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Should I transfer my deferred annuity pension

tilly_rat
Posts: 4 Newbie
I wondered if anyone can offer me their thoughts on whether I should transfer my deferred annuity pension to a private pension.
I am 54 years old and have a deferred annuity pension which was taken out in 1987 when my then employer went out of business.
The deferred annuity amount is 6357 per year when I reach 65. This amount increases by 5% per year regardless of inflation. The plan has a widows pension of 3178 (50%) again increasing by 5% per year.
The transfer value is 148000. I am surprised by how large this is but I believe 2 of the main reasons are people living longer and the return on government gilts.
My rationale for considering the transfer is greater flexibility, ie access to my pension before 65, income drawdown and if I die before accessing the 'pot' my wife will inherit the whole pot. I have calculated that if inflation runs at 3% until I am 65, 6357 will have the buying power of 4592 today or at 4% 4129.
Today 148,000 will buy an annuity of 3929 increasing at 5% per year plus a 50% spouse pension. While this is slightly less than the above revaluation for 11 years of inflation I would hope that the fund would grow over those 11 years. I appreciate the risk is the fund will not increase or may even fall and that annuity rates will continue their downward spiral.
One final thing my wife has a small final salary pension which has accrued 2000 PA so far and I have another final salary pension which has accrued 13000 PA so far. We both also have accrued a full state pension.
I have been running these figures round in my mind and any helpful input would be much appreciated.
Thanks in advance.
I am 54 years old and have a deferred annuity pension which was taken out in 1987 when my then employer went out of business.
The deferred annuity amount is 6357 per year when I reach 65. This amount increases by 5% per year regardless of inflation. The plan has a widows pension of 3178 (50%) again increasing by 5% per year.
The transfer value is 148000. I am surprised by how large this is but I believe 2 of the main reasons are people living longer and the return on government gilts.
My rationale for considering the transfer is greater flexibility, ie access to my pension before 65, income drawdown and if I die before accessing the 'pot' my wife will inherit the whole pot. I have calculated that if inflation runs at 3% until I am 65, 6357 will have the buying power of 4592 today or at 4% 4129.
Today 148,000 will buy an annuity of 3929 increasing at 5% per year plus a 50% spouse pension. While this is slightly less than the above revaluation for 11 years of inflation I would hope that the fund would grow over those 11 years. I appreciate the risk is the fund will not increase or may even fall and that annuity rates will continue their downward spiral.
One final thing my wife has a small final salary pension which has accrued 2000 PA so far and I have another final salary pension which has accrued 13000 PA so far. We both also have accrued a full state pension.
I have been running these figures round in my mind and any helpful input would be much appreciated.
Thanks in advance.
0
Comments
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Does the £6357 increase between now and 65?
Assuming not, my analysis of the situation..
Assuming annuity rates dont change, in order for a private annuity to reach £6357 in 11 years time the £148K will need to grow to 148K X (6357/3929) which works out if my maths is correct to an annual growth of approx 4.5%. Inflation doesnt matter in this calculation as we are comparing £s in 11 years time with £s in 11 years time.
4.5% growth per year is certainly a reasonable target if you invest prudently though not excessively cautiously. But it isnt guaranteed. You have to take into account the advisability of reducing investment risk, and therefore return, some years before your retirement date if you need the money as an annuity.
The guarantee of the existing pension is worth a lot in my view but with your ever increasing current FS pension you maybe can afford to take more risk. One option that may be worth considering in 11 years time is flexible drawdown which would give you complete freedom to take money from your pension, taxed as income. At 65 you will have your state pension + more than £13K guaranteed income from your current FS pension which should be sufficient to pass the current £20K threshold for flexible drawdown.
Some other factors
- In order to move from the old FS scheme you would need to be confident with and interested in investing. I assume that the £148000 will increase over time and so there would seem to be no great urgency to do something now.
- What you are proposing may be difficult to implement as I would expect the private pension supplier to require an IFAs approval for money to be transferred from an FS scheme. Whether an IFA would be prepared to take that risk I dont know.0 -
Hello Linton
Many thanks for your reply. Thanks for the calculation at the start I think that is a better way of looking at it. I was thinking of using income drawdown or flexible drawdown (if I meet the 20K threshold) to allow me to retire a bit earlier and not be tied to an annuity at that stage.
I hav'nt spoken to a financial advisor yet, unfortunately I have had a couple of bad experiences where I have been badly advised over past pensions at a time when I was much younger and had very little knowledge. Hence I am trying to do as much research as I can.
Many thanks for taking the time to reply.0 -
Linton
Sorry forgot to add the 6357 will not increase between now and when I am 65.0 -
or may even fall and that annuity rates will continue their downward spiral.
Annuity rates haven't been falling. They have been rising for the last two years and recently hit two year highs. Not back to pre-credit crunch levels yet. However, prior to the credit crunch, annuity rates had been rising over the previous four years.I hav'nt spoken to a financial advisor yet, unfortunately I have had a couple of bad experiences where I have been badly advised over past pensions at a time when I was much younger and had very little knowledge.
You need an IFA. Not an FA. You will also need one with pension transfer specialist qualification. You cant measure quality today with 10 years ago, let alone 20 or 30 years ago. It is very different today.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Check out what pension £148K will pay with a 5% annual increase using the calculator,below. I fed figures in with some guesses & got £3,600 pa from age 65 with the best provider for 5% increase & 50% widows pension.
http://pluto.moneyadviceservice.org.uk/annuities
Also 5% p.a.is likely to be an above inflation hike..Annuity rates haven't been falling. They have been rising for the last two years and recently hit two year highs. Not back to pre-credit crunch levels yet. However, prior to the credit crunch, annuity rates had been rising over the previous four years.
But they are still s*h*i*t*e & very low compared to historical levels..
http://www.myretirementincome.co.uk/annuity-rate-graph/
I think you are gambling if you think you can definitely achieve above inflation returns on investments.. personally I'd rather have the security of that pot.. & gamble with other money. But a FA will always tell you different, it is in their interests isn't it!
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You are never going to go back to 80s and 90s rates as that was based on flawed actuarial data. However, we should get back to pre-credit crunch levels once interest rates move upwards.
I notice that page says rates are are a 3 year low in Dec 2012. Here is a more up to date chart:
http://thisismoney.brgl.co.uk/ratetables/key.aspxI am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Just wanted to thank everybody for replying to my question. This is my first time on the forum and it is great to get other peoples ideas. Before I do anything I think I need to consult an IFA.
I'm sure you are correct Dunstonh when you say things are very different today.
Thanks again everybody0 -
As far as I am concerned Pensions may be going the way of rotary phones, but all the retirees looking for a substitute may want to investigate immediate annuities.
That is not logical. edit: rest of my answer removed as reading more of your post and other posts, it is clear you are either not based in the UK or you are potential spammer building up post count with random words or google translated sentences.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0
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