Cetv

Lochar

I have obtained a CETV on a Defined Benefits pension and I am not sure if it represents good value.

I am 55 and my normal retirement date for this pension scheme is 65 at which point it would pay £3060 per annum based on my latest statement. The pension would increase by RPI each year.

The CETV I got this week is offering £71,200.

Thanks in advance.

kidmugsy

Lochar wrote: »

I am 55 and my normal retirement date for this pension scheme is 65 at which point it would pay £3060 per annum based on my latest statement. The pension would increase by RPI each year.

The CETV I got this week is offering £71,200.

Is there any comparable way of buying an income that is linked to RPI with no cap? By golly I'd be reluctant to give that up, unless there were special circumstances - lousy health, no wife, or the like. Clearly there would be a price at which I might give it up, but I don't see £71k being enough.

Suppose you took the CETV, removed the TFLS, and managed to get the remaining capital to grow in its tax-shelter at a rate that matched RPI. Then at 65 you buy a commercial RPI-linked annuity on much the same terms as are available now. Your annuity would be (very roughly) about half of the FS pension.


P.S. (i) Does your DB scheme also pay an automatic Tax-Free Lump Sum?

(ii) I've assumed that the forecast £3060 per annum is the present-day value of the pension i.e. that the money amount you'll receive will be increased from £3060 to allow for the intervening inflation.

xylophone

http://www.pensionsadvisoryservice.org.uk/about-pensions/when-things-change/transferring-your-pension

https://www.moneyadviceservice.org.uk/en/articles/transferring-out-of-a-defined-benefit-pension-scheme

You will need to take advice before transfer from an IFA with the necessary qualifications/permissions for pension transfer.


http://www.telegraph.co.uk/finance/personalfinance/pensions/11230612/Calculator-final-salary-pension-valuation.html

might be worth a look.



Is this a deferred pension? Do you have other pension provision?

Do you have a spouse? What is her pension situation?

Have you obtained a new state pension statement?

https://www.gov.uk/state-pension-statement

Is your intention to move the pension to a DC arrangement so that you can access it now?

Do you understand the tax situation?

https://www.pensionwise.gov.uk/

kidmugsy

I suppose it might be worth revisiting the question when you are nearer to State Retirement Pension age, because then you'd have the option of buying more State Pension by using pension deferral.

Lochar

Quick responses. They also highlight how much information I didn't provide.

This is a deferred pension. I am no longer contributing. The 3060 is today's value and will increase from now to retirement and beyond based on RPI.

I have other final salary pension provision that I am contributing to (along with my employer) which is currently worth £20,000 per annum (RPI based) and I am a lower rate tax payer. I have 35 years of NI contributions.

What I'm trying to say in a long winded way is that I would like to access the 71,000 CETV by combining it with an existing SIPP (currently worth 30,000) and using that via some sort of drawdown to supplement my income until I'm 65. Or should I just leave a DB pension alone ?

I am married and my wife is currently working and has separate pension provision to that above.

dunstonh

What I'm trying to say in a long winded way is that I would like to access the 71,000 CETV by combining it with an existing SIPP (currently worth 30,000) and using that via some sort of drawdown to supplement my income until I'm 65. Or should I just leave a DB pension alone ?

What is the critical yield required by the SIPP to beat the occupational pension?

TH1878

dunstonh wrote: »

What is the critical yield required by the SIPP to beat the occupational pension?

My back of a fag packet calculation suggests a net growth rate of approximately 7.4%

£3,060 revalued at 2.5% for 10 years = £3,917
2.7% annuity rate at age 65 so fund required = £145,076

£145,076 = £71,000 * 1.074^10

xylophone

It would seem that the OP and spouse will have adequate pensions at retirement/state pension age to be comfortable.

It would also seem that the OP would like to benefit from additional income now which would supplement his employment income to provide desirable extras before SPA/SRA.

In his circumstances, this does not seem to be an unreasonable proposition.

He would need to take advice from an IFA as this is a DB pension with a CETV valued at more than £30,000.

Looking at the calculator in the Telegraph link in my first post, the CETV seems to fall in the range expected.

Lochar

Thanks for all your responses. As there are no DON'T DO IT responses I think I'll get in touch with an IFA and look at moving this one into my existing SIPP.

xylophone

And re Annual Allowance, transferring your DB pension, accessing the SIPP http://adviser.royallondon.com/articles/updates/2015/february/defined-benefits-and-the-mpaa/

kidmugsy

Lochar wrote: »

Thanks for all your responses. As there are no DON'T DO IT responses

Don't do it until you've looked at alternatives. If you'd like access to some capital now, how about borrowing? It's the cheapest it's been since ... oh, 1400 AD or something.

Seriously; wanting capital now is no crime, but overpaying for it is unwise.