Transferring Final Salary to DC at 42

Mintymouse

I have been in final salary pension with current employer for last 12 years and have accumulated pension of 9.5k pa.

I also pay any bonuses i get into another pension with same employer valued at 31k.

I had a final salary pension with previous employer for about 2 years. Out of curiosity i checked what the tfr value was and was pleasantly surprised. It was 47k which i thought was very good for an annual pension of 1.3k.

Can i tfr tge 47k to a defined contribution scheme?
Will i have to pay tax to do this? If so how much is it likely to be.
Is there a charge for doing this transfer?

My motivation for wanting to transfer is to simply ringfence it as my own as not sure how secure final salary pensions will be in future eg bhs, tata.
Thanks

xylophone

Can i tfr tge 47k to a defined contribution scheme?

Possibly.

https://www.moneyadviceservice.org.uk/en/articles/transferring-out-of-a-defined-benefit-pension-scheme

http://www.pruadviser.co.uk/content/knowledge/technical-centre/pension_transfer_conversion/

Linton

Mintymouse wrote: »

.....
My motivation for wanting to transfer is to simply ringfence it as my own as not sure how secure final salary pensions will be in future eg bhs, tata.
Thanks

In what way were/are bhs and tata pensions insecure? The worst that can happen is a reduction of 10% if the pension is unable to meet its commitments and is taken over by the Pension Protection Fund. DB pensions are about as secure a pension as it is possible to get plus you get inflation indexing. Transferring into a DC pension is far less secure in that you either invest cautiously and risk having insufficient money when you retire or invest more adventurously and risk large falls in your pension during economically difficult times. There are no guarantees with respect to inflation. People who transfer from DB to DC are generally those who are willing to aim for greater income during retirement at the expense of security.

bspsmembers

Linton,

It is worse than that as our members are finding out now. The benefits in PPF are below statutory minimums for a new scheme. We are being offered a successor scheme which reduces out current benefits to just above PPF and has no cost of living increases for pre 1997 service above Guaranteed Minimum Pension. For most members (particularly older pensioners and widows) this is a 20% cut over 10 years.

PeacefulWaters

bspsmembers wrote: »

Linton,

It is worse than that as our members are finding out now. The benefits in PPF are below statutory minimums for a new scheme. We are being offered a successor scheme which reduces out current benefits to just above PPF and has no cost of living increases for pre 1997 service above Guaranteed Minimum Pension. For most members (particularly older pensioners and widows) this is a 20% cut over 10 years.

There are various ways of screwing active DB schemes that do far worse damage to employees retirement income.

Linton

You do need to differentiate between changes that affect the benefits from future pension contributions and those already earned. The former can happen at any time with pensions as with salary, Ts &Cs etc etc. The latter should ideally be cast in stone.

kidmugsy

Linton wrote: »

The worst that can happen is a reduction of 10% if the pension is unable to meet its commitments and is taken over by the Pension Protection Fund. DB pensions are about as secure a pension as it is possible to get plus you get inflation indexing.

Oh that's potentially awfully misleading, Linton. The worst that could happen to me if my principal DB pension fell into the PPF is that I would lose the great bulk of my inflation-protection, and my widow's pension - when she finally got it - would be cut sharply. And I'm not sure that she'd get any inflation-protection at all - their website wasn't clear the last time I looked.

And all this supposes that the PPF will survive rather than buckling under the weight of failing schemes.

sandsy

Is the £1.3k the pension at leaving, the revalued Pension now of the projected pension at retirement age?

What is the retirement age?

Mintymouse

Retirement age 65. The 1.3k is the pension i will get at retirement in todays money.

I have read about transferring pension at 55, but i think thats more to do with actually taking cadh out of pension.

I am more interested in 'banking/locking' the 47k in DB scheme as it means I can pass onto family, security from scheme going same as bhs, ( not sure what shape the scheme is in, i expect its underfunded like most final salary schemes). The tfr values are high right now and i dont think the tfr rate could get much better than this in the future.

vacheron

Hi Mintymouse.

I have a very similar situation (I am also 43).

I have a dormant DB pension from my first employer who I joined age 21.

I contributed a total princely sum of £6,700 into their DB scheme between 1995 and 2003.

Recently they launched an new system so that it is now possible to get up to date valuations online. This caused a bit of a stir to those in our company who used to be in the scheme as not only has the the anticipated pension annual value has increased significantly from £2,200 PA to £4,000 PA (current index linked value) since my last paper statement in 2004, but they are also offering a transfer out value of 38-40x the annual pension!

We took advice from the independent pensions adviser at our current company and the advice (in my personal case) still remained to leave it where it is.

Additionally, there is apparently a huge fact find required to transfer from a DB to a DC pension which can be both a time consuming and expensive process.

For this reason I have left mine alone on the basis that I can always transfer it out later but there is no way I could transfer it back again.

I also think it's also a useful balance to have a pension linked to inflation in parallel with a pension linked to equities to allow for a bit of hedging / diversity.