How can I assess whether to transfer out of a final salary scheme?

welshtony

I am considering early retirement (at 55, presently 52) and the figures I'm getting make me wonder whether I may be better off planning to transfer out of the company scheme at 55. But I can't work out how to get the figures on an "apples to apples" basis for comparison.

My pensionable salary has been frozen, so I can predict with reasonable certainty what my entitlement will be at 55. If the trustees allow early retirement, an early retirement factor of 0.36 will apply, so I'll get 36% of my pension, which will escalate at 5% pa for most of it (last couple of years reduced to LPI).

I also had a transfer value quote last year, and doing a quick check at current annuity rates, I reckon there's not much difference between the two (ie leaving it with fiund, or taking it out). But it was a very quick check!

The plan is contracted out, so that's an additional complication.

I think I've also worked out, because of the frozen pensionable salary and escalation provisions for deferreds, that I'm actually getting no real pension benefit from continued service now (ie my eventual pension at 65 would be the same whether or not I remained in the scheme, as it's non-contributory)

I could see advantages in taking a transfer value, in that I wouldn't be forced to take an annuity and I could maybe get enhanced terms for one if I did decide to do that with some of it (high blood pressure and cholesterol). But I'd have to get a medical questionnaire done for that and until I'm sure I know that it would be a route worth taking, I'm not going to do this and waste people's time.

And on top of that, I would seem to have an opportunity to make large lump sum contributions to an AVC up to 55 that I could use to build up enough of a fund to take the 25% tax free cash without the normal penalty that would be applied if I sacrificed pension £ for it. The figures I've done even make it worth while borrowing the money at today's rates to do so.

The options and possibilities just seem too many to be able to rationally boil down to make simple decisions.

Is there a way to simplify the decision? Or, if there isn't, how long would it take an IFA to assess and advise on the issues I've raised?

dunstonh

Is there a way to simplify the decision? Or, if there isn't, how long would it take an IFA to assess and advise on the issues I've raised?

The options and possibilities just seem too many to be able to rationally boil down to make simple decisions.

IFAs have the software availability to do this. A TVAS review (which is required on occupational pension transfers) costs money for each one done. So, expect to be paying fees.

The IFA would write to the occupational scheme requesting specific information and data. How long that takes can depend on the scheme adminstrators.

If you dont have access to the software to do your own TVAS, then there is no easy way to work out the critical yield unless you are damned good on spreadsheets and have every single bit of data available.

Many (most) personal pension providers will not take in final salary occupational transfers without an IFA signing them off first. It isnt usually possible to do execution only basis with these.

One option is to see if the open market option is available to you on retirement commencement. So, you could leave the pension where it is and then at 55, make the comparison of what you are getting from the occ scheme versus the transfer value going into an open market option (its called a transfer with an immediate commencement but lets leave it called open market option for now)

welshtony

Thanks. The OMO isn't available at normal retirement date, but I assume it probably is at early retirement.

How much would this sort of review cost?

dunstonh

Ignoring the point that I think it would be daft to do it and the figures wouldnt stack up. OMO is available but indirectly. A transfer with immediate commencement is what it is called.