Water industry pension release

lutzi1

Please can somebody advise me?

I have a small final salary pension (c £800 pa) attributable to a couple of years' employment with a water company when I first started work 30 odd years ago. It's payable in 10 years, when I'm 65. I was pleased to find last year, when I asked for an up to date pension estimate, that the value of the supporting "pot" was £30,400, a pretty reasonable multiple of the annual pension, I felt. It's now valued at £30,700.

For good sensible reasons I now wish to transfer it to a flexible drawdown scheme, take the 25% tax free and draw down a bit this year and a bit next to make full use of my personal allowance (I have a small part time job). I'd also use some to buy some extra years of NI contributions - say four - to replace the lost pension income and leave the rest invested for now. This pension does not form an essential part of my retirement planning.

My difficulty is that the pension trustees, for understandable reasons, require proof I've taken regulated financial advice, and I'm struggling to find an IFA who will help me. I've spoken to a couple who will not touch this kind of business for fear of long term repercussions, and one reputable company I approached would do but would charge me £2,500 which I felt was a lot given the size of the pot.

I fully appreciate that for many people it would not be wise to "cash in" a final salary pension - I will not be doing so with my larger local government pension - but in my (current and future) personal circumstances and given the low level of pension/ relatively high value of the pot in this case for me it makes good sense. (I'm a former accountant and financially savvy).

I want to deal with a reputable company, but almost feel I'm being driven into the arms of the unscrupulous. Does anybody have any useful advice as to how I can find somebody trustworthy to help me access my own money?

Thanks in advance.

PensionTech

the value of the supporting "pot" was £30,400, a pretty reasonable multiple of the annual pension

That depends. Was it £800pa when you left or is it £800 revalued to the current date?

For good sensible reasons I now wish to transfer it to a flexible drawdown scheme

You sound savvy, so I don't wish to sound like I'm trying to undermine any decisions you've made by suggesting this, but there are plenty of people who have come on this forum with similar queries only to find that there are other ways to get money that they hadn't considered, and it would make better financial sense to employ one of those methods than transferring a DB pension. If you could explain why you want the money, someone on here might be able to help you find a better way to get it, without you having to pay for the financial advice.

My difficulty is that the pension trustees, for understandable reasons, require proof I've taken regulated financial advice

Not just understandable reasons: legal reasons. They are absolutely required to do this for transfer values above a given size. The cut-off is £30,000 so unfortunately you're just above it. If you read up a little on how transfer values are calculated, you could try to keep an eye on gilt yields/corporate bonds in order to guess when your transfer value might drop just below the £30k threshold - then you wouldn't need advice.

I want to deal with a reputable company, but almost feel I'm being driven into the arms of the unscrupulous.

Your current scheme will only accept a declaration from an adviser who is regulated by the FCA, so in theory whoever you deal with should be "scrupulous". In theory.

Does anybody have any useful advice as to how I can find somebody trustworthy to help me access my own money?

My only advice, apart from trying to find a good time to get a new transfer value under £30k or to find an alternative way to get the money, is to keep looking around - have you tried unbiased.co.uk? - but I am not an expert in this field. Other people on here are, or have more experience of, IFAs, and I'm sure they will be along to help you. However, the advice I most frequently see on here is that IFAs are generally very reluctant to take on this kind of work - as you have found - so it might be a struggle.

jamesd

The pension value appears to be 2.6% of the transfer value given. That is sufficiently low that you can reasonably expect to be able to generate a higher income from buying more state pension and state pension deferral. This does assume that the £800 is today's value not the original one - hence the revaluation question. Because of the low interest rate situation it is moderately common to find good transfer out deals at the moment and yours initially does appear to be a good one to take.

You can also use the money to fund paying into a pension scheme your earned income each year then draw out it all after receiving the tax relief. Maximum you can repeatedly do this on is currently £10k gross a year so the maximum gain for a basic rate tax payer is £2500 tax free lump sum plus £7500 * 0.8 after tax on the rest - £8000 paid in = £500 a year. This £500 a year is payable from now until you reach age 75 so long as you have 10k of earned income and do the pay in/take out each tax year.

If you don't have 10k of earned income in any tax year the limit is your actual earned income or £3600 gross.

Describe your plans to any prospective IFAs so they can see that they will put you into a better position. Knowing that you have a defined benefit pension and knowing your state pension anticipated level will help them to decide that there will not be too much financial harm to you. Knowing that you want to use it for say living costs associated with early retirement would be an acceptable use. That is, when asking, tell them enough so that they can see it's not a daft request. Knowing your accounting background would also be useful to an IFA worried about risk. And make it easy, tell them it's 2.6% so they can see that without having to do any work.

IFAs don't have the same charges and shopping around can be useful. So can shopping around at a time that is not close to being the busiest time of the year. That busiest time being around now and the next month or two as all the year end and budget work needs to be done.

lutzi1

Thank you PensionTech.

PensionTech wrote: »

That depends. Was it £800pa when you left or is it £800 revalued to the current date?

£800 at current value. Things I've read suggest a multiple of over 38x annual pension is good/ equates to a low return of under 3% per annum.

You sound savvy, so I don't wish to sound like I'm trying to undermine any decisions you've made by suggesting this, but there are plenty of people who have come on this forum with similar queries only to find that there are other ways to get money that they hadn't considered, and it would make better financial sense to employ one of those methods than transferring a DB pension. If you could explain why you want the money, someone on here might be able to help you find a better way to get it, without you having to pay for the financial advice.

Thanks for the suggestion, but as I say this isn't essential pension planning, it's more of an unexpected windfall I'm happy to take part of for essential major house repairs and a much needed new car. We've put more than this pot value into my husband's pension this year due to the pensions consultation, so we're making provision for the future, and I don't want to start dipping into his pots to stop his annual contribution limit dropping to £10k.

Not just understandable reasons: legal reasons. They are absolutely required to do this for transfer values above a given size. The cut-off is £30,000 so unfortunately you're just above it. If you read up a little on how transfer values are calculated, you could try to keep an eye on gilt yields/corporate bonds in order to guess when your transfer value might drop just below the £30k threshold - then you wouldn't need advice.

I thought it was the £30k that was the issue, but then I read something somewhere that suggested it was because of the final salary pension or trustees' requirements. (They seem to be making it up a bit as they go along too, last year's letter was different to this one). I'll look into this more, thank you. Frankly by now I'd be happy to take £29,999 from them to avoid the apparent expense and hassle ! :rotfl:

Your current scheme will only accept a declaration from an adviser who is regulated by the FCA, so in theory whoever you deal with should be "scrupulous". In theory.

Indeed.

My only advice, apart from trying to find a good time to get a new transfer value under £30k or to find an alternative way to get the money, is to keep looking around - have you tried unbiased.co.uk? - but I am not an expert in this field. Other people on here are, or have more experience of, IFAs, and I'm sure they will be along to help you. However, the advice I most frequently see on here is that IFAs are generally very reluctant to take on this kind of work - as you have found - so it might be a struggle.

I've tried various sites such as unbiased, but I'll keep trying. Thanks for your help.

lutzi1

Thanks for responding jamesd.

jamesd wrote: »

The pension value appears to be 2.6% of the transfer value given. That is sufficiently low that you can reasonably expect to be able to generate a higher income from buying more state pension and state pension deferral. This does assume that the £800 is today's value not the original one - hence the revaluation question. Because of the low interest rate situation it is moderately common to find good transfer out deals at the moment and yours initially does appear to be a good one to take.

Yes, that's what I was thinking (£800 IS today's value) - and using it to fund deferred state pension is another good idea.

You can also use the money to fund paying into a pension scheme your earned income each year then draw out it all after receiving the tax relief. Maximum you can repeatedly do this on is currently £10k gross a year so the maximum gain for a basic rate tax payer is £2500 tax free lump sum plus £7500 * 0.8 after tax on the rest - £8000 paid in = £500 a year. This £500 a year is payable from now until you reach age 75 so long as you have 10k of earned income and do the pay in/take out each tax year.

This is a super idea. I'd thought about something like this in later life, but yes I can do it now, thanks.

Describe your plans to any prospective IFAs so they can see that they will put you into a better position. Knowing that you have a defined benefit pension and knowing your state pension anticipated level will help them to decide that there will not be too much financial harm to you. Knowing that you want to use it for say living costs associated with early retirement would be an acceptable use. that is, when asking , tell them enough so that they can see it's not a daft request. Knowing your accounting background would also be useful to an IFA worried about risk.

All great advice.

IFAs don't have the same charges and shopping around can be useful. So can shopping around at a time that is not close to being the busiest time of the year. That busiest time being around now and the next month or two as all the year and budget work needs to be done.

A valid point, thank you very much!

xylophone

When you left the water company in around 1986 you became a deferred pensioner of the scheme.

Were you given a statement of deferred benefits?

This would normally show a GMP and an excess.

Do you know how the GMP is revaluing in deferment? (Fixed or Full rate).

How the excess is revaluing in deferment? This will be according to scheme rules and may be more generous than the statutory basis.

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

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

The scheme must pay you at least your revalued GMP at GMP age - be aware that as it is all pre 88 GMP, the scheme has no obligation to index link that part of the pension once in payment.

If the GMP is large in relation to the pension, that lack of index linking may be a reason to support your desire to transfer out as there will be no index linking on it through the state pension at state pension age.

Have you obtained a new state pension statement?

http://www.thepfs.org/yourmoney/find-an-adviser/

You will need an adviser with the necessary permissions for pension transfers.

Before you ring round, you might like to make an aide memoire of your reasons to wish to transfer out, emphasising that the water pension forms only a tiny part of your retirement planning, that you have more than twenty five(?) years in the LGPS Defined Benefits Scheme and intend to continue to contribute to it, that you can expect a state pension of £x, that (if it is the case) much of the water pension will be GMP and not index linked etc.

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

lutzi1

Thanks for your answer xylophone

xylophone wrote: »

When you left the water company in around 1986 you became a deferred pensioner of the scheme.

Were you given a statement of deferred benefits?

This would normally show a GMP and an excess.

Do you know how the GMP is revaluing in deferment? (Fixed or Full rate).

How the excess is revaluing in deferment? This will be according to scheme rules and may be more generous than the statutory basis.

The scheme must pay you at least your revalued GMP at GMP age - be aware that as it is all pre 88 GMP, the scheme has no obligation to index link that part of the pension once in payment.

If the GMP is large in relation to the pension, that lack of index linking may be a reason to support your desire to transfer out as there will be no index linking on it through the state pension at state pension age.

Benefits at Date Of Leaving

Member's total pension at DOL (all pre April 1997) £356 pa
GMP pre April 1988 at DOL £ 56 pa
GMP post April 1998 at DOL £ 41 pa
Revaluation method : Fixed
Revaluation Rate 7.5%


Total DB transfer value £30,702
Pre April 1997 TV arising from GMP £14,875



Have you obtained a new state pension statement?

I've got one under the old system, I don't think I can get a new one just yet - I've currently got about 28 years of contributions (some contracted out).

http://www.thepfs.org/yourmoney/find-an-adviser/

You will need an adviser with the necessary permissions for pension transfers.

Before you ring round, you might like to make an aide memoire of your reasons to wish to transfer out, emphasising that the water pension forms only a tiny part of your retirement planning, that you have more than twenty five(?) years in the LGPS Defined Benefits Scheme and intend to continue to contribute to it, that you can expect a state pension of £x, that (if it is the case) much of the water pension will be GMP and not index linked etc.

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

Thanks a lot, some useful points.

xylophone

It was not clear from your first post that you had any post 88 GMP


See links in my first post.

The post 88 GMP must be index linked in payment by the Scheme up to 3%- there will be no index linking above this through the state pension.

You can obtain a new state pension statement. See link.


See also https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/447195/new-state-pension--effect-of-being-contracted-out.pdf

enator

Exactly the same scenario as my wife, who also has a small DB pension from decades ago. The transfer value is £34k and it took five minutes - via unbiased.co.uk - to find a local IFA who is now doing the work.

The only downside is the 4.5% fee ( about £1,530) to basically do a bit of research and write a letter, but we are where we are and it has to be paid.

woolly_wombat

lutzi1 wrote: »

I have a small final salary pension (c £800 pa) attributable to a couple of years' employment with a water company when I first started work 30 odd years ago. It's payable in 10 years, when I'm 65. I was pleased to find last year, when I asked for an up to date pension estimate, that the value of the supporting "pot" was £30,400, a pretty reasonable multiple of the annual pension, I felt. It's now valued at £30,700.


Thanks in advance.

As you have indicated that you are female, shouldn't the retirement age be 60?

That's certainly the age at which a female GMP would be expected to commence payment (see xylophone's link).

You have said that the method of revaluation use is fixed.

The aforementioned link indicates that the GMP pre April 1988 (£ 56 pa at DOL) should be revalued at 8.5% pa, rather than the lower 7.5% revaluation of the GMP post April 1988 element (£ 41 pa at DOL).

I'm no accountant but my back of the envelope A level maths workings are indicating that the pre 1988 GMP element alone revalued at 8.5% pa to 2021 (at age 60) is coming to more than the £800 that you have been quoted.

Due to the magic of compounding your GMP could turn out to be worth far more than you ever imagined as you get nearer to retirement.

If you are really keen to transfer out then perhaps you would get more if you waited a few years?

What do the rules of your pension state? I have been told that I wouldn't be allowed to transfer out once I reach my 59th birthday.

xylophone

The aforementioned link indicates that the GMP pre April 1988 (£ 56 pa at DOL) should be revalued at 8.5% pa, rather than the lower 7.5% revaluation of the GMP post April 1988 element (£ 41 pa at DOL).

The Fixed Rate is on the total GMP at date of leaving the scheme.

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

Where the GMP is "payable" at age 60 but the scheme pension age is 65, increments are added to the GMP.

See http://www.aon.com/unitedkingdom/attachments/aon_hewitt/pa/Aon_Hewitt_GMP_Reconciliations_Jan14.PDF

"Women with a normal retirement age after 60 – Any person retiring
after GMP Age (i.e. a woman aged 62) will attract a Late Payment
Increment."