Calculating Pension Pot

greenglide

You ask your current scheme for an illustration of current benefits and a "transfer value".

The benefits are the key, that will tell you how much you would get per annum if you retired at the schemes normal retirement age.

You also need to know how it increases in retirement.

Then, and only then, do you think about SSAS. That still leaves the question why a SSAS. Would a SIPP or Personal Pension not be "less bad"?

BookerTee

PensionTech wrote: »

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.

OK, firstly, thank you for your concern over my intentions.

There is no one else involved in my decision making at the moment, I am not intending to invest anything through a SSAS with another company as such. Any investments made through the SSAS would only be under my control. The SSAS administrator would only be a caretaker roll for HMRC compliance. The 9% only came from Bigfreddiel's comment 9, however I suspect current pension growth is not much better than a few percent. Even if you add inflation its still not hard to beat.

I am a sophisticated investor in property, I make short term investments for high returns plus residual income as well as long term investments for reduced returns via a ltd company.

I described my existing pension as stagnant as it appears it will only ever grow by inflation i.e no real increase in value. So any pension 'fund' growth appears to be effectively lost for me. I know very little about pensions as I have no interest in them, except for tax purposes. Which is why I am not considering anything other than a SSAS. Something that will pay me £10-12k (in value) a year when I am 65 is not worth worrying about.

I have in fact spoken to a few IFA's lately on a social level but not to any detail, just the pension 'value' element. It was one of them who suggested a metric to get from benefits to pot size, but I cant remember exactly what he said.

I was in a hurry to define my pension value so thought I could estimate it reasonably well from the yearly benefits which seem straight forward to calculate. No doubt it will take me weeks/months to extract the info from Mercer...

Manxman_in_exile

OP - I know next to nothing(*) about pensions but the "key thing" seems to be contained in PensionTech's first two paragraphs in post #19. If I understand it correctly you are currently the beneficiary of a guaranteed income for life once you retire, but the value to you of that guarantee will not be included in any transfer value if you move out. That's the key thing to consider when weighing up and comparing the advantages and disadvantages of staying in or moving out. (If I've understood post #19 correctly!).


Also is there any tax-free lump sum available on retirement?


And how would you achieve growth of 9%?


(*) Ironically I started work in the NHS as a superannuation clerk. This was at a time (late '80s) when many staff were being encouraged to leave the NHS scheme for a private pension. I can still vividly remember how horrified my managers were at the number of staff who did so and were happy to give up a generous pension income in return for a short-term perceived gain. I'm probably biased as a result but can never understand why so many people want to trade in a final salary scheme for anything else. Unless there's some absolutely compelling reason like a terminal illness and no widow's/dependents benefits.

PensionTech

the value to you of that guarantee will not be included in any transfer value if you move out. That's the key thing to consider when weighing up and comparing the advantages and disadvantages of staying in or moving out. (If I've understood post #19 correctly!)

That is important, but I think sandsy explained that more effectively than I did. My post was more to do with the idea of the benefit "stagnating" - it's a common assumption that if a final salary pension is revaluing in deferment by only 1% per annum right now or whatever inflation happens to be (actually more like 0 in the last year or two), then it isn't achieving as much growth as it would if it were in a DC pension with investment returns of 4-5% or whatever you might reasonably expect. But that's not how final salary pensions work. The pension promise itself isn't invested so the increases to that are meaningless for comparison purposes; the money behind the pension promise is invested, and really that's what you need to look at. And then the rest of my waffle is about scams.

Your point about valuing the guarantee is really, really significant. But it's also hard to do. Many people have a very unrealistic idea of their likely mortality, of investment returns, etc. So asking them to work out the value of guaranteed terms of payment compared to relying on their own investment and longevity assumptions, while necessary, is a minefield.

jamesd

BookerTee wrote: »

I described my existing pension as stagnant as it appears it will only ever grow by inflation i.e no real increase in value.

The pension number you have are for the normal retirement age of the scheme. If you take it earlier you get less. That's where the growth shows up. They don't tell people the potential income and lump sum values earlier because most people aren't interested. Normal retirement age is probably 60 but could be as low as 55 and probably isn't 65 because the change to that is relatively recent and our past benefit ages are locked in.

To give some idea, various pensions have what are called actuarial reductions for taking the pension early that can range between 3% and 5% for each year it's taken early. Which means ten years early if that is possible would be a 30-50% reduction in value. Or conversely it means that at the 5% level the value of the pension doubles in the ten years between then and normal retirement age for the scheme.

BookerTee wrote: »

I have in fact spoken to a few IFA's lately on a social level but not to any detail, just the pension 'value' element. It was one of them who suggested a metric to get from benefits to pot size, but I cant remember exactly what he said.

I'm not an IFA but you 'd think in terms of perhaps 30-35 times the income at the scheme's normal retirement age. Take the money fifteen years earlier and it would be more like a half or a third of that. The actual numbers depend on various aspects of the benefits paid by the scheme, like its normal retirement age and spousal pension benefit.

Besides the growth in income from taking the pension at normal retirement age for the scheme instead of earlier there's the lack of risk, since the scheme has to pay and you don't need to worry about investment performance. Even an experienced and skilled investor may find some value in a payment of income that doesn't have significant risk and doesn't take any time to manage.

You will need to get an IFA to approve the transaction and it's quite likely to be hard to get one to do it. This is because if they advise the move and it turns out badly they can be on the hook to pay you redress and for a scheme with income of £10,000 that could cost them or their liability insurer around £400,000 to purchase an inflation-linked annuity at age 60.

There are cases where such transfers can make sense and yours has the potential to be one of them. Whether it is one depends in part on how the scheme calculates its transfer alue. At the moment there are some schemes that use calculations that make it relatively easy to beat the scheme's payout using investments. If yours happens to be one of those it's entirely possible that we'll change from the generic "it's usually not a good idea because..." to "in this specific case the deal for transferring looks good...". No way to know what the more final answers will be because it depends too much on the specifics. At least you do have the advantage of being an experienced investor and that will help with making the case that it's better in your specific case to do the transfer. It's a harder argument if the person wanting to do it is completely inexperienced.

So long as you now understand how the value is growing and why you don't see it at the moment the best thing to do for now is probably just to wait until you've got some real numbers from the scheme administrators. Way too much depends on just what those numbers are for there to be much scope for more productive discussion at the moment.

xylophone

you might like to look at this for contact details.

The OP has already been referred to this information ( and to details concerning pension tracing )- see post 10.

He does not say whether the company he left is still in existence - if it is, an enquiry to the HR department might well yield an answer to his question concerning the current administrator of the DB Scheme (if it turns out not to be Mercer).

BookerTee

jamesd wrote: »

To give some idea, various pensions have what are called actuarial reductions for taking the pension early that can range between 3% and 5% for each year it's taken early. Which means ten years early if that is possible would be a 30-50% reduction in value. Or conversely it means that at the 5% level the value of the pension doubles in the ten years between then and normal retirement age for the scheme.

I am a little skeptical, surely that applies if you want to retire early and start drawing on the pension early not if you are transferring the pension and thereby transferring the liability...?

BookerTee

xylophone wrote: »

The OP has already been referred to this information ( and to details concerning pension tracing )- see post 10.

He does not say whether the company he left is still in existence - if it is, an enquiry to the HR department might well yield an answer to his question concerning the current administrator of the DB Scheme (if it turns out not to be Mercer).

I have PM'd Dave23 in the hope he can supply an email address to get some real numbers.

PensionTech

I am a sophisticated investor in property, I make short term investments for high returns plus residual income as well as long term investments for reduced returns via a ltd company.

Ok - but pension investment in property is restricted.

I know very little about pensions as I have no interest in them, except for tax purposes. Which is why I am not considering anything other than a SSAS.

But why a SSAS? How have you even heard of SSASs? It's a weird product. And it is a pension. It is definitely a pension. There seems to be some confusion about that. You would need to set it up through an employer as an occupational scheme. It would need to be governed properly - the administrator/provider is not "just a caretaker role" for compliance, not in the slightest. HMRC and the Pensions Regulator would not be happy with that. This is really important, especially if you yourself don't know how you're allowed to invest your pension. If your goal is just to be in control of your investments, why not a SIPP or other personal pension, from an insurer? That's what personal pensions are for, and there will be an awful lot less governance risk.

The 9% only came from Bigfreddiel's comment 9, however I suspect current pension growth is not much better than a few percent. Even if you add inflation its still not hard to beat.

Ok, I understand the 9% thing now. But hopefully my and jamesd's comments have explained why you shouldn't really be looking at the final salary pension growth; rather, you should be looking at the transfer value, whatever that comes out as, and what the growth would NEED to be in order to get you an income in retirement as good as your final salary pension. If that level of growth is achievable with an acceptable level of risk (and this is important, as there's next to no risk with your DB pension), then it might be a good idea to transfer. If not, then maybe not.

I described my existing pension as stagnant as it appears it will only ever grow by inflation i.e no real increase in value.

Again, that's been explained - the revaluation of your DB pension has pretty much nothing to do with its investment return, and shouldn't be compared against market investments.

Something that will pay me £10-12k (in value) a year when I am 65 is not worth worrying about.

Phew. I wish I was in a position where a guaranteed income of £10k every year for the rest of my life was no big deal!

I was in a hurry to define my pension value

Why the rush?

No doubt it will take me weeks/months to extract the info from Mercer...

I guess it depends whether you're asking the right people. There are legal limits on how long they can take to get you this kind of information. A transfer value has to be provided within 3 months of asking for it, and it should usually be provided faster than that - complaints have been upheld against schemes in the past for taking even that long. Others on here have given you information about how to contact Mercer and how to trace your pension in case it's being handled by a different company now (sorry xylophone - I missed the earlier post with contact details - my bad). jamesd is right in that the transfer value is both crucial and depends heavily on the scheme itself, so could be difficult to estimate - therefore best to wait for an actual quote. But again, why the rush?

jamesd

BookerTee wrote: »

I am a little skeptical, surely that applies if you want to retire early and start drawing on the pension early not if you are transferring the pension and thereby transferring the liability...?

Morse strictly correctly the transfer value will use the CETV method and that will include things like anticipated investment growth and cost of providing the pension benefits.

Mainly I was trying to explain that the pension value really is increasing but by just getting the value at one age that growth was invisible. Each year a person gets closer to NRA the transfer value can be expected to increase by an amount corresponding to the presumed growth rate used by the scheme. barring any other revaluation factors, that are common.