Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • errolt1
    • By errolt1 20th Apr 17, 7:52 PM
    • 11Posts
    • 2Thanks
    errolt1
    Should I transfer my Final Salary Pension ?
    • #1
    • 20th Apr 17, 7:52 PM
    Should I transfer my Final Salary Pension ? 20th Apr 17 at 7:52 PM
    I am 53 and have just had a valuation on my final salary pension that I left 10 years ago.
    The valuation is 40 times my the salary that I would get at 55 and 30 times what I would get at 60 and 29 times what I would get at 65.
    It is a life changing amount that will pay off my mortgage in 18 months time from the tax free element . I also have another £170k from various DC schemes since i left my final salaried job.

    The valuation is from Feb 2017 and is valid for 3 months.
    Is it worth me getting another valuation done ? This will cost me £300 and is there a chance the value has gone up since Feb 17 up to today ? I have been reviewing the web regularly to see if there are any reports showing if valuations are moving up or down.
    Any advice from any of you in a similar situation would be appreciated.
Page 1
    • chiefie
    • By chiefie 20th Apr 17, 8:33 PM
    • 308 Posts
    • 318 Thanks
    chiefie
    • #2
    • 20th Apr 17, 8:33 PM
    • #2
    • 20th Apr 17, 8:33 PM
    if I had those figures I would take it

    But

    The question is can you live off the proceeds and the dc pot till you die ? And can you take the risk of stock market volatility that the dc pension gives you ?

    Why not take the tax free sum from your dc pot to pay �� ff your mortgage if the amount owing is bothering you ? But with interest rates so low do you really need to or is it the feeling of being mortgage free ?

    I have some debts but what makes me feel better is holding a balance sheet of my investments/pensions on one side and the debt on the other. I am happy with the nett value and with most of it very low interest I am not worried about it.

    If my missus knew she would have a fit though ��
    • errolt1
    • By errolt1 20th Apr 17, 9:28 PM
    • 11 Posts
    • 2 Thanks
    errolt1
    • #3
    • 20th Apr 17, 9:28 PM
    • #3
    • 20th Apr 17, 9:28 PM
    Thanks for the response chiefie. You are spot on about being mortgage free especially living in London with a large mortgage over the last 17 years.
    The thought of getting rid of that noose around my neck in 18 months time is the main reason.
    • Suffolk lass
    • By Suffolk lass 21st Apr 17, 8:24 AM
    • 1,586 Posts
    • 18,086 Thanks
    Suffolk lass
    • #4
    • 21st Apr 17, 8:24 AM
    • #4
    • 21st Apr 17, 8:24 AM

    I have some debts but what makes me feel better is holding a balance sheet of my investments/pensions on one side and the debt on the other. I am happy with the nett value and with most of it very low interest I am not worried about it.
    Originally posted by chiefie
    I used to take this view, and with a mortgage interest rate of less than 1% and all debt at low or no interest, I felt in control. I just don't like paying interest though - and I am relatively new to investing so most of mine was in savings, rather than investments. I realised that my accruing interest and growth was diminished by the mortgage interest which was still in the thousand plus and I just don't like giving that up.

    I guess the time of your life and career, family responsibilities and where and what happens around you all affect our attitudes. For me, the sudden and unexpected death of a friend and the mess they left, has spurred me to simplify things a bit.
    MFiT T4 #2 update 42.67% after Q7 £5,465 behind where I should be
    Save £12k in 2017 #64 - £9,260.94 saved (84.19%) after October - my annual target is £11,000
    OS Grocery Challenge 2017 budget of £3,600 £3000 (reduced from Apr) - 78.56% including stores after October
    My DFD is http://forums.moneysavingexpert.com/showthread.php?t=5593594
    • jamesperrett
    • By jamesperrett 21st Apr 17, 1:39 PM
    • 699 Posts
    • 354 Thanks
    jamesperrett
    • #5
    • 21st Apr 17, 1:39 PM
    • #5
    • 21st Apr 17, 1:39 PM
    As mentioned in a similar thread today, it would only make sense to take the money if you could pay off the mortgage with your 25% tax free lump sum. The rest would be taxed, There is also a danger that future pension contributions could be subject to the £4000 per annum MPAA limit.
    • ischofie1
    • By ischofie1 21st Apr 17, 1:58 PM
    • 189 Posts
    • 152 Thanks
    ischofie1
    • #6
    • 21st Apr 17, 1:58 PM
    • #6
    • 21st Apr 17, 1:58 PM
    Just be careful about paying £300 for a new valuation.
    You may find the value has gone down then you've taken a double hit.
    If you're happy with what's on offer now then take it. If not then don't.
    • PensionTech
    • By PensionTech 21st Apr 17, 2:42 PM
    • 710 Posts
    • 926 Thanks
    PensionTech
    • #7
    • 21st Apr 17, 2:42 PM
    • #7
    • 21st Apr 17, 2:42 PM
    I think you're looking at this very myopically. Sure it would pay off your mortgage - but so what? Mortgage rates are pretty low at the moment. If it were a good idea to transfer out, it would quite probably be a good idea to stay invested afterwards. If you're borrowing on your mortgage at 2-3% and you're making 5-10% on your pension investments, you'd be a fool to disinvest the pension to pay off the mortgage.

    And then there's the question of whether it's a good idea to transfer out. chiefie might be happy with those numbers but I'm not so sure. It's far too simplistic to just consider the "multiple" of your pension - what about indexation (which is easy to write off but makes a tremendous difference to the cost of providing the pension)? What about the spouse's pension? What about generally having security of income in your old age? And even if you did want to reduce it down to "40x at age 55, 30x at 60" - firstly I would say that you're probably looking at an actuarial reduction at age 55 anyway, so it wouldn't generally be a good idea to take your pension then anyway. So let's look at the 30x at age 60. Would you be able to replicate that income yourself, with indexation, with spouse's benefits, with absolute certainty? How long do you think people are expected to live these days? (Hint - it's longer than many people realise.) What kind of retirement do you want, anyway? How do you want to spend your money? Do you want a risk-free regular income stream or do you want to take out variable chunks? What other income are you expecting to get? What's your tax situation going to be like? Will you be facing a Lifetime Allowance excess charge if you convert to DC?

    You'll be forced to get advice anyway if you do decide to transfer, so someone will go through this kind of information with you - but it really is a much more involved decision than you seem to allow at the moment.

    On a new transfer value - well that's a bit more interesting. It does seem that gilt yields have dropped quite significantly since the end of January, which is probably what your transfer value is based on. If gilt yields drop, transfer values go up. Inflation expectations have also dropped a little as well though - which would push transfer values down. It depends what kind of metrics your scheme uses. I probably wouldn't bother paying for a new one. But you are running out of time to get financial advice while this one's still valid.
    I am a Technical Analyst at a third-party pension administration company. My job is to interpret rules and legislation and provide technical guidance, but I am not a lawyer or a qualified advisor of any kind and anything I say on these boards is my opinion only.
    • errolt1
    • By errolt1 21st Apr 17, 4:03 PM
    • 11 Posts
    • 2 Thanks
    errolt1
    • #8
    • 21st Apr 17, 4:03 PM
    • #8
    • 21st Apr 17, 4:03 PM
    I just phoned capita and this is half the problem when dealing with their staff. If not reading from a script they just do not add any value.
    Previously i was told if you get another valuation then both valuations are valid. Today the chap said previous valuation would no longer be valid and only new one and the clock would start again. A colleague at work has had a CETV and that was online and he could literally get one daily from Phoenix.
    My one would take 5 to 7 days and no explanation on how it was calculated.
    For the amount of money we are talking about to have no breakdown or transparency is shocking.
    • lovinituk
    • By lovinituk 21st Apr 17, 4:10 PM
    • 5,371 Posts
    • 6,038 Thanks
    lovinituk
    • #9
    • 21st Apr 17, 4:10 PM
    • #9
    • 21st Apr 17, 4:10 PM
    I think you're looking at this very myopically. Sure it would pay off your mortgage - but so what? Mortgage rates are pretty low at the moment. If it were a good idea to transfer out, it would quite probably be a good idea to stay invested afterwards. If you're borrowing on your mortgage at 2-3% and you're making 5-10% on your pension investments, you'd be a fool to disinvest the pension to pay off the mortgage.

    And then there's the question of whether it's a good idea to transfer out. chiefie might be happy with those numbers but I'm not so sure. It's far too simplistic to just consider the "multiple" of your pension - what about indexation (which is easy to write off but makes a tremendous difference to the cost of providing the pension)? What about the spouse's pension? What about generally having security of income in your old age? And even if you did want to reduce it down to "40x at age 55, 30x at 60" - firstly I would say that you're probably looking at an actuarial reduction at age 55 anyway, so it wouldn't generally be a good idea to take your pension then anyway. So let's look at the 30x at age 60. Would you be able to replicate that income yourself, with indexation, with spouse's benefits, with absolute certainty? How long do you think people are expected to live these days? (Hint - it's longer than many people realise.) What kind of retirement do you want, anyway? How do you want to spend your money? Do you want a risk-free regular income stream or do you want to take out variable chunks? What other income are you expecting to get? What's your tax situation going to be like? Will you be facing a Lifetime Allowance excess charge if you convert to DC?

    You'll be forced to get advice anyway if you do decide to transfer, so someone will go through this kind of information with you - but it really is a much more involved decision than you seem to allow at the moment.

    On a new transfer value - well that's a bit more interesting. It does seem that gilt yields have dropped quite significantly since the end of January, which is probably what your transfer value is based on. If gilt yields drop, transfer values go up. Inflation expectations have also dropped a little as well though - which would push transfer values down. It depends what kind of metrics your scheme uses. I probably wouldn't bother paying for a new one. But you are running out of time to get financial advice while this one's still valid.
    Originally posted by PensionTech
    Excellent post, thank you.
    • errolt1
    • By errolt1 21st Apr 17, 4:19 PM
    • 11 Posts
    • 2 Thanks
    errolt1
    Pension Tech you respond just like my IFA . Very detailed and I agree in that I need to look at the bigger picture.
    Who would have thought being in a final salary pension would potentially help you clear a sizeable chunk of your mortgage at 55 and also thanks to George O for providing access to this 5 years earlier .
    The additional facts are that I will have a property well in excess of million that would be subject to inheritance tax but the Pension Transfer would not and would go tax free to the wife or kids if i die before 75 . Old man passed away at 74 so who knows ? and at marginal rate of tax if i died after 75.
    The real other problem is that you know think of the value and numbers 24 hours of the day and even when you go to sleep. The valuation statement has changed everything. You only get once chance and that is why i need to make sure it is the right decision.
    • greenglide
    • By greenglide 21st Apr 17, 7:23 PM
    • 2,919 Posts
    • 1,894 Thanks
    greenglide
    You only get once chance and that is why i need to make sure it is the right decision.
    What is really crucial is not to take the wrong decision.
    • bigw81
    • By bigw81 22nd Apr 17, 1:04 AM
    • 33 Posts
    • 18 Thanks
    bigw81
    Not sure about your scheme - but also consider a) whether your partner is also in a final salary scheme ie: if you leave yours, will there still be a 'guaranteed pension income' coming into the household in later years b) if partner isn't working or doesn't have a pension, might they be depending on 'your' widow's pension if anything happened to you? c) if you've any children, are they still dependant on you financially, or are they working age? I'm coming out of my own final salary scheme because a) my husband is in a Civil Service final salary scheme so there will still be a guaranteed pension income coming into our household b) he's still working and therefore isn't depending on getting a widower's pension if anything happened to me c) my 'kids' are 26 and 24, and both are working with their own (small) homes d) I've just been diagnosed with a neurological illness which isn't life-limiting but will definitely become 'activity limiting' so its a complete no brainer (sorry for the pun!) to move the funds out of the final salary scheme - this way if anything DID happen to me it forms part of my estate and will be passed on to the family in its entirety. I am currently still working and intend to for some time, but it also gives me the reassurance that should I need to retire early (I'm 53 too!) I can do so, taking an income from the investment and/or releasing some tax-free cash while I'm physically able to enjoy it. Alternatively if I find working full time gets tough due to my ill-health, I can go part-time and use the investment income to supplement my earnings. No-one can make this decision but yourself - and I know what you mean about not being able to forget it once you know the figures!! For me, its felt empowering and given me a control over my working/retirement future that I wouldn't have had under the 'old' rules.
    • jimi_man
    • By jimi_man 22nd Apr 17, 11:51 AM
    • 116 Posts
    • 109 Thanks
    jimi_man
    It seems to me that index linking (and the security of a DB pension) is worth far more than perhaps people give it credit for.

    At 60 with an average of 26 years life expectancy, an average 2% inflation over that period applied to an annual £10,000 pension, gives a total of £336,000 pension income over the lifetime. So I'd be wanting at least 34x the amount at age 60. If you were to live till 90, then it's 40x and 95 then it's 50x. Nothing unusual about living to those ages and it will get more and more common.

    Really, to compensate for the lack of security, I'd also want to add another 5 to those figures.

    Looking at the figures given, 30x the amount at 60 is quite simply not enough.

    I do wonder whether people are just being seduced by the seemingly large amounts on offer. The fact that people are thinking to use their retirement funds to pay off debts (mortgages etc) just reinforces my view that it's a very bad idea to trade in your pension in this way.
    • chiefie
    • By chiefie 22nd Apr 17, 12:35 PM
    • 308 Posts
    • 318 Thanks
    chiefie
    What this dialogue is showing is - it all depends on a number of factors, including quality of life. It could be a good idea to transfer if you have other sources of guaranteed income. I would be tempted on one of my db schemes as the other with state pension is enough for my later years and my wife has enough for her too. I've worked out that a few thousand for life at age 65 is not enough for me to want to wait for it and carry on working. The transfer would enable me to retire earlier and no one can put a value on that if the job is stressful �� I also slightly take issue that db pensions are guaranteed - as government has already allowed some funds to update at cpi only, that GMP uplifts have changed and that there are so many in serious deficit that the ppfund may be inundated enough that make it unsustainable. Just my view but it's too easy for firms to be taken over and the new one want to renage on their contract with deferred members.
    • errolt1
    • By errolt1 22nd Apr 17, 12:50 PM
    • 11 Posts
    • 2 Thanks
    errolt1
    You are right about getting seduced by the figures . The missing facts are that at 53 I still hope to have a few years left in me and being able to earn a between £50k to £100k per annum for a few more years (qualified accountant). Having a total pot (DB Transfer + DC) that will give a tax free amount in 18 months of over £200k.Leaving £600k to be reinvested and hopefully give me a salary in of £30k from 60 to 70 and then maybe £20k onwards there on . This is what i am modelling in my spreadsheet. Also the wife will have circa £100k DC pot.
    • errolt1
    • By errolt1 22nd Apr 17, 12:59 PM
    • 11 Posts
    • 2 Thanks
    errolt1
    Chiefie , i am thinking like you as well . I have now been working for 30 years and whilst reasonable healthy it is harder getting a new job during your mid 50's .The thought that at 55 i will have cleared my mortgage is overpowering . I am even contemplating remortgaging onto a 2 year fixed at 0.99% to save even more money and then pay that back at then end of the 2 years.
    The mortgage has been around my neck for 17 years at nearly £1500 per month and will make a big difference to my monthly cashflows. Who would have thought by paying in a relatively small amount in a pension would generate a return in excess of 30 times that ? I am too far down the road now in my head to hold back.
    • fifeken
    • By fifeken 22nd Apr 17, 5:33 PM
    • 2,176 Posts
    • 1,130 Thanks
    fifeken
    At 60 with an average of 26 years life expectancy, an average 2% inflation over that period applied to an annual £10,000 pension, gives a total of £336,000 pension income over the lifetime. So I'd be wanting at least 34x the amount at age 60.
    Originally posted by jimi_man
    That all assumes the lump sum isn't working for you and generating more cash all the time. It's an unknown but can't be ignored.
    • ermine
    • By ermine 22nd Apr 17, 10:57 PM
    • 623 Posts
    • 924 Thanks
    ermine
    at 53 I still hope to have a few years left in me and being able to earn a between £50k to £100k per annum for a few more years (qualified accountant).
    Originally posted by errolt1
    So you'll still be earning, then why on earth are you thinking of paying off your mortgage and hammering your DB pension?

    Paying off my mortgage before I retired early was a big mistake. I will be richer post 60 but I was short earlier. Don't do it to yourself. Carry the interest. It gives you optionality, and sometimes that's worth paying for.

    The thought of getting rid of that noose around my neck in 18 months time is the main reason.
    You haven't given us a good reason why this is a problem for you other than being a concept you don't like.

    The additional facts are that I will have a property well in excess of million that would be subject to inheritance tax but the Pension Transfer would not and would go tax free to the wife or kids if i die before 75 .
    Your property goes to your spouse IHT free surely?
  • jamesd
    The transfer appears to be an excellent move, paying off the mortgage not so good.

    Even the somewhat outdated 4% rule would suggest that if the transfer value is say £400,000 you could take £16,000 a year, less an allowance for charges, and never have failed to pay this over a thirty year historic period. Assorted caveats that don't really matter because you should instead use a more modern rule like Guyton-Klinger. With drawdown you also get to do things like taking higher income now, or at 55 if you don't plan to retire and use non-pension assets until then, because you know you will get a state pension or taking a higher income while younger because spending normally decreases with age.

    I recommend that you read Drawdown: safe withdrawal rates then experiment with cfiresim including your future state pension income.

    You should try that with and without paying off your mortgage, including the mortgage repayments in your income need if you don't pay it off, reducing your capital if you do. This will help to illustrate why it's not a good idea to pay it off. You may find that knowing it's budgeted for out of a substantially higher income than you expected makes you a lot more comfortable with keeping it.

    I could pay off my mortgage at any time. I don't do that because it's daft: I'm making more than ten percent before tax after bad debt allowance from peer to peer investing. But you can do things like trying to get to the lowest possible mortgage rate and longest possible term to improve your position.
    Last edited by jamesd; 23-04-2017 at 1:20 AM.
    • hyperhypo
    • By hyperhypo 24th Apr 17, 5:01 PM
    • 42 Posts
    • 5 Thanks
    hyperhypo
    Interesting post and right up my recent past alley.

    Got the CETV value the (free ?) TVAS analysis , gawped at the headlights of the numbers (over £400k for £25k contributions over 12 years)...added up my exsting SIPP (since the db scheme was removed as part of outsourcing 5 years ago....numbers worked out at c. 3/4 of the OPs values)... i'£600k at age 61 to play with, surely couldn't go wrong at that.

    Well i blinked and declined the transfer. Better for me to keep the RPI indexation and the spouse, dependants benefits etc. My main reason for doing so was that my DB transfer plus SIPP (ex house) was pretty much the long and the short of it (SP excepted too).......no other significant s ources of income and no cash outside of ...potentially ...a future DC only scheme.
    So not for me.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

254Posts Today

1,458Users online

Martin's Twitter
  • Nice debating with (all but the rude ones) of you. Bedtime for me now. Goodnight #bbcqt

  • RT @kevmthomas: @MartinSLewis It was a comment you made about the referendum being a binary choice on a non binary issue that helped me rea?

  • To clarify this. Cameron's gamble that having a stark vote'd mean his team won. He gambled wrong (that's not a stat? https://t.co/NSCT3aKvGS

  • Follow Martin