Pension Options - Advice Required Please

Rich20001

Hi All,

I am looking for some helpful advice/ views on my current pension situation please. I am not particularly savvy when it comes to pensions - so apologies in advance if any of my terminology is not correct. Please see full details below (sorry for the lengthly post!):

Due to current health issues caused by the working environment I am looking into the possibility to slow down the pace of life by either retiring early, or by taking a different less stressful and considerably lower paid job.

My details are as follows:
Age 53
Married (wife 45 y.o.a still in full time work with own FSS pension)
Home - value circa. £400k with mortgage o/s £75k
Savings & investments - £160k approx
Pensions - 2 x Pensions with High Street PLC Bank (one FSS, and one MPS)

If I were to stop work imminently, I have calculated that I have just about have sufficient savings to live on (based on a worse case scenario of no further income in between times) until my 60th birthday - but, I would then have to rely on my work pension scheme income with little or no reserves. This would be supplemented by the state pension at age 67 (based on current rules).

I believe that ideally I would need a pension income of around £25k before tax to live on in retirement - and i am trying to establish my best options with regards to maximising the potential of the 2 pensions that I have in place. Any help and guidance would be very much appreciated.

Pension 1
The final salary scheme (now closed) has an up to date projected annual pension (at age 60) of £10k per annum. It also has a current guaranteed cash transfer value of £340k (this has risen from £280k approximately 9 months ago). I am by means an expert in pensions and investments (hence this post), but I am aware that the disproportionate increase in pension transfer values is connected with yield prices. I assume these market conditions will not be a long term phenomenon. I had always been of the opinion that FSS pensions should never be moved, but I believe this is no longer as clear cut?
Would I be better off transferring out of the final salary scheme and moving the pension fund value into another type of managed fund? What would be the risks associated with this and how could they be minimised? What impact would charges have on the pension available to me at age 60? Whilst I realise it is a very crude calculation and there are no guarantees of anything, by simply dividing the fund value of £340k by 25 (assuming I were to live to an arbitrary 85) and taking no further growth into account this would equate to a gross pension of £13.6k p.a. (i.e. £3.6k more than the projected pension p.a.) Is there a more realistic way of estimating what the £340k fund could pay out (taking into account potential growth and charges) if transferred in annual pension terms at age 60, assuming a low risk appetite please? Would this need to be transferred into a SIPP?

Pension 2
With regard to the money purchases scheme pension which has been in place for 12 years - this now has a guaranteed transfer fund value of £114k (although £10k of this is stated as non guaranteed 'investment account' funds). Despite me paying in the maximum % employee contribution to this pension each month and a very generous contribution from my employer, this pension is only projected to pay out a pension of circa. £3k p.a. from age 60. I have discussed (with an IFA) transferring this money purchase work scheme into another pension pot (for the next 7 years) with a drawdown facility from age 60 - and I have been advised that with low/ medium risk investment this fund could provide a pension of circa. £11k p.a. for 20 years, plus a tax free lump sum at age 60 of circa. £30k. Does this seem realistic and what are the main pitfalls please?

Making my pensions work efficiently for me over the next 7 years is critical for my long term financial wellbeing. Whatever I decide to do, I need to ensure that risks are minimised and if I do decide to transfer either pension, they are managed by experienced and capable fund managers.

Any advice gratefully received.

Thank you

MyOnlyPost

I am not an expert, I am sure one will be along soon.

In the meantime £114k transfer value for £3k pa seems incredibly low. If you transferred it to a SIPP and left it as cash with no growth (which you wouldn't of course) you could draw down £5k pa until age 83 so where the £3k sum comes from is a mystery. The good thing about drawdown is that what you don't take out continues to be invested so you hopefully gain from longer term compounding

Regards your FSS I had always believed you shouldn't leave a scheme too but £340k transfer or £10k a year it seems to me a transfer could be a good idea.

Rich20001

Many thanks 'MyOnlyPost' for your comments above.
I will double check with Towers Watson again regarding the projections of the money purchase pension.
In the meantime do any other of the pension experts on this board have any further advice/helpful comments please?
Any guidance would be much appreciated.
Thank you

xylophone

Have you obtained a new state pension statement to help you plan?

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

With regard to FS salary transfer, since you

need to ensure that risks are minimised

this might not be in your best interests?

http://www.royallondon.com/Global/documents/GoodWithYourMoney/COMPANY-PENSIONS-FIVE-REASONS-TO-TRANSFER-OUT-AND-FIVE-REASONS-NOT-TO.pdf

coyrls

As you’ve not had many responses, I will make some comments, although I am not presenting myself as a pension expert.

Pension 1: I would keep your DB pension “as is”, do not think about transferring it. In your circumstances it will provide regular, guaranteed payments that increase with inflation. It’s true that transfer values have increased recently because of low bond yields but you describe yourself as having a “low risk appetite”, therefore do not take the high risk approach of transferring from a DB pension. Make sure you maximise your income from this pension by ensuring you take retirement at the normal retirement age, so you do not suffer any reductions in payment. Also you should probably take the maximum income option if you have a choice of a lump sum plus income or just income.

Pension 2: Ignore the projected pension from this pension. The projection is based on taking an index linked, joint annuity, which you will not be doing. Concentrate instead on the fund value.

Find out how much state pension you will get and investigate whether purchasing additional years will add to its value. I assume that, as you have been in a DB scheme that is likely to have been contracted out, you could increase the value of your state pension by making additional contributions.

What you need to plan for is for your total of £275K (savings and DC pension), to provide a £25K income for 7 years until your DB pension at 60, a 15K income for another 7 years until state pension and then maybe an 7K or so income for the rest of your life (depending on your state pension amount). Given that a rule of thumb withdrawal rate of 4% would give you 11K a year, you’re not really going to be able to use a sustainable withdrawal rate. Another way to look at it is that assuming your savings and pension kept pace with inflation, 25Kx7=175 and 15K*7=105, so you could probably fund those 14 years but have no pension or savings left at the end but you would have the income from the state pension and your DB pension.

I think it looks tight. In your position I would be looking at part time work and/or looking to see if I could reduce my 25K per year requirement.

Rich20001

Many thanks 'coyrls'.
This is just the type of view I was hoping for - and whilst appreciating that you are not presenting yourself as a pensions expert, you make some very valid and thought provoking points.
I will look into the points you have raised and also await any other responses/ guidance from other contributors too.

coyrls

Another advantage of taking lower paid or part time work is that you would continue to make NI contributions (assuming you earned above the threshold), therefore increasing your state pension.

GunJack

Just a thought, is early retirement from your current employer on the grounds of poor health an option? If so, it may be possible to get earlier payout of your current pension, with enhancements. Worth investigating....

Rich20001

Thanks for the advice above 'xylophone'.
A quick check on the state pension calculator has confirmed that my state pension is estimated to be £8,251 from age 67 (and was contracted out).

xylophone

A quick check on the state pension calculator has confirmed that my state pension is estimated to be £8,251 from age 67 (and was contracted out).

http://www.thisismoney.co.uk/money/pensions/article-4147716/Can-155-state-pension-contracted-out.html

What is shown as your "starting amount"?

Kynthia

The final salary pension is low risk as it's inflation linked, will never run out now matter how long you live, presumably it pays a percentage to your spouse for as long as they live, it wont drop in value if the market drops or you make a bad investment and it doesn't require your time and expertise to manage. If your attitude to risk is low then I can't see why you'd risk moving it. If you didn't have a spouse and had reason to suspect you wouldn't live to a ripe old age then it might be different.

With your MPS they use assumptions to calculate an annual amount that may be pessimistic and not relevant to you. Tge fund total is what's important.

I wouldn't want to be in my 60s with little or no savings for any large purchases needed even if my annual pension income was good. Surely at some point in the rest of your life you are going to need to spend occassional lump sums such as a new car, property work like a new roof or kitchen, or the holiday of a lifetime. So I wouldn't want a plan that meant spending all my capital by state pension age.

Also how would your wife feel about you retiring now? Is she positive, is she planning to join you, or will she be happy working every day for the next five or ten years while you're at home? What will her pension situation be whenever she retires and will you both have enough once the other is gone? Just some things to think about.