Deferred annuity v. Transfer on wind-up?

mnbvcx

A company my husband and I (and 300 others) were made redundant by in 1999 is now winding up its pension scheme. We have been given the choice of a deferred annuity with unknown conditions/terms or making a transfer to somewhere of our choice within the next two months. As I have 20 years-worth of contributions (and my husband 15) am now 50 and not working, this money is the bulk of our retirement income. Is there any general principle by which we can make this decision or do we need to consult an IFA to go through the figures in detail? We each have a transfer value of just over £100,000.

Thanks in advance for any help.

MikeJones_2

Hi mnbvcx,

This is an area I've dealt with a lot and it can be a complex and confusing subject for the uninitiated - which unfortunately means most scheme members. It is a proverbial pensions minefield.

I'm assuming that your preserved pension benefits were held in a defined benefit type scheme (e.g. a final salary scheme is one type of defined benefit scheme) in which case I don't really think that there are any general principles from which you can arrive at your own informed decision under the circumstances that you have described, unless you are very well versed in pensions in general.

I'd strongly recommend you see an IFA as the adviser will look at your individual circumstances and make recommendations accordingly.

If you want to carry on responding to this thread, we could point to some of the important issues (but we would expect these would be discussed with you by an IFA).

For example, we don't know whether there is a surplus or deficit. Are the transfer values that you have been offered reduced (because of a deficit), enhanced (more than 100% of your 'standard' transfer value, because of a surplus) or simply 100% (neither reduced nor enhanced)?

What is your timescale?

Mike Jones

I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

EdInvestor

mnbvcx wrote: »

We have been given the choice of a deferred annuity with unknown conditions/terms

Obviously point 1 is to find out the conditions and terms, in particular how the benefits payable under the guaranteed annuity would compare with the potential benefits achievable by a transfer (where you will be taking on the risk).

As you are over 50 you could also consider taking the pension now and reinvesting the money to create a separate (tax free in ISA) retirement pot for use later.What reduction would you have to take over the guaranteed annuity benefits if you did that? If you are not working you could earn 6k pension income tax free for reinvestment.

One thing to bear in mind is that in many company final salary schemes you have to pay for side benefits (such as spouse's pensions and death benefits) that may not always be value for money if a person is single or the spouse has his/her own pension provision.If that's the case, then it can be worth taking the transfer and incurring the risk. This is because if money is not "wasted" on unnecessary side benefits, the 'hurdle" you have to jump to get to a superior income for one person, is not so high - and thus the risk of going it alone is lower.


So many issues involved here, a good IFA (needs to be good) could be very useful.
If you go that route, feel free to run his advice past the people here for comment.