Calculating Pension Pot

sandsy

It's value comes from the fact that if you give it up, the sum you'd be offered as an alternative is highly unlikely to provide you with the same level of benefit as if you left it untouched, I.e. In all probability, you'd be financially worse off.

Currently, your ex-employer carries the risk of the funds being sufficient to to pay the benefits you've been promised. Those risk include investment risk and longevity risk. If the assets in the fund are insufficient, the employer will be required to make up the difference. If you give that up, you personally take on those risks.

dave23

I have 13/60th in a pension scheme I left 16 years ago. It is currently worth £7300 a year and I see this is very valuable and underpins my retirement planning. It is also administred by Mercer. I contacted them by email recently for an update and all they wanted was my name, date of birth, NI number and name of the company.

xylophone

My basic understanding of the current arrangement seems to suggest I will get a pittance per year...?

Have you read my post 10 above for suggestions?

BookerTee

bigfreddiel wrote: »

I had a 60th's fs pension sadly only 3 years.

Thirty years later I contacted the admins. Too my surprise it was worth £3,500 per annum, index linked. Not bad for paying in only £1200!

In the last few years before I took the pension it as building at 9% per annum.

You have 23/60ths fs pension. What was your salary when you left.

Let's say it was £20k. So you should be looking forward to at least £10k per annum pension.

I have been looking back at old pay slips (very depressing) and your assessment might not be too far wrong. But it brings me back to my original question, the decision to transfer was a balance between how much it pays a year compared with how much the transferable pot would be. So 10k a year sounds crap but if thats from a pot of 60-70k then its not bad. However if its from a pot of 150-200k then it is crap!

bigfreddiel wrote: »

You must contact the pension admins and find out what it's worth.

I doubt you could do better, especially as you seem to be totally ignorant about the state of your pension, and didn't bother to follow up on the promise of details when they failed to turn up even tho' they were promised shortly after you left the company.

Take it from me, you won't be able to do better if you cash it in and try to invest it yourself.

Let us all know how you get on.

Cheers fj

I am really not sure what I should be asking now...

Yes, I couldnt do better from a pension scheme, youre right but that wasnt the intention.

I didnt get a single indication of pension entitlement while I was a member of staff for 23 years so not getting it once I left wasnt much of a change to notice.

At this stage I am still leaning towards transferring to a SSAS and I wouldnt be if I didnt think I could better 9%

BookerTee

xylophone wrote: »

You have a deferred final salary pension. It is very likely that you were contracted out so would have a GMP.

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

Transferring out of a deferred Final Salary pension valued at more than £30,000 would require the advice of an IFA with the necessary permission/qualification - you might find it difficult to find an IFA to accept the work and if you did, his recommendation might be against transfer. If this were the case, you might find it very difficult to transfer out.

Regarding Mercer,you might try an enquiry in writing giving the personal details required.

Send your letter "signed for".

http://www.uk.mercer.com/we-want-to-hear-from-you/uk-employee-pension-scheme-enquiries.html

If the above fails see http://www.pensionsadvisoryservice.org.uk/pension-problems/making-a-complaint/common-concerns/lost-pensions

It is rather alarming to see that Mercer's site describes deferred pensions as "frozen".....:eek:

If you will be eligible for new state pension, have you obtained a statement?

https://www.gov.uk/government/publications/application-for-a-state-pension-statement

Yes I did initially miss your comment.

Actually I got a statement of 'state pension' on the HMRC site last week. I think it was about £147 with a suggested max of £165/week, hopefully I have got that right!

When you say £30k value...what value do you mean?

BookerTee

dave23 wrote: »

I have 13/60th in a pension scheme I left 16 years ago. It is currently worth £7300 a year and I see this is very valuable and underpins my retirement planning. It is also administred by Mercer. I contacted them by email recently for an update and all they wanted was my name, date of birth, NI number and name of the company.

That doesnt sound bad on the face of it, do you have any idea what you transferable value would be? Could you let me have their email address!!

xylophone

See the following re "safeguarded benefits" - £30,000 rule is covered.


http://citywire.co.uk/money/why-you-have-to-take-advice-to-get-your-pension-cash/a819560

http://www.pruadviser.co.uk/content/knowledge/oracle_archive/oracle-technical/oracle-tech-june/fca-transfer-rules/#

http://www.scottishwidows.co.uk/extranet/financial-planning/techtalk/news/safeguarded

PensionTech

It sounds like you need more information about what the difference is between the benefits that you have now in your final salary pension scheme, and the benefits that you could have in a SSAS.

What you have now is a promise to pay a certain pension when you reach retirement age. Let's say that will be £10,000 per annum, for life. By the time you get to retirement age, that will have kept pace with inflation so it might be more like - let's say - £12,000 per annum. What's important to note is that you don't currently have a pot that will give you £10,000 per annum so any increases, or lack thereof, to the pension promise between now and retirement are not evidence of the pot "stagnating", because the pension promise is not the pot. In reality, in the run-up to your retirement, the scheme just puts aside whatever money they think they'll need in order to meet that promise when you retire, taking into account their own risks and investment returns. The amount that they deem necessary to put aside will vary depending on market conditions etc.

If you transfer your benefits out, the pension scheme no longer has to meet that promise, so they give you the amount that they've put aside for your pension. You have to put that in another pension scheme (and a SSAS is a pension scheme; I'm a little confused by your "Yes, I couldnt do better from a pension scheme, youre right but that wasnt the intention"). The question then becomes a) how much they've put aside for your pension (the transfer value), b) how much you can expect it to grow as a pot if invested in a different pension, and c) what kind of income you can generate from that pot when you come to retire. This is what an IFA looks at.

The answer to these questions is usually that you would need unrealistically high growth, and an awful lot of risk on your own shoulders, in order to come close to the pension promise of the original scheme when you retire. Therefore it's usually a bad idea to give up that promise in order to invest the pot elsewhere. This is particularly important when we are talking about what sounds like a huge part of your retirement income.

The fact that you are talking about a SSAS in particular worries me. A SSAS is a very specialist product. It is a small occupational pension scheme set up for the employees of a company and offers a lot of control and flexibility over investment - which sounds great until you realise that it's therefore not suitable for inexperienced investors. The biggest issue with a SSAS, though, is that it's the product of choice for pension scammers. Transfers of high-value final salary and other occupational pension benefits into personal pensions (some types of which are just as flexible etc. as SSASs) are heavily regulated, reflecting the huge amounts of risk involved. But because a SSAS is technically an occupational scheme, transfers of those same benefits into a SSAS were barely regulated at all.

Because of this, recent years have seen a huge amount of dodgy companies set up to encourage people to transfer their valuable final salary pensions into SSASs, often with the promise of "unlocking" cash early or achieving unrealistically high investment returns by putting all their money into a single unregulated untested asset, like storage pods or parking spaces or Cape Verde hotels or fine wines or any number of other ridiculous things. They preyed on people who didn't know much about their pensions or investment, and were only too happy to believe that they were being "ripped off" by their final salary scheme (they weren't), that there were "hidden charges" (there aren't), that the pension was "frozen" and "stagnating" (it wasn't, and they would often point at the inflationary increases in the pension promise, which have recently been low, to "prove" that the pension was stagnating), etc. Then once the member had signed all the paperwork and transferred their benefits, things would go quiet; a couple of years down the line, the member would try to find out what had happened to their pension and find out that the SSAS provider, or the investment product, had disappeared; they would try to transfer their benefits back into a reputable personal pension, but the SSAS provider would find excuses not to give them their money, and so on and so on. Many of these stories have played out on this very forum - search for StoreFirst. So people lost tens and hundreds of thousands of pounds, and a huge part of their retirement planning disappeared, just like that. I used to be the referral point in my company for all the scheme members who wanted to transfer into dodgy schemes, and I saw dozens if not hundreds of these cases. The first thing that the scammers always do is undermine the final salary pension. Always. This allows them to convince the member not only that they can do better elsewhere, but also that the member should be hostile to the final salary scheme when they start asking well-meaning questions about whether the member understands how likely the transfer is to be a pension scam.

In April 2015, partly in response to these scams (but more in response to the new pension rules that they were bringing in at the same time), the government introduced extra regulation over transfers of "defined benefit" (final salary) pensions into "defined contribution" pension schemes (including SSASs, SIPPs, etc.). People with benefits worth over £30,000 (and this refers to the value of the money put aside by the scheme, rather than the annual amount of the pension promise itself), now have to take advice before transferring their benefits. But this isn't a catch-all. You could go to a legitimate IFA, tell them you want to transfer your pension and invest it all in carbon credits, and he would tell you it was a terrible idea and you were going to lose all your life savings. But as long as he gave you that advice, you could still choose to ignore it and go ahead with the transfer anyway, and nobody could stop you losing all your money. And the scammers would be laughing all the way to the bank.

So you understand why I'm concerned that even though you don't currently know what your pension promise is, or what it's worth as a transfer value, you think it's stagnating and want to transfer it into this bizarre niche pension product suitable for sophisticated investors that is typically used by pension scammers, because you think you can achieve high investment returns (over 9% you say!). Can you explain how you've got to this point?

BookerTee

Well that sounds like I will have no choice but go through an IFA to transfer. Although the £30k pot size limit sounds more like the FCA protecting income for their members than protecting consumers.

However I am still no further forward really, I still dont know exactly what I should be asking or what good it will actually do me as the key figure is the value of the pot.

PensionTech

The thinking behind the £30k limit is essentially materiality. If your pension is "worth" under £30k (as a total figure rather than per annum) when you retire, you're allowed to take it all out as a lump sum (it is more complicated than that, but that's not important right now). The thinking therefore goes:
a) If you're allowed to convert it all to a lump sum rather than keeping it as an annual pension when you retire, and you don't have to take advice to do that, why should you have to take advice in order to transfer it from an annual pension type benefit to a pot type benefit?
b) If your pension benefits are only worth £30k, the cost of financial advice is very high - say £1000 or so - in proportion to your pension benefits, and a benefit that size won't make that big of a difference to your retirement even if you make really bad decisions with it, so should you really be forced to pay for financial advice?

It's nothing to do with income for IFAs - many will charge a flat fee for the advice given, rather than a percentage of your pot.

I'd still like to know why you are looking to transfer, because I really am worried that you've been targeted by scammers, but to answer your question, what you need to be asking is:

1. What amount of annual pension am I promised at retirement?
2. What amount would I get as a transfer value to put in a different scheme?
3. What investment returns could I realistically achieve, taking into account my attitude to risk? (Over 9% is not realistic - where have you got this from?)
4. What retirement income could I generate from my invested pot when I come to retire?

The first two questions will be answered by your scheme administrators. I don't know what you've been using to contact them so far but you might like to look at this for contact details. Don't worry about being charged for asking for a transfer value. You are entitled to a transfer value free of charge once every year. When you've got it, you are then allowed 3 months to decide whether to transfer it or not (and you will be required to get regulated financial advice). If you don't decide within the 3 months, you then have to wait another 9 months before you can get another one (otherwise you will indeed have to pay), but that isn't the end of the world.

The second two questions will be answered by a financial adviser. You will have to pay for their time. I don't know if this desire to transfer has been triggered or encouraged by a third party so far, but if you have had any contact with anybody about transferring your pension so far, I strongly advise you to ensure that your financial adviser has no links to them whatsoever. Find them yourself by looking on https://www.unbiased.co.uk or similar - do not accept a referral from anyone.