Transfer from Final Salary Scheme - Am I being naive?

ssmi

I'm really asking for feedback on my thought process - I am no financial whiz and I want to know if I am missing something. I am 57 my husband is 62. Between us we have a few pension pots worth about 250K. I will get a reduced state pension due to lack of contributions but see no point it topping up as I believe I will lose any extra income in tax. He will get full state pension and still works part time. We are mortgage free and have a couple of properties we rent out, also mortgage free. The question really is over a final salary scheme I have. I was quoted a couple of years ago 22K pa to take at 65. I have now asked for a transfer value and been offered 397K. In my simplistic view this would mean I would have to live to 83 roughly to break even. I was thinking of taking the money now, taking 25% of it tax free to add to some other money we have, buying another property and then doing something with the remaining 75%. Is it really as simple as that or am I missing something? I know I will need to seek formal advice but wanted some informal view before I start the process. Thanks in advance for any pointers.

p00hsticks

ssmi wrote: »

Is it really as simple as that or am I missing something?

A couple of things you may be missing are;

Unless you have health issues, a woman your age has a life expectancy greater than 83

Your DB pension will be index linked to rise in line with inflation and may also provide a spouses pension on your death.

ssmi

Thenk you p00sticks. Yes it does provide a spouses pension but should I consider the fact that my husband is 5 years older than me so may not get that advantage? But yes I had omitted the index linked consideration - so in actual fact when I arrive at 65 will it be more than 22K? Plus it will rise over the years. However should I consider that when I do arrive at 65 the pension fund might not be enough to pay out? Should I factor in a 'bird in the hand?'

coyrls

ssmi wrote: »

I will get a reduced state pension due to lack of contributions but see no point it topping up as I believe I will lose any extra income in tax.

There is no 100% tax rate. Assuming you are a basic rate tax payer, you would "lose" 20% of any extra income.

ssmi

Yes you are right coyrls, perhaps I should look at this again

Thrugelmir

ssmi wrote: »

However should I consider that when I do arrive at 65 the pension fund might not be enough to pay out?

What conviction do you have that the next couple of decades are going to be ones of economic prosperity? A higher return requires acceptance of risk. Large lump sums have an enormous attraction. Choosing the right home to invest the money has the potential to be a life changing event. A secure index linked base income is worth having.

ssmi

So Thrugelmir, you're saying a lot depends on where you put the lump sum?

I was kind of asking if the funds are secure if left in the scheme.

sandsy

Most DB schemes are secure and the promises will be met. Only a very small number out of the total population fail and even then, there is fund which will pay up to 90% of your accrued benefits (it's closer to 90% the nearer you are to receiving the pension).

Whilst many currently appear to be less than financially strong, if interest rates rise, the position will be much improved and economic forecasts suggest this will be the case eventually.

Most financial advisers are not trained to assess the strength of a scheme and it's likelihood of failing.

Daniel54

If your figures are correct,that is a very mediocre transfer value ( less than 20:1) After taking the 25% PCLS ,you would need to 'do something",as you put it,to generate a return on £300k equivalent to a reduced DB pension of £16.5k,inflation linked.That is a very big ask unless you are prepared to take a very high level of risk and hope for the best.

ssmi

Thank you Daniel54, I used an online checker to give me an indication of what the transfer value should be and there was quite a difference in the 'from' 'to' figures so wasn't sure what to expect. Is the offer negotiable? Is it the done thing to go back and ask for more?

PeacefulWaters

That's an awful transfer value. Ask them to check it.

As it stands, take the income and inflation proofing that the scheme is offering you.