Difficult decision

Janlove

Hi, as a new user I hope this post is appropriate. At 60 I'm now in the fortunate position of being able to take my final salary pension from a company which I left 20 years ago. The pension pot is significant at over £200,000. I have a financial adviser who is recommending not taking the annuity but to withdraw and invest in a pension portfolio with income release. I can see the benefits of this however, as I will probably want to draw on this within the next 3 or so years I'm concerned that the market volatility which will result from Brexit will make this a risky strategy. I have been assessed as have a risk score of 4/10. Any thoughts or words of wisdom please?

coyrls

Firstly you need to determine if you really have a final salary pension. If you do, you do not have a pension pot and you will not be purchasing an annuity and the strong likelyhood is that you should take the income offered by your final salary scheme.

If in fact you have a defined contribution pension and not a final salary pension, you do have the option of purchasing an annuity with your pension pot but you also have other options for drawing down income, which may well provide better alternatives than purchasing an annuity.

AnotherJoe

And even if you do have a pot (rather than a final salary pension) how much of that money do you need in three years? All of it? 10%? ????

dunstonh

The pension pot is significant at over £200,000.

It should be noted that a final salary scheme does not have a pot. it is not that type of pension.

I have a financial adviser who is recommending not taking the annuity

Final salary schemes do not involve an annuity.

So, I am now wondering with you mentioning pot and annuity, do you actually have a final salary scheme?

I can see the benefits of this however, as I will probably want to draw on this within the next 3 or so years I'm concerned that the market volatility which will result from Brexit will make this a risky strategy.

Income drawdown is a risky strategy. There is no other way to describe it. However, the rate of withdrawal and the way you invest can largely dictate how much risk there is. If you draw say 2% p.a. and invest in cautious assets that will average say 5% then the risk is much lower than say drawing 7% and investing in volatile assets.

Brexit is irrelevant. Financial crisis occur on average every 7 years. You are likely to live 25-30 years. Volatility comes with the territory. There will always be negatives on the horizon. Some known, some unknown. There will be positives too. You take the ups and downs and accept them. Or you dont accept them and dont do an option that has that type of risk.

Any thoughts or words of wisdom please?

You need to clarify the type of pension. We also need to know the drawdown rate required. Do you want flexible income? There is so much more info we need but those basic things will help.

Janlove

Hi -possibly I have used some of the wrong terminology. I think the pension I refer to is a final salary pension and the company have given me figures for a full pension with no lump sum or 25% lump sum with a reduced annual pension. The figure that I've mentioned above refers to the transfer value.

We are still working and will do so for the next couple of years so I don't need to draw up on this money in the short term. My FA has suggested that over this time the value of the investment in a pension portfolio will increase and therefore, in addition to potential benefits of being more in control of your own money, I could buy an annuity at that stage or continue to invest whilst taking an income from it.
My main concern is the possibility of being worse off in 3-4 years because of all the unknowns ahead, and whether I should opt for what the company is offering. However I'm also aware that you need to speculate to accumulate!
Really struggling with this decision!

xylophone

Could you give some more precise details of the scheme in question?

Do you have a scheme pension booklet or do you have a pension statement ?

xylophone

Do you mean that your IFA is recommending a transfer out of your DB pension to a DC pension?

Is he a qualified Pension Transfer Specialist?

Do you understand the implications of transferring out of your DB Scheme?

http://www.retirement-planner.co.uk/259/taking-leap-faith-defined-benefit-transfers

dunstonh

We are still working and will do so for the next couple of years so I don't need to draw up on this money in the short term.

So, doing nothing until around 6 months prior to retirement may be the best option.

I think the pension I refer to is a final salary pension and the company have given me figures for a full pension with no lump sum or 25% lump sum with a reduced annual pension.

Final salary schemes are based on years of service. They do not have a 25% tax free lump sum. They have a pension commencement lump sum that is based on a different formula (that is largely meant to equate to the 25% you get on money purchase schemes)

You dont get a transfer value on final salary schemes unless you specifically ask for it as there is no fund with final salary schemes. The annual statement will not refer to any investment fund or fund value. If you have investment funds then you do not have a final salary scheme.

My FA has suggested that over this time the value of the investment in a pension portfolio will increase and therefore, in addition to potential benefits of being more in control of your own money, I could buy an annuity at that stage or continue to invest whilst taking an income from it.

How does that compare to the scheme pension?
Is this an FA or an IFA?

My main concern is the possibility of being worse off in 3-4 years because of all the unknowns ahead, and whether I should opt for what the company is offering. However I'm also aware that you need to speculate to accumulate!

An IFA should benchmark every option available that is relevant to you. This is to put you in an informed position. So, if drawdown, they should compare to the open market option and in-house option. How do these options compare?

My main concern is the possibility of being worse off in 3-4 years because of all the unknowns ahead,

But you are likely to be around for another 25-30 odd years. The whole period of that is full of unknowns. So, what is so special about the next 3-4 years?

coyrls

Janlove wrote: »

Hi -possibly I have used some of the wrong terminology. I think the pension I refer to is a final salary pension and the company have given me figures for a full pension with no lump sum or 25% lump sum with a reduced annual pension. The figure that I've mentioned above refers to the transfer value.

We are still working and will do so for the next couple of years so I don't need to draw up on this money in the short term. My FA has suggested that over this time the value of the investment in a pension portfolio will increase and therefore, in addition to potential benefits of being more in control of your own money, I could buy an annuity at that stage or continue to invest whilst taking an income from it.
My main concern is the possibility of being worse off in 3-4 years because of all the unknowns ahead, and whether I should opt for what the company is offering. However I'm also aware that you need to speculate to accumulate!
Really struggling with this decision!

You really must find out if it is a final salary scheme or not. You say that it is a final salary scheme but the other information you are giving us (value, 25% lump sum) imply that it is not a final salary scheme. It is very unlikely that an IFA would be advising you to transfer out of a final salary scheme.

xylophone

Let's try to clear this up.

Do you have a scheme booklet?

Are you a deferred member of a Defined Benefits/Final Salary pension scheme who has just reached Scheme Normal Retirement Age?

Have you received a communication from the Scheme Administrator indicating your options for taking your pension?

The statement includes a CETV or you requested a CETV?

Is there by any chance a link to your scheme on the internet?

xylophone

Is there by any chance a link to your scheme on the internet?

Example of the BBC 1/60 DB Scheme

http://downloads.bbc.co.uk/mypension/en/old_benefits_handbook_april_2016.pdf