Enhanced transfer value

PensionQuery

I'm trying to work out what I should do about an enhanced transfer value offer I have had from a pension scheme I belong to.

I left employment years ago, and I'm a deferred pensioner due to reach pension age in December 2017. The pension I am entitled to is £6,363 pa, with a 50% widow's pension. Pension increases are RPI, with a limit of 5% each year.

There is an option to take a lump sum, but I do not want to take it. One reason is that the commutation factor is quite low at 21.5. The other reason is that I have non-pension assets that I invest. I am a basic rate taxpayer. I am a non-smoker and reasonably healthy and active. My wife the same.

The standard transfer value is £191,987, but this is being enhanced to £201,586. The scheme is reasonably solvent, and the employer is a robust company.

Based on the enhanced transfer value, I could buy an annuity of £5236 pa, ie a reduction of £1100 pa compared to the scheme pension, albeit with the advantage of full RPI linking, whereas the scheme's increase are RPI limited to 5% pa.

What advice do people have for me, please?

HappyHarry

With that size of CETV, you will need to take independent advice to transfer.

My suggestion would be that you find an IFA qualified to do such transfers, discuss your situation with them, and follow their advice, which may be to transfer, or may be to leave the pension alone.

This way, you will get personal advice from a professional, who will have explored your detailed circumstances.

xylophone

You'll need the advice of a Pension Transfer Specialist.

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

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

sandsy

What is normal retirement age?

On the face of the basic details given, I’d stick with the DB scheme. You haven’t provided any compelling reasons for transferring and the value doesn’t seem outstanding, even with an enhancement. These things normally benefit the scheme, rather than the individual.

bigadaj

sandsy wrote: »

What is normal retirement age?

On the face of the basic details given, I’d stick with the DB scheme. You haven’t provided any compelling reasons for transferring and the value doesn’t seem outstanding, even with an enhancement. These things normally benefit the scheme, rather than the individual.

To be fair the value and disconnect with most pension transfers is to do with risk transfer.

If someone is happy to accept risk and understands the issues then the transfer values can represent fantastic value.

If someone wants an annuity then the open market options are likely to be worse than the pension offered so a transfer wouldn't be wise.

LHW99

I would have thought that a reduction of over £1000pa in income by taking the annuity would take a very high RPI to be better than the DB over a reasonable timescale.

kidmugsy

LHW99 wrote: »

I would have thought that a reduction of over £1000pa in income by taking the annuity would take a very high RPI to be better than the DB over a reasonable timescale.

It would need 1970s-like inflation. Do you think a Corbyn government could rise to that challenge?

DairyQueen

Independent advice is mandatory in order to transfer a DB pension of that value, and for most people the advice received will be: 'don't do it'. The guarantees on the DB are such that they usually far outweigh the transfer of risk (to you) that accompanies the flexibility offered by drawdown. See previous comments about transferring out and then buying an annuity.

Having said that, I thought it may help if I provided an example of the exceptional circumstances (my own) under which an IFA may recommend a transfer.

I am married but OH has ample pension provision of his own. The spouse's pension offered by my DB would have constituted a small part of his income on my death. My life expectancy is impaired which reduces the likely period over which the full DB would have been paid before the amount reduced to 50% (spouse's pension). It also increases the annuity amount I will receive if we decide to pursue that option at some point in the future (if/when annuity rates increase, if/when either of us are less able to manage our finances, if our circumstances are ever such that we need more guaranteed income).

Our essential retirement expenses are covered by other guaranteed income (his DB and our nSPs). My DB would have provided only 15% of our guaranteed income, and an even smaller percentage of our overall spending. We have other assets: DCs/SIPPS/ISAs/cash that will more than cover our discretionary spending, and any reduction in guaranteed income, when the first of us dies.

We have no compelling reason to ringfence any assets for inheritance but a transfer-out increases the chances that something will be left for our heirs when we die. When I die (likely before OH) the remaining balance of the transferred-out amount will be of more benefit to OH than my DB spouse's pension. If he dies first the spouse's pension from his DB scheme, plus nSP, plus other assets, will more than cover my needs.

The guaranteed income from the DB (plus nSP) would have been sufficient to raise my income into taxable territory. I do not currently have sufficient income to pay tax. I am now 58 and plan to drawdown up-to my tax-free allowance each year from the recipient SIPP and put the money into an S&S ISA. This will allow me flexible, tax-free access to more of the funds when my income increases at age 66. I have no need to drawdown from this SIPP for income before/after SPA so will withdraw a reduced amount (only up-to my tax-free allowance each year) after I reach SPA.

Our other guaranteed retirement income is such that we feel comfortable assuming the risks associated with the transfer. For us, the benefits - tax and flexibility of access - outweigh that risk.

If my DB had formed part of essential income we would not have considered transferring regardless of any other factor.

I should add that the DB was underwritten by a company that is not currently considered to be at risk of defaulting/going bust. There was very little chance that the DB would have been compromised if I had stayed with the scheme.

stevepb101

PensionQuery wrote: »

I'm trying to work out what I should do about an enhanced transfer value offer I have had from a pension scheme I belong to.

I left employment years ago, and I'm a deferred pensioner due to reach pension age in December 2017. The pension I am entitled to is £6,363 pa, with a 50% widow's pension. Pension increases are RPI, with a limit of 5% each year.

There is an option to take a lump sum, but I do not want to take it. One reason is that the commutation factor is quite low at 21.5. The other reason is that I have non-pension assets that I invest. I am a basic rate taxpayer. I am a non-smoker and reasonably healthy and active. My wife the same.


The standard transfer value is £191,987, but this is being enhanced to £201,586. The scheme is reasonably solvent, and the employer is a robust company.

Based on the enhanced transfer value, I could buy an annuity of £5236 pa, ie a reduction of £1100 pa compared to the scheme pension, albeit with the advantage of full RPI linking, whereas the scheme's increase are RPI limited to 5% pa.

What advice do people have for me, please?

If you take a pension of £6363 per year it would take you 30 years to get the lump sum amount of £191,987 not allowing for any growth in that time.You could transfer the lump sum into a med to low risk fund and make around 6% a year plus,around £11,000 pa which is nearly double the £6363 pa.
Also your spouse would only receive around £3,200 pa on your death but with the lump sum would receive the full amount tax free.

sandsy

stevepb101 wrote: »

If you take a pension of £6363 per year it would take you 30 years to get the lump sum amount of £191,987 not allowing for any growth in that time.You could transfer the lump sum into a med to low risk fund and make around 6% a year plus,around £11,000 pa which is nearly double the £6363 pa.
Also your spouse would only receive around £3,200 pa on your death but with the lump sum would receive the full amount tax free.

And you’ve conveniently forgotten that the pension has valuable index-linking attached which means it won’t take anything like 30 years.

And exactly how is the poster going to obtain a return of 6%pa after charges year on year using low/medium risk assets? Sounds like pie in the sky to me.

bigadaj

stevepb101 wrote: »

If you take a pension of £6363 per year it would take you 30 years to get the lump sum amount of £191,987 not allowing for any growth in that time.You could transfer the lump sum into a med to low risk fund and make around 6% a year plus,around £11,000 pa which is nearly double the £6363 pa.
Also your spouse would only receive around £3,200 pa on your death but with the lump sum would receive the full amount tax free.

Really poor comments.

Drawdown opinions vary but some consensus in the uk seems to be gathering around a 3.5% figure being sustainable, but this is using a range of investments probably above the medium to low risk suggested above.

Drawdown could be undertaken at a higher rate but would impact capital and run the risk of the money running out prior to death.

The advantage would be that it's probable that a lump sum would still be available if the drawdown rate wasn't excessive.