Pension advice

Tony_M_2

OK then, I was working for a company until July this year, then made reduntant. I had a final salary pension which I had paid into for about 5 years. I have been sent details of my options, being 1, leave it and they have said how much it will be worth to me when I reach normal retirement age. (I'm 34 now). This amount does not seem a great deal of money to me, for what will be the cost of living in about 30 years time. Or 2, a cash value if I wish to transfer the funds to another scheme.

So should I leave it as it is, I am now with another company and they have a pension scheme which I am eligible for after 6 months, which I will join. Or do I take the cash value of my old pension and move it to another scheme but, at the same time pay a small amount each month into it, to keep it ticking over.

It's a bit of a minefield so any help is very much appreciated.

dunstonh

We are not allowed to give pension transfer advice on the forums. Its a breach of FSA and board rules. We can discuss points to help you investigate your options though.

If you check your pension documents you will probably find the pension increases annually both before and after retirement. So, you dont have to worry too mcuh about the cost of living in 30 years time. Luck at the current values and that should be more or less the same in real terms in future.

If you complete a TVAS (transfer value analaysis system) and find the critical yield, you should be able to see if it is suitable to transfer or not.

ReportInvestor

Here's some food for thought.

Sunday Telegraph

"Teresa Hunter urges employees who are offered an attractive lump sum in return for transferring out of their final salary pension scheme to do their sums very carefully - in most cases, it is the employer who gains....."

clairehi

My understanding of the TVAS is that the transfer value is calculated by an actuary at a level which should enable you to "purchase" equivalent benefits in another scheme.

Is the new company scheme another final salary scheme?

If it is, they should be able to provide you with a transfer in value which will tell you how many years in the new scheme your old contributions will buy, and what retirement income this would equate to. You also need to be aware of retirement ages, death benefits and other variables but you will should be able to make a direct comparison with leaving the pension where it is. Bear in mind that benefits are index linked as Dunston has said.

If the new company scheme is a money purchase scheme then by making the transfer you are giving up the certainty associated with the final salary scheme. You cannot make a direct comparison as retirement income will be dependent on charges and the future performance of the fund/s as well as annuity rates. In your situation I would consider hedging my bets by leaving the previous contributions where they are.

I am in a not dis-similar situation and am looking around for a pensions IFA to help us make informed decisions.

EdInvestor

the transfer value is calculated by an actuary at a level which should enable you to "purchase" equivalent benefits in another scheme.

Unfortunately early leavers usually lose out whether they leave their pension behind ( increases only by inflation) or take it with them (low transfer value).

clairehi

I agree that early leavers can "lose out" in comparison with what would happen if they stayed in the same scheme until retirement. My OH has now been in a total of 4 different FS schemes in his career and hes only 35. Had he clocked up all that time in one scheme, his pension would be looking a lot healthier than it is.

However at least the OP is able to get a transfer value rather than just a refund of contributions. My OH was in LGPS for 18 months a few years ago and when he left all they gave him back was his contributions. As we were skint at the time it went on a deposit for a new car. Very bad I know.

ReportInvestor

Most pension schemes are underfunded, so they are likely to want to improve their position at the expense of leavers.

It's almost their duty.

Tony_M_2

Thanks for all the advice, it would seem that I will be better off leaving the pension where it is. By the way the company I used to work for was a well known British Airline! One of my concerns was that would they be around when it came to me claiming the pension? and if I am covered for that event. I have asked the general advice of a IFA and he too says leave it where it is, the figures are not that substantial, my main query was that now I am no longer employed by the company, would the final salary scheme actually mean anything as an ex employee?

Thanks again to all that have replied.

dunstonh

Would that be the famous "flag" airline that is often referred to as a pension scheme that also happens to own an airline (as the pension is bigger than the airline)? In which case, staying put would make sense.