Cash Payment for Deferred Members

DeekRivers

Hi,

I would really appreciate any advice on the following.

I had a 7 year pension with a past employer whom I left in 2000.
This large employer has been taken over by another company and the new owners have set aside a fixed budget offering one off cash payments to deferred members.

My current deferred pension is approx £4k
The transfer value including the £4k contributions is £21k
There is a cash payment of £7k to be added and tax relief of another £2k
Total estimated transfer value of approx £31k
They are saying it will not be subject to Income or Capital Gains tax.

As an individual I am not sure where pensions will be in 28 years when I am due to retire. My wife and I have just moved house and taken on a £250k mortgage, we see property as a back up to our pensions. If there was benefit using some of the money now to add value to our home this would be considered.

I have been paying in to various employer pensions for the last 19 years and this particular part equates to 7 of these 19 years.

I'm sure there is a lot more information needed on my behalf but I wondered if anyone had any comments?

EdInvestor

My current deferred pension is approx £4k

Is this what you expect to get when you retire as an annual income?would it be index linked for inflation? Would it give a spouse's pension when you die?

How old are you now?

Andy_L

IIRC it's a "transfer value" because it has to be transfered to an suitable scheme (be that stakeholder, PP, SIPP or company scheme)

The 7k cash payment is a bribe to get you of their books (which implies it's a final salary scheme) & the 2k probably the normal tax rebate (deferall) you get for investing in a pension.

DeekRivers

Hi, thanks for the reply.

Yes it will continue to increase up to my retirement to help protect value from inflation.
I am unsure re: spouse's pension - but will find out now you ask (is this normal for large company pensions?)
I was 38 in Nov.

Andy L - the paperwork stipulates there is no requirement for me to re-invest in to another scheme but yes they are looking to get rid of me as longer term they would be better off. I believe it was a final salary scheme.

DeekRivers

....any other information would be appreciated.
Thanks.

EdInvestor

DeekRivers wrote:

My current deferred pension is approx £4k

By this I assume you mean you are expecting a pension of 4k a year when you retire.

Does this incluse the uprating for inflation every year?
Will this pension be indexed for inflation?
Does it include a spouse's pension after you die?

(All these things cost money and mean the 4k pension will be more expensive to buy on the open market.)

Total estimated transfer value of approx £31k.As an individual I am not sure where pensions will be in 28 years when I am due to retire.

For comparison purposes, the basic state pension (currently 4,368 p.a) which is index linked for RPI inflation and includes a 100% spouse's pension,would cost approximately 130,000 pounds to buy on the open market at present.

So the question you need to ask yourself is, if you take a transfer value of 31k, what is it realistically going to be worth after you've invested it for 28 years and will it be enough to replace the pension given up?

If you took it and invested it in a money purchase pensions and this money grew at 7%, you would end up with a pot worth 206,114 which might buy a pension of 12k or so with no bells and whistles.But this does not include the effects of inflation, which halve the value of money over 20 years .The other pension will be adjusted to cover that automatically.

I'd have thought the bribe isn't good enough, but note I am not an expert in this area.

DeekRivers

thanks for the information.
its a final salary scheme, index linked and includes a spouses pension.

I am not 100% convinced where pensions will be in 27 years when I retire (or 29 years with new changes?), if it made sense to balance my portfolio and invest this sum in property I'd consider it.