Transfer value of pension

lovsn

I am about to leave one job and take up another

As per the terms of my pension with the old employer, I have the option to "transfer" my current pension to the new employer, or I can hold on to it with the old employer until retirement.

If I choose to transfer, they calculate a "current transfer value" of my pension, which my new employer then translates into the benefits that would give me under their scheme.

I was wondering if anyone knows of a quick rough-and-ready calculation / formula of what that transfer value might be? Just so I have an idea of what kind of value I can transfer across, versus holding on to the two different pensions.

xylophone

Is it not possible to obtain the exact figures from your ex-employer/employer "without obligation"?

jem16

What kind of pension is your current one and what kind of pension are you transferring to?

I'm assuming final salary as you mention benefits but it would help to know. Also anything to do with public sector schemes or not?

lovsn

I'd be transferring out of the University USS Final Salary scheme into a private sector 4% Matched Contributory Stakeholder pension scheme

I have only been in the USS scheme for 2 years, hence the "final pensionable salary" is only around £30k (which gives me £759 per annum and a tax free cash of £2278), so I guess the question is whether the benefit of investing the "transfer value" into my new pension has the potential to produce something better.

The USS website suggests "You can of course request a transfer value quotation by writing to USS", but I don't know if I'm charged at any stage for this (or indeed if I transfer out of the scheme)

xylophone

Will you need an IFA to sign off a transfer from your Final Salary pension even though you have only been a member for two years?
Would the IFA be happy to do it?

jem16

lovsn wrote: »

I'd be transferring out of the University USS Final Salary scheme into a private sector 4% Matched Contributory Stakeholder pension scheme

Then please under no circumstances do this as it is likely to be the worst decision you ever made.

99 times out of 100 transferring away from a final salary pension ( unless into another final salary pension) is wrong and would require an IFA to sign it off.

lovsn

xylophone wrote: »

Will you need an IFA to sign off a transfer from your Final Salary pension even though you have only been a member for two years?
Would the IFA be happy to do it?

I have been a member of the scheme for 3 calendar years, but 2 were part time, hence I am able to transfer out, but with only 2 years of value.

xylophone

http://www.uss.co.uk/SchemeGuide/FinalSalaryBenefitssection/leavingthescheme/Pages/default.aspx
Have you seen this?
http://www.telegraph.co.uk/finance/personalfinance/pensions/9120476/A-20bn-pension-mis-selling-scandal.html

lovsn

jem16 wrote: »

Then please under no circumstances do this as it is likely to be the worst decision you ever made.

99 times out of 100 transferring away from a final salary pension ( unless into another final salary pension) is wrong and would require an IFA to sign it off.

Thanks for the advice.

Is the reason it's "wrong" because typically, if you are transferring out of a final salary scheme, your "final salary" benefit is higher than what you can expect to earn elsewhere?

In the case of someone, like me, starting my career, the final salary I am currently on, I guess, is well below where I would expect to end up. Thus transferring something with relatively "low value" into a scheme where I may end up with a much higher salary could count for more if I get, for example, an extra 2 years in the new scheme as the transfer value?

Does that make any sense?

lovsn

xylophone wrote: »

Have you seen this?

I have, but it doesn't tell you how to calculate the transfer value of the deferred benefits. Just the formula for deferred benefits.

jem16

lovsn wrote: »

Thanks for the advice.

Is the reason it's "wrong" because typically, if you are transferring out of a final salary scheme, your "final salary" benefit is higher than what you can expect to earn elsewhere?

Without doubt - yes. Unless it's also final salary.

In the case of someone, like me, starting my career, the final salary I am currently on, I guess, is well below where I would expect to end up. Thus transferring something with relatively "low value" into a scheme where I may end up with a much higher salary could count for more if I get, for example, an extra 2 years in the new scheme as the transfer value?

Does that make any sense?

It doesn't stay frozen like that. Your USS pension will become a deferred pension - ie the pension will be calculated now and then increase each year in line with inflation. It is also a guaranteed pension with no risk to you, whereas any money purchase scheme such as a stakeholder is subject to investment risk.

Transferring from a defined benefit scheme to another defined benefit scheme can be worthwhile in some cases. You need to compare benefits then.

However defined benefit to defined contribution is such a high risk transaction that an IFA will always be required to sign off such a transfer.