Moving to a Sipp from final /career average

mrposhman

I work for quite a major company which last April changed their final salry scheme to a career average salary scheme. I will be leaving the business at the end of June and then leaving the country to move to Australia.

I have enquired about keeping the money in the scheme and have been told that my benefits will only increase by inflation or or 5% whichever is the lower so leaving the cash in there now doesn't seem like the best idea.

I'm not sure how big my current pot is, I have now been with the business for just over 3 and a half years paying in since I joined. I have 2 and half years on the final salary scheme and finished that scheme on about £30k. I have now had my pay increased to £36,700 and will finish the scheme in that so will have another year and a quarter in the scheme at this level.

I'm trying to work out how much my pot would roughly be worth, I've been told that I can only get 1 free illustration a year (any future ones cost about £250) so I'm not sure if I would need another for my new pension providor when I transfer. Can anyone give a rough calculation based on those figures?

I was thinking about moving the cash into a SIPP as I shouldn't think the total value of the pot is particularly large and therefore would like more control over this and I will pay into a different pension in Australia.

What do the more informed members on here think about this? I think I will need to work pretty sharpish on getting this moved over as I'm only in the UK for another month.

I appreciate any advise.

MikeJones_2

Hi mrposhman,

mrposhman wrote: »

Can anyone give a rough calculation based on those figures?

In a nutshell, no not with any degree of accuracy.

There are so many parameters and assumptions that are used in the transfer value exercise that if we give you a figure it could be a million miles away for any number of reasons. For example the scheme may be in deficit and your transfer value reduced as a result.

Furthermore, we don't know exactly what forms the essential parts of your scheme's formula:

The final salary scheme formula will use:

(pensionable service X final pensionable pay) / accrual rate

Your CARE scheme benefits may have an entirely different formula.

Incidentally, you're entitled to one transfer value free in every 12 months (unless you're within 12 months of your NRD). The transfer value once calculated will be guaranteed for 3 months from the Calculation Date. If you decide to proceed to transfer, the transfer must be completed within 6 months of the Calculation Date.

I'd seriously recommend you seek assistance from an IFA as a transfer analysis in respect of a defined benefit scheme is a complicated affair (and your's is even more complicated because of the FS and CARE split). Transferring a pension overseas requires further detailed and specific expertise as there are cash lump sum and taxation issues to be factored into the equation which differ between various countries.

Hope that helps a little. Sorry I can't be more helpful from what you've posted.
I'm off to enjoy the sunshine now.

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a 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.

mrposhman

This forum doesn't half annoy me sometimes in the speed that it times your session out. I've just lost another post!! I've been copying them recently before clicking submit, but forgot to today.

Anyway, the jist of it is.

- My scheme is certainly in deficit, its the Royal Mail scheme.

The final salary scheme details were my final salary was £30.9k but I started on £21k and was in this scheme for 2.5 years, so I'm not certain my final salary is taken or if it is an average of these years. The accrual rate is 1/60th. My pension illustration last June stated that my pensionable benefits were now valued at something like £1.1k on retirement.

The career average details are that the starting salary was £30.9k and my current salary (had for 1 year out of 1 and a quarter years in the scheme) is £36,715. I think it stayed at an accrual rate of 1/60th but something is nagging at me that it changed to a 1/80th rate though I can't find my pension details at the moment.

I think this means that my pensionable benefits will be somewhere around £1.7k to £1.9k on retirement but I have no idea how this translates to the transferable value.

I've been told by a non-independenty pension advisor that they require a transferable value of a minimum of £30k to be able to invest and I don't think my pension will hit this but just looking for a view on valuation really.

I'm still siding towards a SIPP at the moment as its only a fairly small pension pot which as I'm only 27 will enable me to earn this back overtime through working anyway, however, I'd like to check all my possibilities.

One other side issue, I will be leaving the UK on 29th June to move to Australia. If I don't move my pension before then do I still qualify for a SIPP or do you have to be a UK resident for tax purposes to qualify (like an ISA).

Thanks again

mrposhman

I've been doing a bit more research on this and have had some advice from a guy in pensions (quite senior, not a call centre staff member) at work who has helped me out a bit.

He has suggested (a bit of a back of a fag packet to give me an idea) that my deferred benefits would be somewhere around about £1,900 per year on retirement and this seems to fit in with what I expected. He spoke to someone else in pensions to give an idea of how this would calculate up into a transferable value and said that as they aren't sure exactly how the trustees would value the pot due to the high value of yields it would be towards the lower part of their estimated range which was from £10k to £30k (I know!!) but then reduced this to £15k to £25k.

Anyhow, I'm after a bit of advice as to whether I have calculated my numbers correctly based on these figures.

My deferred benefits will rise once I leave the plan at inflation or 5% whichever is the lower so I have assumed an average inflation rate of 3% (I think the actual over the last 10 years is something like 2.7%). I have assumed that I will retire at 65, I am 27 and a half at the moment so have about 37 and half years left till retirement (that sounds like a loooooooooooooong time).

I have then worked out my compound inflation rate as being (1+0.03)^37.5 which provides a compound rate of 3.03 so therefore I think if I leave the pension as it is I should be looking at deferred benefits of circa £5,756.

I have then (and this I really have no idea about) have assumed I will be alive for a further 20 years till I'm 85 and would have a flat annuity (is that correct) and therefore my pension pot would be circa £115k in order to fund this.

Therefore if I wanted to change the scheme I would need to be confident that over 37.5 years I could achieve a pension pot of around about £115k from a £15k starting point. I think this works out to an average increase of about 5.6% which I think is perfectly feasible.

Can anyone confirm that my figures are correct or whether I have missed something glaringly obvious?

If I want to transfer my benefits I will need to pay an IFA and Hargreaves Lansdown have suggested that their IFA's would charge about £500 to transfer the policy to them. Would I be able to pay this out of the pension fund directly as a charge or would it need to be funding seperately? This is a real sticker at the moment as if it cannot come out of the pension then I do not have the cash to do this at this moment in time anyway.

If my figures are fairly right and I could pay the £500 out of the pension then I would be confident to outperform my current pension fund through a SIPP as even if I went incredibly defensive and went for only high yield safe shares and they didn't increase in value then the compounding impact of dividends over this period of time should yield more than the average gain anyway.

What do those in the know think?

EdInvestor

mrposhman wrote: »

I have then (and this I really have no idea about) have assumed I will be alive for a further 20 years till I'm 85 and would have a flat annuity (is that correct)

Err no, not normally with an f/s scheme.You have to allow for index linking (RPI or these days perhaps 2.5%) plus of course a spouse benefit.

therefore my pension pot would be circa £115k in order to fund this.

And thus you would need significantly more.

mrposhman

EdInvestor wrote: »

Err no, not normally with an f/s scheme.You have to allow for index linking (RPI or these days perhaps 2.5%) plus of course a spouse benefit.



And thus you would need significantly more.

Ok thanks, so how would I calculate this?

I was comparing 2 seperate options, if both options had a flat annuity is that not a fair comparison?