Possible pension transfer

TinyTom

Thanks again dunstonh

I guess I'll just need to be patient

Timar_B

I am also a member of TRW pension scheme. As a former employee I have received my offer and contacted the IFA company recommended by TRW. You have to fill in a lengthy online questionnaire (25 pages but you can not transfer out without filling this in), they will phone you around two weeks later after posting their recommendation to you to check you are happy with it. The enhancement gives you around 20% extra on your transfer value, you can, as far as I am aware, at age 55 take 25% of your capital tax free, then the rest taxed at your standard rate of tax (not a good idea if you are paying 40%). I state this because I have taken financial advice and taken an hour to work out how much my pot will be worth in 5 years time (when I reach age 55 and can take my pension pot as a cash lump sum) assuming 2% growth per annum. In my case (20% tax) the interest plus enhanced payment more than makes up for the £12,000 I will pay in tax. Given that my wife would receive half my pension if she survives me I am opting to transfer then take the cash in 5 years. I can invest it, 2% gives me more than £1.500 interest p.a. & the capital is safe.
Hope this helps.

neilwelsh

TIMAR B


Steady with the tax calculations. Taxed at your marginal rate means that the amount you take from your pension (after 25% tax free) is added to your other income for income tax purposes. That means that somebody paying 20% tax with earnings of £30k only need to have drawn an extra £13k from their pension funds to find themselves in the 40% tax bracket.

SomeUser

I'm going to try and start at the beginning.

Schemes generally do not offer enhanced transfer values (ETVs) to reduce cost. They do it to remove risk. There is a joint industry code produced by the NAPF which states the processes that the scheme should follow. http://www.napf.co.uk/PolicyandResearch/DocumentLibrary/0257_Incentive_exercises_for_pensions_a_code_of_good_practice_-_June_2012.aspx

The ETV is will be calculated as being better than the actuary's "best estimate". How good, depends on the scheme, but it will be an improvement.

The PPF includes spouses benefit of 50% if the scheme rules have a spouses pension. Under the PPF, pensions in payment (in respect of post 1997 service) gets increased each year of inflation capped at 2.5%. This pension is under the PPF limit so you would get 90% of the benefits under the PPF.

You cant get an accurate comparison of how much it would cost to buy the pension on the open market, because the ETV is based on a deferred annuity, deferred until 2026. However if you ask for the discount rate and pre-retirement increases, it would be a simple calculation for someone who knows how to do it.


(as an example, if you remove 10 years of discounting at 6%, the sum would be 150k*1.06^(10) = £267k).

What's curious about this is normally ETVs are only offered where the sponsoring employer can afford to pay. The regulator takes a dim view of companies which offer ETVs but can't in fact afford to pay the benefits. But it sounds like the parent company can afford and its trying to remove liabilities through buy ins or longevity swaps. It doesn't look like there is any risk of this company going into the PPF - a scheme that is at risk can't afford these measures.

DB transfers are often frowned upon here because generally you would not be able to replicate your benefits by buying them on the open market with the sum you have available for the purchase. But what it does mean is that you have an increased ability to shape your benefits. For instance, you may choose increased spouse benefits as that seems important to you. And given the potential enhancement, you may be better off.

I have worked on schemes providing a 20% enhancement -we are not necessarily talking small amounts if you receive an ETV. It needs to be big enough for people to go for it. The project is extremely costly due to the level of data cleansing necessary, the actuarial fees, the communications, the processes and the project management so they do not want to go through that and have everyone turn it down.


Discuss it with an IFA.

talexuser

The TRW scheme has inflation increases for CPI (was RPI a few years ago) up to a max of 7%, at the discretion of the trustees. My offer was to sell out to Legal and General for an increase of around 50% in pension payments in exchange for no more inflation increases. So there is a cutoff point where you will lose out in the future depending on how much inflation there is, and how long you expect to live.

The problem is further complicated by TRW now being bought out by ZF Friedrichshafen. So maybe a much larger German controlled company is more secure than a smaller American one for the future of the pension funds?

Wayward_Son

SomeUser wrote: »

What's curious about this is normally ETVs are only offered where the sponsoring employer can afford to pay. The regulator takes a dim view of companies which offer ETVs but can't in fact afford to pay the benefits. But it sounds like the parent company can afford and its trying to remove liabilities through buy ins or longevity swaps. It doesn't look like there is any risk of this company going into the PPF - a scheme that is at risk can't afford these measures.

I also have an ETV offer from TRW for this scheme and have taken independent financial advice.


My understanding is; the existing scheme is currently fully funded however the total value of the pension scheme liability is much larger than the TOTAL WORTH of TRW itself. This means that should there be a shortfall in the future the company may be unable to fund it which could mean administration so TRW are looking to reduce their liability by offering ETV as an incentive for people to transfer out of the scheme, (according to LEBC who are handling the transfer process there has been a large amount of interest and they have had to extend the deadline in order to cope with the amount of applications they've received).


Whether to take up the ETV and transfer out or not very much depends on the individual, their financial circumstances, what control they want over their pension funds and their attitude to risk. The independent financial advisors will examine all of these factors and then make a recommendation.


The independent advice for my circumstances were to transfer out to a PIP and having weighed up the advantages and disadvantages, (there are plenty of both), I have decided to go ahead and accept the ETV offer. However, there is no right or wrong answer as to whether to or not as it is entirely based on unique and individual circumstances.


There were risks associated with both options as the future is uncertain, (as are the financial markets), and I will only know for certain if I made the right decision when I actually retire in 17 years time! Unless anyone's got a Time Machine I can borrow?

SomeUser

Wayward_Son wrote: »

My understanding is; the existing scheme is currently fully funded however the total value of the pension scheme liability is much larger than the TOTAL WORTH of TRW itself. This means that should there be a shortfall in the future the company may be unable to fund it which could mean administration so TRW are looking to reduce their liability by offering ETV as an incentive for people to transfer out of the scheme, (according to LEBC who are handling the transfer process there has been a large amount of interest and they have had to extend the deadline in order to cope with the amount of applications they've received).

Wayward Son - thank you for that explanation and also for information the fully reasoned process :T

I find on here that many people are quick to suggest that early retirement or DB transfers are not the best thing to do, when actually, it depends on so many different elements.

Sometimes people are offered a good deal, sometimes a neutral deal and sometimes a rubbish one. Lumping all deals into the "rubbish" category could be doing some people an injustice although erring on the side of caution isn't necessarily a bad thing.

Shame we don't have a crystal ball, but I hope you come out a "winner" and good for you for seeking to understand the possible implications and benefits of your decision.

atush

I find on here that many people are quick to suggest that early retirement or DB transfers are not the best thing to do, when actually, it depends on so many different elements.

True but for a reason.

in 99.9% of cases, it is the wrong thing to do. Which means once in a while it might be the thing to do. But not as many times as some come here to hope it is.

dunstonh

I find on here that many people are quick to suggest that early retirement or DB transfers are not the best thing to do, when actually, it depends on so many different elements.

Statistically, 9 out 10 defined benefit pension transfers would be considered bad advice. The regulator takes the default position that it is a mis-sale unless proven otherwise. So, it is no wonder that the general view is that you shouldnt do it without significant research and with full understanding.

greenglide

But, of course, if TRW (in this case) should fail that doesn't automatically mean that the pension scheme will.

If both should fail then the scheme would be rescued but would lose some benefits in the process.

The question would tend to be is the loss by transferring out (it generally but not always be a loss) is more or less than the loss if the scheme should fail and the chances of this.

You may wish to stay in the scheme on the assumption that must members transfer out!