Reduced Pension Transfer Value?

LeCoop

I have a deferred pension from a former employer's pension scheme which is due to mature on my 60th birthday next year.
In light of the new rules intoduced by the chancellor, I have looked at opting out from the scheme and moving to an income drawdown product, so that when I shuffle off my mortal coil, my family will inherit the whole balance instead of my wife just getting 50% of my annual pension for a while and then my sons eventually getting nothing from the scheme.
As a result of making enquiries about the many products on the open market, I have received many calls from so-called pension advisors and was a little alarmed at the latest caller.
He told me that, if I don't transfer out of my former employer's scheme at the earliest opportunity, then the trustees may look at the impact of other people leaving the scheme and reduce my transfer value to discourage me from doing likewise.
Is that possible? I thought that MY transfer value was constituted entirely from the growth of reinvested money from MY contributions and once earned, it did not belong to anyone else.
I would be grateful if someone could reassure me on this.

kidmugsy

LeCoop wrote: »

I have a deferred pension from a former employer's pension scheme which is due to mature on my 60th birthday next year. ... the trustees may look at the impact of other people leaving the scheme and reduce my transfer value to discourage me from doing likewise.

Assuming that your pension is a Defined Benefit scheme, yes it's possible. The trustees are in charge, and are responsible for looking after the interests of all the scheme members, not just you.

It's also possible that the trustees will say "thank God, another mug wants out", and offer you a transfer value calculated to get your liability out of the scheme.

LeCoop wrote: »

I thought that MY transfer value was constituted entirely from the growth of reinvested money from MY contributions

No, that's how personal pensions work. If yours is a DB scheme, what you have is a promise of the benefits; if the scheme assets don't cover the cost of your promised pension, the employer and active members will have to stump up to cover the shortfall. And, of course, whichever sort of scheme it is, if the only contributions were yours, you'd very possibly be looking at poverty. The employer's and taxpayers' contributions make all the difference.

addedvaluebob

OP you need to make clear what type of scheme you have the difference between a defined benefit scheme and defined contribution scheme is massive but basically the financial adviser is lying to you to try and scare you into a transfer and earn a fee/commission along the way

xylophone

Are you a deferred member of a defined benefits scheme?

Was the employer public or private sector?

If public sector, was this a funded or unfunded scheme?

http://www.osborneclarke.com/connected-insights/publications/public-sector-pensions-newsflash-transfers-lgps-dc-still-available-under-new-tax-regime/

http://www.thisismoney.co.uk/money/pensions/article-2699832/Pensions-freedom-open-ALL-savers-comes-price-five-million.html

Even if you wanted to transfer out before April, any receiving scheme would be likely to insist on an IFA sign off.

LeCoop

Hi, yes I am a member of a defined benefits scheme (a now closed scheme from a company taken over by another larger company 15yrs ago)
2yrs ago, my former employer did offer to provide assistance in the form of an IFA to those that wished to opt out of the scheme (I assume that this was so that they wouldn't have to keep topping up the scheme as people survived for longer) but I decided at the time that it was better to stay within it, given that I would receive a healthy lump sum, a fair annual pension (though not as generous as those awarded to ex-colleagues who retired several years before me) and a 50% pension if my spouse survived me.
George Osbourne changed all that with his announcements. IMHO, if I leave the scheme, I still get a healthy lump sum and so long as I choose wisely in my investments, I can drawdown a modest income and leave my dependents a similar healthy sum when I'm gone.
Because I didn't need the money immediately, it was my intention to leave alone until my NRD of 60, but perhaps I should take the decision right now, in case my former employer's attitude towards leavers has or is about to change?

dunstonh

IMHO, if I leave the scheme, I still get a healthy lump sum and so long as I choose wisely in my investments, I can drawdown a modest income and leave my dependents a similar healthy sum when I'm gone.

If you have a short life expectancy, it may well be a better financial decision. However, if you have a normal or longer one then it would probably be a bad financial decision.

Most critical yields are higher than you would expect to get on investments. So, you are unlikely to get near the income you would get on the occupational pension. You will be taking on a risk instead of having a secure income. This sort of transaction also usually needs an IFA to sign off on it. That rarely comes cheaply given the very high risk nature of the transaction (9 out of 10 recommendations are to leave it where it is. It is generally regarded as a mis-sale unless proven otherwise)

LeCoop

Dunstonh, I am currently in good health but neither my father/grandfather made it to 70.
I won't use my actual numbers but for arguments sake; on one hand I could take a £100k lump sum plus annual pension of £15k of which half is index linked. Some of that £15k will be taxable. When I'm gone my wife will get £7.5k per annum and when she's gone, nothing will go to my kids.
On the other hand (and given that house is owned, I owe no-one and I already have savings to maintain my current lifestyle for 7-8yrs), I could take that lump sum and supplement by drawing down <£10k per annum from the remainder to keep me under the tax threshold, leaving as much as possible of the original pot intact to make money, mostly at low risk.
In both cases, I will get a top-up at 66 from state pension.
Barring any unforseen events, I will live comfortably and when I go, my wife & kids will still inherit a tidy sum.
Given these options, would 9 out of 10 still tell me to keep it where it is?

kidmugsy

LeCoop wrote: »

as much as possible of the original pot intact to make money, mostly at low risk.

The trouble is, at low risk you won't make much money.

LeCoop wrote: »

would 9 out of 10 still tell me to keep it where it is?

Depends how keen they are to risk being disciplined or being sued. If your investments went bad, how could they be sure that you wouldn't cry "mis-selling" or "bad advice" or whatever?

dunstonh

Given these options, would 9 out of 10 still tell me to keep it where it is?

Given the limited wording and lack of figures, it is hard to say. However, one key bit stands out that would blow out of the water typically. "mostly at low risk. ". That does not fit with the transaction you propose.

Also, as mentioned above, different firms have different tolerance to mis-selling allegations. Some will give you the advice not to transfer and allow you to overrule them and transact it for you. Others wont let you do a transaction against their advice.

Daniel54

LeCoop wrote: »

I won't use my actual numbers but for arguments sake; on one hand I could take a £100k lump sum plus annual pension of £15k of which half is index linked. Some of that £15k will be taxable. When I'm gone my wife will get £7.5k per annum

Why is only 50% of the DB scheme index linked -that is very unusual to say the least ?Also,the spouse's pension is not necessarily reduced by 25% if the LS is taken -have you checked this with your scheme ?

In your December thread you said you also had a DC pension.Why not defer drawing down on this, as it will benefit from the new inheritance rules .The more you take as income from the DB scheme,the less you need to draw down from the DC pot

DaveMcG

LeCoop wrote: »

.
He told me that, if I don't transfer out of my former employer's scheme at the earliest opportunity, then the trustees may look at the impact of other people leaving the scheme and reduce my transfer value to discourage me from doing likewise.

Take nothing whatsoever to do with this adviser. He is clearly trying to scare you into taking action.

Trustees can't reduce transfer values to "discourage" transfers out. Transfer values from Defined benefit schemes have to be calculated on actuarial principles. If a fund is in deficit and doesn't presently have the funding to pay all their benefits, they can reduce a transfer value.