Pension Levelling?

In_a_spin

My OH has a deferred final salary scheme pension which is due to start paying out when he is 60 in September.

He does not work and we do not receive any means tested benefits.

The pension scheme offer what they call pension levelling which I understand to be they will top up the pension being paid with an amount equivalent to what he would receive if he was drawing a single person state pension. Then when he reaches 66 his company pension will be reduced by the single pension amount.

We were not sure if this was a good idea to accept or not so any advice would be helpful.

I work part time and any shortfall in our income is currently being funded by some savings we have which are rapidly disappearing.

Triumph13

It all depends how much they are charging for it. What will be the reduction in the ongoing pension in return for having the levelling?

FLAPJACK

It can be a good option, as you know it enables a higher pension income at the outset which (if you can afford to) means you could afford to to take a lump sum thereby having a full pension plus the levelling addition.

Or if you have a use for the 25% lump sum (lets say it enables you to reduce your debts) then the levelling option would help to bump up the pension income.

As has been said the amount of reduction needs to be looked at seriously, as if you don't have enough NiC's then the SP won't be high enough to fill the income gap the stopped levelling option has left.

In_a_spin

Ok the example they have given is at 60 and you have a company pension due of £11,000 per year. They take single state pension to be £5727 per year. They would pay £15,457 (11,000 plus 4547 for state pension) until state pensionable age.

At state pensionable age the company pension would fall to £9820.00 plus state pension of £5727 which would be a total of £15,457.

It then goes on to say both figures would be subject to scheme increases though perhaps at difference rates.

So I guess the charge is the difference between 5727 and 4547 which is £1180 per year.

Seabee42

In the example you have given the pension if you don't take up levelling is £11,000 per annum. The 6 years of extra payments is £27282
and they will then reduce the £11,000 by £1180. I know this does not include any escalation or allow for tax but on those numbers you get back to neutral in 23 years from 66. That is it takes 23 years at 1180 to pay back the 27282. So unless I have messed up my numbers will you live past 89 or not.

xylophone

Re single tier state pension https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf
It appears that this will apply to everybody who becomes eligible for SP on on after 6 April 2016.

Have you and your husband obtained State Pension Forecasts?

https://www.gov.uk/state-pension-statement

In_a_spin

My husband had now received his State Pension forecast and is entitled to a full state pension plus £11.95 extra per week due to serps/second pension. His state pension retirement age is just under 66.

I am several years younger than my husband. I also got a forecast and am already entitled to a full state pension on my own contributions. I also have two deferred final salary scheme pensions and one DC pension with Aviva, the final salary schemes both pay out at age 60 and the DC at 65.

He has two other smaller pensions, one of which is also a deferred final salary scheme and another which is not a final salary scheme with Aegon. The Aegon pays out at 65 and is very small about £500pa. We are trying to find out details of the other one as we are not sure if it pays out at 60 or 65.

kidmugsy

In_a_spin wrote: »

I am several years younger than my husband. I also have ... one DC pension with Aviva, [to pay out] at 65.
….
He has ... not a final salary scheme with Aegon. The Aegon pays out at 65 and is very small about £500pa.

Why do you plan to wait to take your Aviva DC pension at 65? Couldn't you take it flexibly at 55, once the new rules are in place next year? If the Aegon is not FS, could it be available to your husband now, and available flexibly next year?

In_a_spin

Honestly I had not thought about the new rules. We will look into the Aegon one as this was a Company Group Pension and he was made redundant from this company last year.

They have just sent a letter saying they have converted it to an individual Flexible Pension Plan and unless he starts contributing to the plan higher annual management charges will apply.

kidmugsy

I suggest you consider transferring from Aegon to a provider who would let your husband draw his 25% lump sum now. This would presumably help you avoid depleting your savings. You could do the same when you are 55 if it suits.

If you were prepared for the hassle you might even see whether you want to arrange multiple transfers so that he has, say, one to three pension "pots" each of less than £10k. Then once he's sixty he can take one or more out in its entirety immediately: no need to wait for the 2015-16 flexibility. For each he'd get 25% tax free and the rest exposed to income tax.

One thing you'd both want to be cautious about: before transferring any existing pension it's wise to check the terms to see whether it offers a Guaranteed Annuity Rate or any other advantage that would be forgone on a transfer.

kidmugsy

Darn it! One more thing: back to the original question - does using levelling affect the eventual widow's pension from the scheme? If the widow's pension is unaffected then Seabee's calculation makes levelling sound well worth consideration.

AFTERTHOUGHT: adroit use of your two defined contribution pensions at Aegon and Aviva might be used to do the same job for you that levelling would otherwise do.