Pension Pot Value & Options - Q's from an Idiot

jumeriah64

Hi there. I know I should ask Financial Adviser (and indeed will do so) but interested in any snapshot advice from someone informed to someone who's lacking a bit in this department please.

Got letter from ex-employer. Have 400k pension pot including an enhancement of 10% (essentially from what I gather to encourage moi to transfer benefits to an alternative pension provider).

Options offered are to stay in scheme or take the enhancement and move to another scheme.

It was a final salary scheme when I left....believe it is not now.

I have no idea what 400k at age 53 turns into later or at age 55.

My question is ..... what can I do at 55? What can I pull out max?

I know ordinarily that would not be a good idea but is likely I will have other lifestyle means that will come in later that mean this pot I do not have to rely upon at 65+ ... yes sounds nice and was totally out of the blue opportunity not some great plan

I read the government changed the rules recently but do not know realistic impact of that.

Also if I did wait until 65, what would the 400 pot turn into roughly?

Apologies I should know more about this but have to offer up my financial incompetence in this area. Would appreciate some rough maths and input. As I say I will use an FA but some indicators would be very helpful. Appreciate anyone taking the time.

SeekTruth

Suggest you move this question to 'Pensions, Annuities and Retirement Planning' forum.

I think you will also need to check precisely what will happen if you do not accept your ex-employer's offer. My guess is that you would still be a deferred member of the final-salary scheme, it would be helpful if you could confirm this and state the current value in terms of expected pension per annum.

Linton

As its a DB scheme you may have the opportunity to take it early which depends on the scheme rules. If you dont have that opportunity or dont want to take it as you have your other income later, you will have to transfer the pension to somewhere, say a SIPP, from which you can get a drawdown pension. After the 25% tax free lump sum you will be allowed to take as much out as you want any time which will be taxed as income for that year. You may wish to avoid higher rate tax.

Your problem could be persuading a SIPP supplier to accept your large pension as transferring out of a DB pension is normally seen to be disadvantageous to you.

£400K at 65 would currently give an annuity of around £12K index linked or £20K fixed. This are just ballpark figures. If drawing down you could safely take perhaps £15K/year which would be roughly in the long term index linked. These figures are pre-tax.

jumeriah64

SeekTruth wrote: »

Suggest you move this question to 'Pensions, Annuities and Retirement Planning' forum.

I think you will also need to check precisely what will happen if you do not accept your ex-employer's offer. My guess is that you would still be a deferred member of the final-salary scheme, it would be helpful if you could confirm this and state the current value in terms of expected pension per annum.

Hi there, apologies, didn't see that section...yes would have been more appropriate.

It says can stay in scheme but then no extra 10%

Not sure of current value in terms of expected pension per annum.....sorry that was the end of my question I think? I roughed it out to 23k p.a I think using an online calculator.

sandsy

It sounds like you have a final salary scheme and you need to find out how much it would pay each year from normal retirement age. There is no pension pot, as such. Whilst it is possible to leave the scheme and transfer a sum of money (the £400k) elsewhere, there's no guarantee that it would grow to be able to purchase as much as the annual income you would receive by staying in the scheme. In fact, the general principle of providing advice on such transfers is to assume it won't be in your interest to move schemes unless it can be proved otherwise as final salary benefits are so valuable.

mgdavid

Why would an (ex) employer offer you a bribe (the 10%) to transfer out of their pension scheme? Because it is to their advantage (not yours) to do so !!
Have you been getting annual statements about this DB pension? what is the expected pension at retirement date? Once in payment, will it increase by RPI or CPI? Are you in good health and therefore have average or better life expectancy?
Once you/we know the detailed information needed, it is easier to come to a rational decision.
It's not financial incompetence, just a case of not yet knowing the Scheme rules and how they apply to you.

jumeriah64

mgdavid wrote: »

Why would an (ex) employer offer you a bribe (the 10%) to transfer out of their pension scheme? Because it is to their advantage (not yours) to do so !!
Have you been getting annual statements about this DB pension? what is the expected pension at retirement date? Once in payment, will it increase by RPI or CPI? Are you in good health and therefore have average or better life expectancy?
Once you/we know the detailed information needed, it is easier to come to a rational decision.
It's not financial incompetence, just a case of not yet knowing the Scheme rules and how they apply to you.

Mgdavid, hi there. A long time since my post but just to mention having got a finance guy on the case you were absolutely right.

I got further letters and offers offering more and more cash over time....I think it went up to nearer 500k.

The FCA met with his parent group and they concluded that whilst the inducements were lucrative...that the scheme was likely to outperform the inducments even if I were to draw down at 55.

They explained that basically the scheme was quite possibly the best they had ever seen! I kid you not... none of them had a benchmark to better it. They also said that the inducements were to clear me from the company balance sheets which I now understand better and I'm sticking with.

I wander how many other folks saw the lure of a large cheque and jumped.

Thanks for the pointers. It's a long time since the post but I followed the advice given and I'm in a much stronger position now. One up for responders on MSE.....all the best.