Deferred Final Salary Scheme V's SIPP for Early Retirement

Bazofts_Revenge

It is normally seen as crazy to come out of a Final Salary Pension scheme but I am contemplating it. I know I need to get a transfer value to give me a figure to start with. I have enough contributions for about £11k a year if I wait until I am 65. I always aimed to retire at 55 and early retirement has an actuarial reduction of about 30% from active status. Unfortunately I had to take redundancy and I am now a deferred Pensioner. From this deferred status the actuarial reduction is even more harsh somewhere near 45 to 50%.

Faced with such a big reduction I'd like to know if any of the IFAs out there have worked out similar scenarios for others and what the better option was or if there are some other options apart from working longer that I could look at.

MoneySaverLog

You'd be better posting in the pensions board but personally I'd think it would be better to keep a final salary than transfer into a sipp. Unless you don't have partner or dependants and life expectancy is not looking good.

atush

Yes, it is crazy UNLESS you are ill and not likely to make old bones AND you have no dependants. If these don't apply to you, there is nothing any IFA can do with your pot that will come even up to the 50% reduction.

But we can't give you a transfer value, your pension administrator must do it. So ask them.

In the mean time, your best solution is to get a job elsewhere and live on your redundancy payment until you do.

dunstonh

It is normally seen as crazy to come out of a Final Salary Pension scheme but I am contemplating it.

It would require an IFA to sign off on it and it would be classed as a high risk transaction (and therefore high cost) and that assumes you find an IFA willing to sign off on it (it is classed as a mis-sale unless proven otherwise).

Bazofts_Revenge

MoneySaverLog wrote: »

You'd be better posting in the pensions board but personally I'd think it would be better to keep a final salary than transfer into a sipp. Unless you don't have partner or dependants and life expectancy is not looking good.

As soon as I hit the button to post I knew it was heading for the investment section. I was hoping the Mods would just move it.

Bazofts_Revenge

atush wrote: »

Yes, it is crazy UNLESS you are ill and not likely to make old bones AND you have no dependants. If these don't apply to you, there is nothing any IFA can do with your pot that will come even up to the 50% reduction.

But we can't give you a transfer value, your pension administrator must do it. So ask them.

In the mean time, your best solution is to get a job elsewhere and live on your redundancy payment until you do.

I didn't ask you for a transfer value I asked if IFA had worked on similar situations.

I left to become a Full time carer for a close family member. So couldn't work as that was 24/7/365. Sadly that is no longer the case and I do work full time in a reasonably well paid technical job. I am just planning ahead. Every other aspect of my financial life is worked out but the deferred pension is just a big question mark. My redundancy is in my investments pulling in more income.

xylophone

I didn't ask you for a transfer value

Agreed - but you didn't make your situation clear either? You made no mention of

I left to become a Full time carer for a close family member. So couldn't work as that was 24/7/365. Sadly that is no longer the case and I do work full time in a reasonably well paid technical job

With regard to an IFA's comments, see post by dunstonh.

You might find this of interest if you haven't already come across it http://www.investorschronicle.co.uk/2013/02/04/your-money/pensions-and-sipps/best-time-ever-to-ditch-your-final-salary-pension-mcTe5wN1nZLjbXDpULuaEL/article.html

Bazofts_Revenge

I finally got a transfer valuation through today. £136,322... Not quite as much as I had hoped. With a measly 2.5% growth per year and a early retirement factor of 0.438 at 55 (in 11 years time) I will get a pension of £6700. If I was to transfer it into a SIPP I reckon with income drawdown I could get at least the same.

The biggest thing swinging it that way at the moment is that if I die as a deferred pensioner then my estate will get a refund of my contributions woo hoo a sum just short of £10k with no interest for having my money over a 28 year period. If it goes in a SIPP the full sum could be transferred to a beneficiary or paid out after paying 55% tax to my estate. Decisions decisions. I've 3 months to decide what to do.

grey_gym_sock

you could leave the final salary scheme where it is until you're 65, and meanwhile invest as much as possible in S&S ISAs. at 55, you could retire, and draw heavily on the S&S ISAs - perhaps even spend the lot over a 10 year period. then, at 65, you get the final salary pension.

the detail depends on your target income in retirement. e.g. if you wanted £18.5k income in retirement, then the £11k final salary pension (if not taken early) + £7.5k state pension (if you'll get a full state pension) would cover that. so what you'd need to draw from ISAs would be £18.5k for 10 years (age 55-65), followed by £7.5k from 65 till when the state pension starts (which will depend on your current age). e.g. if you get state pension at 70, you'd be drawing £18.5k * 10 + £7.5k * 5 = £222.5k from ISAs. what you'd need in ISA at age 55, for this to work, would be a little less than that, since you'd expect some growth in the ISAs' value while drawing on them.

or you might use a SIPP (for new contributions) as well as S&S ISAs. a SIPP may be more tax-efficient, but is always less flexible. a SIPP makes more sense if your target income is higher than £18.5k.

Bazofts_Revenge

The company I work for is introducing a Pension Scheme this year so hopefully they will be contributing to it too. Hopefully I'll get some details of this new scheme before I have to make a decision. Thanks Grey GS I'd not really thought about just getting by on my ISA for those 10 years. I could probably survive now as I aren't extravagant, barring emergencies my outgoings are pretty small.

Bazofts_Revenge

I've still not made a decision on whether to Transfer. The new pension rules have thrown up more options which make it more attractive however, I have had a 2nd transfer valuation come through and the value has gone up to approximately £183,000. Can one year actually make a 34% difference in transfer values? Am I likely to see that again next year? Such an increase each year over the next 10 years till I plan to retire creates a crazy amount. Thoughts please. I have also joined my works scheme which is currently worth 6% of my salary which will increase to 8% eventually. I have also started a SIPP into which I'm putting £200 a month in.