Enhanced transfer value

pip895

In the ops position it's the 5% cap that might persuade me - people seem to have discounted the possibility of high inflation returning but I see it as a distinct possibility. Not sure I would go for the annuity though at least not at this stage.

DairyQueen

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.

Making a decision based on this kind of flawed assumption/information is exactly why the government requires people to take independent advice.

The DB income is likely to carry an element of inflation-proofing. It will increase year-on-year, and over 30 years the total pay-out will be considerably more than 30x starting amount. The return on the lump sum will vary year-on-year and drawing down more than the portfolio yields each year carries particular risks..

Please advise your strategy for guaranteeing an annual return of 6% (after fees and charges) - especially on a portfolio invested at low/medium risk. The annual net return on such a portfolio is much more likely to be between 3% and 4% and that's the average annual return over decades. Some years the return is very likely to be negative and any withdrawals during such years have particularly negative impacts on the portfolio.

The risks most likely to threaten income in retirement are inflation, longevity and poor investment performance. All are borne entirely by the sponsoring organisation within a DB scheme, but entirely by the individual after a DB transfer.

I am not an expert or professional investor and my lack of expertise was a factor I considered when I faced the same situation as the OP.

If the DB had been essential to our guaranteed, inflation-linked income we would not have transferred regardless of any other factor.

If we had insufficient other assets to cushion ourselves against the risks we would not have transferred regardless of any other factor.

I provided the detail of my situation in order to illustrate the type of exceptional circumstances under which a transfer may be advised. The key word in that sentence is exceptional.

PensionQuery

This is a very interesting discussion, thanks. I'd expect a bit under 3% income yield from a UK index tracker fund, after charges. So, I might just about manage to get close to the pension without depleting the capital. But obviously that's a risk.

stevepb101

There is an initial charge of around 3% of the value when transferring then there are no other charges after that.
The fund with the Pru is 6% pa,if this makes say 8% in the 1st year it still pays 6% and saves the other 2% etc etc so if you have a bad year and it's say 2% it still pays 6% for that year also.
It is medium to low risk and has been averaging more than 6% over the past 5 years.

Malthusian

Ah, good old With Profits. Why on earth would you transfer out of a scheme offering real guarantees, and then invest it in an arrangement that offers pretend guarantees?

If you are not comfortable with investment risk and want it to be hidden from you, hence you find With Profits arrangements like PruFund attractive, you should stay in the DB scheme.

stevepb101 wrote: »

There is an initial charge of around 3% of the value when transferring then there are no other charges after that.

No, there are annual charges, they just don't tell you what they are. They are taken off before they declare the 6% bonus rate.

Moreover, 3% initial? To be dumped in PruFund? Ouch. For 3% you should be getting proper independent whole of market advice with a portfolio of funds tailored to your risk profile and needs.

The fund with the Pru is 6% pa,if this makes say 8% in the 1st year it still pays 6% and saves the other 2% etc etc so if you have a bad year and it's say 2% it still pays 6% for that year also.

Not necessarily, it pays whatever Pru decides it pays. If it has a really bad year, and Pru decide that the years are going to be bad for the forseeable future, they may pay 0%.

It is medium to low risk and has been averaging more than 6% over the past 5 years.

In the event of a market crash Prudential will apply a Market Value Reduction so that investors cannot cash in and take out more than their fund is actually worth. This means that at the point it actually matters, the fund is subject to the same level of risk as any other multi-asset fund invested in a mix of equities and fixed interest. Medium risk, in other words.

Were you really advised to transfer out of a DB scheme and into PruFund? If so, I suggest you keep your paperwork somewhere you aren't going to lose it in a house move.

Thrugelmir

stevepb101 wrote: »

It is medium to low risk and has been averaging more than 6% over the past 5 years.

Hindsight was invented by humans as a means of justification. What does the next 5 years hold in store and why?