Final Salary Pension

Budge123

Hi,


I had a final salary pension from my employers with Scottish Widows.


In 1992 they decided to close the pension scheme and purchased a Scottish Widows Bond for me with the funds.


Under the Bond:


Maturity Date Nov 2019 aged 65.
Pay out at maturity:


A Pension of £5277.24 p.a.


Alternatively may elect:


A cash sum of £21464.89 plus a residual pension of £3219.84 p.a.


Special provision 4 of the bond is as follows:


Either at the date on which the grantee's pension becomes payable or at normal retiring date if earlier, the grantee may exchange the whole or part of the grantee's pension for a cash sum. If the cash sum is to be payable at normal retiring date, the amount of the cash sum must not exceed the maximum amount shown in the Schedule in respect of Provision. If the cash sum is to be payable before or after normal retiring date, a correspondingly reduced or increased maximum amount will be applicable.

The trustees has arranged for a Special Provision 16 to be added to the original scheme which states:


If whole or part of the grantee's pension is to be exchanged for a cash sum at normal retiring date under Special Provision 4, in respect of not more than one quarter of the grantee's pension the cash sum paid for each £1 of grantee's pension so exchanged will be £9.00.

Under Maximum amount referred to in Special Provision 4:


£7382.20.


Sorry a bit long winded but my question is:


Is my Pension Pot worth 4 X £21464.89 = £85859.56 (assuming that the lump sum is based on 25%)


Or is it £9.00 X £7382.20 = £66439.80 (based on special clause 16)


Or is it none of the above.


Any advise would be appreciated.

greenglide

The first things I would say is that your pension is worth "A Pension of £5277.24 p.a.".

It may be that this will be index linked.

Do you really want to investigate any further? You wouldn't take it any other way would you?

Budge123

Thank you for your reply.


Yes because, if I was faced with only the two options I first listed, then I would take the £21K lump sum and a reduced pension.


I would like to know if I have a larger pension pot that I could take on retirement when rules change in April 2015 or is this not a possibility?

PensionTech

I would like to know if I have a larger pension pot that I could take on retirement when rules change in April 2015 or is this not a possibility?

No not really. The new flexibility won't apply to DB (final salary) schemes. Granted that your benefit seems to have been bought out but I very much doubt you will be allowed to fully commute this under the April 2015 changes. More to the point: it would probably be a bad idea to do so.

What your pension is "worth" depends on how you value it. HMRC would say it is worth £5277.24 x 20 = £105544.80 (if you took the full pension) or £3219.84 x 20 + £21464.89 = £85861.69 (if you took the lump sum). An actuary would look more closely at your retirement age, life expectancy, increases in payment, etc. to give you a more accurate estimate of what your pension is worth. But it's a moot point. The value of your pension cannot be realised in lump sum form so it doesn't matter how much it is "worth" - what matters is how much you will be paid. And as I think greenglide is saying - unless you have a desperate need for the lump sum, you have a fantastic investment opportunity, or you think you're going to die fairly soon - the full pension is almost certainly better value.

Budge123

I assume my Bond is not indexed linked because on the original Bond dated 7/71992 under Grantee's Pension is an amount of £5277.24 p.a.


When I wrote to Scottish Widows in Aug 2007, enquiring what I could expect when I retired, they quoted me the figures I showed above of £5277.24 p.a. and the lump sum alternative. So it appears that my entitlement hasn't change from 1992 to retirement date.


The reason I was hoping to take a bit more of a lump sum was because I was hoping to retire into a holiday caravan which are somewhat more than the £21K I will get from this by the sounds of it.

kidmugsy

Budge, you are being a right charlie. Taking the lump sum is lousy value. If you want a caravan, borrow the ruddy money and pay back the debt from your bigger pension. Or simply rent it. Those would be much better value.

atush

I agree, not thinking clearly and to take a hit on your retirement income to fund a depreciating asset such as a caravan is not wise.

Fund the money for your caravan another way- why not work one year longer and bank the money? Borrow it, or rent? Or beter yet save between now and then to afford it?

Basically if you can't afford it now, you can't really afford it later when you aren't working.

Freecall

Budge123 wrote: »

I was hoping to retire into a holiday caravan .....

It may just be the way you have phrased it but how can you retire into a holiday caravan?

Holiday homes will have a planning restriction preventing full time occupation.

You can of course go and live in a caravan if you wish but that would need to be one that had an unrestricted tenancy. It is unlikely that this would be on a holiday park.

greenglide

Budge123 wrote: »

I assume my Bond is not indexed linked because on the original Bond dated 7/71992 under Grantee's Pension is an amount of £5277.24 p.a.

When I wrote to Scottish Widows in Aug 2007, enquiring what I could expect when I retired, they quoted me the figures I showed above of £5277.24 p.a. and the lump sum alternative. So it appears that my entitlement hasn't change from 1992 to retirement date.

Would a buy-out bond not have a GMP value as part of it since the original scheme would have been contracted out? Would this not be inflation proofed and may be greater than the whole fund now?

Budge123

Thank you for your responses.


I am not familiar with Bonds as this is the only one I've had. I just thought a Bond might of had a finite value which could be cashed.


It sound from your reactions that the best option is to take the full pension and not the lump sum. This assumes that I have 10 or more years in retirement.


Thank for your help

Budge123

greenglide I'm not sure what you mean being inflation proofed as it was originally a company pension scheme till it was closed and they purchased a bond for me.


But when I requested a valuation in 2007 which gave me the £5277.24 p.a. value which is the same value that is printed on the original bond dated 1992.


So I would assume no inflation is added over the years.