Pension being wound up by PIC

jamesd

It's confusing when you get to deal with it all at once alright. We at least have had more time to absorb the various options.

That £7400 income would be the maximum allowed under capped income drawdown, which amounts to 7.05% of the 75%. That's the correct rate for February and doesn't involve buying an annuity. It's what I think is likely to be the best option to use given what I know at the moment.

This capped drawdown 7.05% rate does not change after 6 April. Rather, what happens then is the new option to use flexi-access drawdown, with that cut in his annual pension contribution limit from 40k to 10k as the consequence. It's probably better for him to make new pension contributions and take just the 7.05% as long as possible to maximise his pension tax relief, if you have the money to afford this.

He can't transfer a sole pension pot into some for you and some for him. He could use income from his pension to give to you so you could pay contributions into a pension pot of your own. I'm assuming that you don't want to divorce, which would allow that sort of splitting as part of a divorce settlement. Your own pension contribution limit is your earned income or up to 3600 gross if you aren't working, subject to a cap of no more than £40,000 a year. Better to delay doing this until after his state pension starts, though.

Provided he doesn't buy an annuity, the whole of his pension pot would be available to be inherited by you tax free, so there's no reason to worry about your own income future if he chooses this option. If he defers the state pension the portion spent on living while deferring wouldn't be inheritable and the extra state pension also wouldn't be inheritable, but the income level is high enough to allow just giving you some of the higher income level[STRIKE] (assuming that the 7.05% annuity rate is a mistake)[/STRIKE].

It's worth knowing that long term the withdrawing rate from a lump sum that is widely quoted as not having an excessively high chance of having to reduce income later is 4% increasing with inflation, not 7.05%. However 7.05% is OK for your current situation because later he'll have his state pension, so it makes a lot of sense to draw as much as the capped income drawdown limit allows until then. that's also the better time to do extra mortgage paying off, once all of his final income level is available. Before then it tends to just increase financial pressure.

So at the moment my though is that the best route is to take the 25% tax free lump sum and take the maximum from capped income drawdown, possibly, if desired, using some of that for mortgage overpaying (not a great idea) or to make use of the annual 3600 cap for pension contributions to a person not working if that applies to you.

simpywimpy

Thank you for your replies. I already use HL for my monthly savings plan so think its probably best to go with them as its a company Im familiar with.

I presume we complete the transfer first then take the 25% drawdown from HL?

greenglide

But is this not a DB scheme that is being wound up!

The annuity being offered may well be way above what would be available it bought with a DC scheme.

What is the scheme that is being wound up, what is the benefits being given up and how much way the annuity that you turned down?

It may have been immensely valuable - it sounds as if the scheme is trying to offload it's responsibilities?

simpywimpy

I cant see anything that says what sort of scheme it is. Originally the trustees wanted to purchase an annuity that would give 7000 a year income at normal retirement age. It didnt state who the annuity was with or any other options available.

PIC have sent a transfer out quotation which states a total transfer value of 140,663.00 valid for 3 months. The only think I can see is that its stated as the value of non GMP arising from pensionable service up to 1997.

It was originally SR Technics I think from an old airline pension

Thrugelmir

greenglide wrote: »

It may have been immensely valuable - it sounds as if the scheme is trying to offload it's responsibilities?

Or the scheme has insufficient assets to fund ongoing liabilities. Majority of old schemes are now heavily in deficit. With no sign of interest rates rising the problem may yet get worse.

simpywimpy

yes it does say there should have been about 190k in but there is only 140k

greenglide

So is the £7000 per year index linked? Is there a guaranteed period, are there survivor benefits?

Why did you not want a guaranteed £7000 a year?

xylophone

The only think I can see is that its stated as the value of non GMP arising from pensionable service up to 1997.

What about the GMP?

When and for how long did your husband work for SR Technics?

Was the pension scheme a COSR?

http://www.barnett-waddingham.co.uk/comment-insight/blog/2014/08/18/what-is-a-gmp/

http://www.barnett-waddingham.co.uk/comment-insight/blog/2012/07/24/revaluation-for-early-leavers/

When will your husband become eligible for state pension?

jamesd

simpywimpy wrote: »

Originally the trustees wanted to purchase an annuity that would give 7000 a year income at normal retirement age.... PIC have sent a transfer out quotation which states a total transfer value of 140,663.00 valid for 3 months.

That annuity value is a bit under 5% of the pension pot transfer value. If he wants higher income, deferring the state pension will pay him more than that - a bit under 5.8% for one year of deferring, gradually a lower rate as he defers for longer - and allows complete flexibility over how much to defer and how much to pass to you so you can end up deferring your own.

The annuity might be inflation-linked. It might provide for say a 50% spousal pension. Or it might be a level, single-life annuity worth much less. it is useful to know those things because they significantly affect just how valuable it is. To give some idea, 5% is about twice the open market annuity rate at the moment - but it's still less than deferring the state pension pays. But if that also includes a 50% spousal pension for you it looks a fair bit better.

At the moment the annuity doesn't look like a good option compared to a combination of deferring the state pension and using drawdown but if it turns out that it is an inflation-linked annuity with substantial spousal pension then that could change to looking like better value.

greenglide wrote: »

Why did you not want a guaranteed £7000 a year?

Some reasons:

1. Deferring the state pension pays more, initially 5.8% inflation-linked instead of 5% with properties we don't know yet. Deferring benefits are also safer than an annuity, with no risk of a 10% loss of income in the very unlikely event that the FOS became involved. But the time to state pension age reduces the return on deferring the state pension a bit and the whole amount wouldn't sensibly be replaceable because of how many ears of deferral it would take.
2. Drawdown offers 100% spousal pension and on average market conditions higher income, but at the risk of market variation that could necessitate lower income in extreme bad conditions.
3. The lump sum and opportunity to pay into the spuose's pension may be more tax-efficient if the spouse will have unused personal allowance.
4. Possible desire for inheritance provision. An annuity or deferring the state pension are both spent money, though life assurance or insurance could be purchased.
5. Possible desire for lump sum soon.

At the moment the biggest potential issue would be if the 5% pension is inflation-linked to say RPI rather than CPI and provides say a 50% spousal pension. That is a good enough combination to beat deferring the state pension and may be good enough to make inheritance concerns less significant for at least some of the money.

DaveMcG

James

I think that the reduced transfer value due to underfunding is a significant point.

yes it does say there should have been about 190k in but there is only 140k

If the annuity offered is actually being purchased with 190k, its difficult to imagine that taking £140k would be a good idea (not knowing precise circumstances of poster caveat obv)