Mar 17, 5:00 PM
    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
    • By bigadaj 19th Mar 17, 6:41 PM
    • 8,627 Posts
    • 5,419 Thanks
    bigadaj
    • #6
    • 19th Mar 17, 6:41 PM
    • #6
    • 19th Mar 17, 6:41 PM
    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
    Originally posted by CURLYSANDY
    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
    • By bikeman 24th Mar 17, 1:42 PM
    • 255 Posts
    • 33 Thanks
    bikeman
    • #7
    • 24th Mar 17, 1:42 PM
    • #7
    • 24th Mar 17, 1:42 PM
    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.
    Last edited by bikeman; 24-03-2017 at 2:57 PM.
    • mgdavid
    • By mgdavid 24th Mar 17, 5:43 PM
    • 5,070 Posts
    • 4,225 Thanks
    mgdavid
    • #8
    • 24th Mar 17, 5:43 PM
    • #8
    • 24th Mar 17, 5:43 PM
    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.
    Originally posted by bikeman
    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.
    A salary slave no more.....
    • bikeman
    • By bikeman 27th Mar 17, 1:58 PM
    • 255 Posts
    • 33 Thanks
    bikeman
    • #9
    • 27th Mar 17, 1:58 PM
    • #9
    • 27th Mar 17, 1:58 PM
    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
    • By kidmugsy 27th Mar 17, 2:05 PM
    • 8,996 Posts
    • 5,854 Thanks
    kidmugsy
    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.............
    Originally posted by Silvertabby
    You old romantic you.
    • kidmugsy
    • By kidmugsy 27th Mar 17, 2:08 PM
    • 8,996 Posts
    • 5,854 Thanks
    kidmugsy
    Maintaining growth in line with inflation should not be a problem for most and there would be considerable benefits.
    Originally posted by bikeman
    Once again the word "should" bears a considerable burden. So does "would". I commend "might".
    • dunstonh
    • By dunstonh 27th Mar 17, 2:54 PM
    • 86,855 Posts
    • 52,006 Thanks
    dunstonh
    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.
    A selection of a few index trackers is not straightforward. There will be a need to rebalance. There are around 10 main sectors, so it will be at least 10 funds. You could run a global tracker to reduce that number but it would still involve around 5 funds. The average UK consumer is low knowedge, low risk and not able or willing to do things like that. It may be fine for someone able and willing but not mr or mrs Average.

    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.
    Because statistically, 9 times out of 10 over the last 29 years, it would have been the wrong thing to do.

    There are plenty of people who have wanted to do something, did it and then when it went wrong, they go looking for someone else to blame.

    Maintaining growth in line with inflation should not be a problem for most and there would be considerable benefits.
    Like any risk event, that may be the hope or expectation but it may not be the reality. When the risk events happen, people tend to look to blame others or get compensation out of someone.
    I am an Independent Financial Adviser (IFA). 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.
    • mgdavid
    • By mgdavid 27th Mar 17, 10:29 PM
    • 5,070 Posts
    • 4,225 Thanks
    mgdavid
    I was being a bit flippant .......
    Originally posted by bikeman
    it's all too easy to be flippant with someone else's £3/4 million pension but it's not necessarily in the OP's best interest.
    A salary slave no more.....
  • jamesd
    There's considerable research on safe withdrawal rates from pensions. These work out the highest income that could have been taken and still pay out for life even if the worst investment results since around the 1890s were repeated.

    A now old fashioned rule suggests 4% if the pension pot value, increasing with inflation. £29,920 a year. In 96% of historic US cases the money value, not adjusted for inflation, would have been higher at the end than at the start.

    The more modern Guyton-Klinger rules would suggest around 5.5% to 6% in exchange for being willing to skip inflation increases or take drops during sustained bad times. £41,140 a year. If you instead experience average or better results the income level can go up. These rules try not to leave so much money at the end.

    Those numbers assume investment mixtures using at least 50% shares and roughly the same in company bonds and similar things.

    Reduce those to three quarters if you take and spend the 25% tax free lump sum.

    A spouse or other people you nominate would inherit the pension and income level and their beneficiaries inherit from them in turn.

    Low interest rates today are often producing very attractive transfer values that reverse the traditional guidance not to transfer.
    Last edited by jamesd; Yesterday at 12:38 AM.
    • GDB2222
    • By GDB2222 28th Mar 17, 2:52 AM
    • 13,498 Posts
    • 71,812 Thanks
    GDB2222
    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.
    Originally posted by CURLYSANDY

    This is highly emotive stuff. Nobody wants to lose £700k. But, really, it all depends on the figures, and Curly hasn't said how big her pension would be if she stayed with Centrica.
    No reliance should be placed on the above! Absolutely none, do you hear?
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