Pension transfer - Private to Government

marlot

I've just started a job in Government and have the option of transferring my private pension in to Nuvos.

I'm male/49, and have a pot of £226k. I'm being offered a pension of £20k, plus a widow pension of £7.5k. This is index linked (presumably to CPI?) and payable from age 65.

This seems an attractive offer to me, especially with annuity rates so low at the moment. What do you guys think? This would be the first time I've made a transfer like this, so I don't really know what to check.

I'm guessing the cons of transfer are:
I could draw down on the capital sum from age 55(?) if I leave it alone
If the stock market soars over the next 15 years I miss out
stock market returns have normally been higher than CPI (not the last few years though)

And the pros:
The stock market has been doing well recently, and this locks the gain in
I gain protection from stock market dips from now on

jem16

marlot wrote: »

I'm being offered a pension of £20k, plus a widow pension of £7.5k. This is index linked (presumably to CPI?) and payable from age 65.

Is this index linked from now or from age 65?

hugheskevi

This is index linked (presumably to CPI?)

It is linked to the Secretary of State of the Dept. for Work and Pensions' view of the change in the level of prices. That is currently based on CPI.

This seems an attractive offer to me, especially with annuity rates so low at the moment. What do you guys think?

Looks a reasonable offer. Suggest you play with some pension calculators such as this one to look at various scenarios.

I could draw down on the capital sum from age 55(?) if I leave it alone

You can access Nuvos from age 55 too.

stock market returns have normally been higher than CPI (not the last few years though)

It doesn't work like that. The transfer value uses discount rates which take into account returns that could have been made. That discount rate is CPI+3%, so the transfer is basically offering a rate of return of CPI+3% with no investment risk.

You may be able to get more than that, or less, and if you would be purchasing an annuity the rate of that could go up or down from current levels.

A few other things to consider:

• Nuvos offers a lump sum commutation rate of 12:1 which (in general) isn't very good. You may well be better off not taking a lump sum, whereas with a DC pension you would almost always take the lump sum option
• Under current rules, flexible drawdown may well be very attractive for you if you are a higher or additional rate taxpayer, so you could transfer and then contine with a personal pension
• Could you transfer part of the pension? You might for example want just enough income to qualify for drawdown and keep the rest in DC to spread risks and take advantage of flexible drawdown
• Would you be moving the pension into lower risk assets as you approach retirement? That would make it harder to beat CPI+3%.
• Would you be buying an annuity? If so, the loss of pension on annuitisation needs to be factored in.
• Do you have other Defined Benefit pensions? If not, the transfer may be more attractive as it gives you more certainty to build on (linked to partial transfer arguments too)

marlot

Thanks hugheskevi, for such a comprehensive and helpful reply.

My other pension that I'm keen to consider transfering is a DB scheme, but also has about £100k in AFCs. The Nuvos scheme seemed to indicate that AVCs could not be transferred, but I don't know if they could/would come across if I transferred the accompanying DB. Do you know?

hugheskevi

Not aware of any rules about not accepting AVCs, and can't immediately see why that would be the case when personal pensions can be transferred in.

But having said that, the rules of public service pensions are often not intuitive so it might be the case.

Whether or not the AVCs would be automatically transferred -I'm not sure, but would think that it is something you should check that with the scheme administrator. They could be part of the occupational pension scheme, or they could be a separate arrangement with an insurer.

In general, transferring DB schemes isn't a good idea, but it should be straightforward to get a transfer value (entitled to one per year free of charge) and see what that would buy you in the Nuvos scheme. You may want to check to see if the AVCs in that scheme can be used in conjunction with main scheme benefits such that the lump sum you take can be applied entirely to the AVCs. That isn't possible in Nuvos.

I believe there is a limit on the amount you can transfer-in to Nuvos, which is the amount needed to buy an annual pension about half your salary in your new post.