Pension Advice (transferring into final salary scheme)

rtidrtid

Hi all,

I'd appreciate any thoughts/advice on my scenario.

At my previous job i was in the pension scheme and left there after 6 years. My pension was approx £17k and invested into various funds by the company. The value has soared and is at £26k now.

My present employer (have been here 3 years and intend to stay for at least 4/5 years more) offer a final salary pension. I contribute 10% and company contribute 15% which is very generous.

However, we now have the option of transferring pensions into our work scheme. but will that give me any extra benefit on my final salary scheme, as that pension is based on my pay when i leave the company? Not sure how much extra benefit there is in doing this?

appreciate any thoughts.

atush

It will either buy added years, or will be into an AVC. If added years it would be worth doing if AVC maybe not (esp if youa re happy with teh current performance of your revious scheme. You will need to ask your HR dept which is the case.

rtidrtid

thanks atush.

it will buy additional years, so i'm waiting on our pension provider to confirm how many years my value will purchase.

out of interest do many people have two types of pensions?

regardless of the number of years i will be able to purchase, i am considering leaving my £26 k in the current fund. its made £8k (clearley it could lose this value as well), but i considering it "bonus" money....

hmm i'll have some decisions to make i guess!

atush

A lot of peoole dont have one job from 18-21 thru to retirement. People also dip into and out of the Public Sector I guess. So that can leqave several small posts (or bigger pots and FS years). My OH has 4 pensions incl his current one.

Not many Private sector workers have access to a FS scheme any longer.

rtidrtid

atush wrote: »

It will either buy added years, or will be into an AVC. If added years it would be worth doing if AVC maybe not (esp if youa re happy with teh current performance of your revious scheme. You will need to ask your HR dept which is the case.

okay so here's what i've got now;

my £25k pension pot (from previous employer) will buy 3 years into my existing pension fund with current employer (final salary).

I'm not sure how to calculate if thats good value!

my current pension scheme is 1/60th and i've been here 3 years, so the current pension value is £2750 per annum.

if i add in the 3 years worth into my existing scheme it will change to £5500 per year. So simply doubling. £25k seems a lot for three additional years.

I'd appreciate anyones thoughts!

atush

25K/2750(ie the extra pension you would get) = 9.09 So you would be better off once you reached 9 years. Except it would be even earlier as each year your pension gets an index linked uplift. But not knowing what your pension will use (some CPI, some RPI, some 3% etc) we cant etll you howmuch sooner.

Seems a good deal to me?

Zelazny

rtidrtid wrote: »

okay so here's what i've got now;

my £25k pension pot (from previous employer) will buy 3 years into my existing pension fund with current employer (final salary).

I'm not sure how to calculate if thats good value!

my current pension scheme is 1/60th and i've been here 3 years, so the current pension value is £2750 per annum.

if i add in the 3 years worth into my existing scheme it will change to £5500 per year. So simply doubling. £25k seems a lot for three additional years.

I'd appreciate anyones thoughts!

So basically, your £25k now will buy you an extra £2,750 per year at retirement, and this amount will rise in line with your salary increases. That doesn't sound too bad, but it depends on how long until you retire.

Generally speaking, wages tend to increase faster than inflation, but a little slower than investment returns. If we were to assume 5% salary growth and 9% investment returns each year, and that annuity rates for a comparable benefit are around 4% then we get the following:

After 5 years, the FS benefit would be £3,509.77 p.a. whereas the investment from the original £25k would be worth ~£38.5k now, and would give a pension of £1,538.62 p.a.

After 10 years, the FS benefit is £4,479.46 against investment benefit of £2,367.36 p.a.

After 20 years, the FS benefit is £7,296.57 against £5,604.41 p.a.

After 30 years, the FS benefit is £11,885.34 against £13,267.68 p.a.

With the above assumptions, the break even point is at 27 years.

With different assumptions, the break even point changes. Let me know more of your details and I can give some better numbers, but it's all still going to be a guess - we don't know what the annuity rates are going to be like when you retire, and we don't know how your salary or investments are going to perform.

rtidrtid

thanks guys.

Well i'm 32, and on a salary of £55k. I fully expect to be in my job for the foreseable future. We tend to get the standard 3% annual salary increase.

Any other thoughts are greatly appreciated!

rtidrtid

any thoughts from anyone :-)

atush

yes. At 55 you are into HRTax, so additional salary sacrifice into an AVC or PP could be a good idea tax wise as you will get HRTax relief.

That is, if you have cash and investments outside a pension as well.

Zelazny

rtidrtid wrote: »

thanks guys.

Well i'm 32, and on a salary of £55k. I fully expect to be in my job for the foreseable future. We tend to get the standard 3% annual salary increase.

Any other thoughts are greatly appreciated!

Assuming retirement at 60, that's 27-28 years from now, which means that by my calculations (above) they've made a fair offer. So you shouldn't be significantly worse off either way, if all of the assumptions I made above are accurate (which is far from guaranteed).

Basically, they've made a reasonable offer and you have to decide if you want the security of a guaranteed income (in which case take the added years) or to take more risk for potentially higher returns.