Bhs Enhanced Transfer Value Offer

foxmulder1971

I wonder if anyone can shed some light on my real options with regard to a letter I received from one of my old employers?

I have built up seven years final salary scheme pension with Bhs and left the company in 2005. I will therefore on retirement be entitled to 7 years worth of a final salary scheme (even though the current scheme has changed to a Stakeholder Scheme).

They have asked if I want to transfer this pension out of the Bhs one to either my own SIPP or another pension fund of my choice. I am currently working for the NHS and have re-joined their pension scheme and have been a member for four plus years now but have been told that this would not be a viable option as the value they have quoted me would only be worth a year's contributions to my NHS pension scheme.

I have been told that the value of the pot is £34k and they will give me an enhanced value of £4k, £2k of which I can take as cash less taxes etc.

Do I leave it where it is or move the funds into a SIPP? Have done lots of reading on the forum and am none the wiser. The company have offered free financial advice which I will receive in about a week's time but wanted to gauge the forum's view?

I am nearly 40 with 3 young children and transferring the balance seems attractive as I could take the £2k and put this towards paying off some debts.

Loughton_Monkey

Moving one FS scheme to another FS scheme [and thus buying 'years' in the accepting scheme] is virtually impossible these days. I think it exists within some of the 'related' public sector arenas, but is generally a no-no.

Taking a deferred FS scheme as 'cash' [i.e. transfer to a money purchase scheme] has always been sacred territory - effectively 'banned' because it has to be signed off by a qualified IFA and these people cannot do that if they wish to retain their professionalism.

So we are now seeing an increasing propensity for FS schemes to try and 'buy out' people by 'enhancing' the cash transfer value. Personally I find this very distasteful. More importantly, although it clearly 'minimises' the losses that have usually been suffered in all those mis-sold transfers of many years ago, we have to wonder why they are offering the enhancement? Because they still think it's better for them.

I believe this is the most obvious next mis-selling scandal waiting to happen, and I expect the FSA will jump onto this before too long.

It is so painfully easy to predict what will happen. There are two scenarios:

1. The enhanced transfer value turns out to be insufficient to match what would have been paid under the FS scheme [and actually is being paid to those not daft enough to transfer out]. In this case, I can't believe that any person would not win an Ombudsman case to be compensated by being put back into the scheme retrospectively.

2. Although most unlikely, imagine that those who transferred out end up with 'bumper' results in their money purchase. This, then, will raise some interesting legal action, perhaps, against the pension trustees who have [with hindsight] wasted pension fund money.

foxmulder1971

Interesting read. I understand why they are trying to buy me out and that I should be guaranteed a Final Salary Scheme payout when I retire so really I should leave the funds where they are with Bhs.

I will have to look at the last annual statement I received from them to see what the pension's value is at the current time with regard to how much it would pay if I lived for 15 years after retirement plus the lump sum based on today's values so see what the disparity is. They are offering £38k at present, £2k of which I can take as cash.

Loughton_Monkey

foxmulder1971 wrote: »

Interesting read. I understand why they are trying to buy me out and that I should be guaranteed a Final Salary Scheme payout when I retire so really I should leave the funds where they are with Bhs.

I will have to look at the last annual statement I received from them to see what the pension's value is at the current time with regard to how much it would pay if I lived for 15 years after retirement plus the lump sum based on today's values so see what the disparity is. They are offering £38k at present, £2k of which I can take as cash.

Care!

Depenst upon retirement age, of course, but even at age 65, 15 years is far too short. I can't find my mortality tables at the moment, but from memory, even a 60 year old is expected to last to 87 or so, and a 65 year old will live more than to age 87, so over 20 years expectancy.

jamesd

Are you an experienced investor who is confident that you can invest and do well enough to replace the lost value of the defined benefit scheme? Are you willing to take that investment risk? If the answer to either question is no you should probably not accept the offer.

Your situation - having debts - is one of the risks that can cause such schemes to be unfair to the pensioners like yourself, by encouraging a decision that isn't in your best interests.

kidmugsy

foxmulder1971 wrote: »

... the value they have quoted me would only be worth a year's contributions to my NHS pension scheme.

Oh well, at least you will never argue that the cost of public pensions is exaggerated.

boxerman

Take real care here! unless you are really desperate for the money leave it where it is,
we have employers offering cash sums to leave the F/Salery schemes, but the employee always loses out by £1000s, people sometimes dont realise just how good these F/S schemes are, and how much extra retirement income they are signing away, Employers are getting sneaky and offering these cash bribes when they think people need the cash most, Christmas time etc

foxmulder1971

I found my leaving documents and it says that I have a deferred pension of £3,106 per annum from January 2032.

This valuation was back in 2006, so there would be five years worth of price inflation to take into account. Even so the £38k they have offered me is small compared to £3,106 x 20 years after retirement age.

I think that I will leave it where it is and start to build my NHS Pension now.

Thanks for everyone's advice.

Greengem

Sorry I saw this post too late and realise that you have most likely already made your decision.

I hope you have taken notice of the free advice provided to you by JLT's "pension specialist" adviser and not some of the overly negative comments posted.

Whether or not to transfer should be a simple application of mathematics.
Using the provided TVAS (Transfer Value Analysis System) report, dig out the Critical Yield for your chosen retirement date and probably best with the maximum Pension Commencement Lump Sum (tax free cash).

This figure is the percentage growth that your SIPP will have to provide every year, on average up to your chosen retirement date, to purchase the same amount of benefits as your Bhs Scheme.
If this rate is over 7%, it is most likely that you will be advised not to transfer.

If it is below 7% you need to assess whether or not you want to take the market risks to try and improve your pension benefits.
Your attitude to risk should be identified in the advice process.

It's worth noting than there is no guarantee of the incentive in the future and having your pension under your own control has some benefits, not least of which is the choice to take a higher 'level pension' on retirement, which may give you more income until you are well into your 80's.

Also, don't take the cash unless you are desparate, as you will pay tax and NI on any cash lump sum taken now, which is likely to be 32% if you are a basic rate tax payer.