Guidance - pension options

MarkB

Hi Guys,

I have a Final Salary pension from Nortel Networks (about 9 years paid in) that has been going through the global wrangling over the split of funds that has (finally after nearly 9 years!!) been settled and therefore the funds are close to coming out of PPF.

I am 42 years old, not married and have other pensions with IBM (about 8 years) and with my current employer (just over a years worth). I'd ideally like to retire at ~55.

I now have to choose from one of the following 3 options (1 is the default if no action is taken):

1) Deferred Pension with annual increases in payment
- estimated £4,532 a year

2) Deferred Pension with NO increases in payment
- estimated £7,857 a year

3) Transfer Value to another fund
- estimated £275,513

I'll seek independent advice if needed (it's actually mandatory if I was to remove the £275k), but wanted to get some guidance on these options from your knowledgeable selves prior to taking the next steps....

Brynsam

The problem with 'guidance' is that there is no one-size-fits-all 'this is a good idea'.

The options are pretty clear: which one fits most closely with your preferences and needs?

As you say, financial advice is a legal requirement if you are considering transferring out, so if you aren't sure what you want/need, that would be the best way to get solid advice and information tailored to your particular situation.

If you're hoping to retire at 55 or shortly thereafter, you need to look at ensuring you have a decent income in retirement (not necessarily all from pensions) - and from what you've said, there's a bit of saving to be done yet. Good luck!

MarkB

Thanks for the response. I appreciate that there is no one-size-fits-all answer, but I was hoping for some positives/negatives of the various options based on the info I provided in my original post.

MallyGirl

more info would give people something to comment on.

e.g. if you have reduced life expectancy (or history of in family) you might prefer option 2.

Do 1 and 2 come with any guarantees/extra benefits.
Do you have the interest/skill to manage a £275k investment portfolio

How much do you need in retirement?
How much is covered by the other pensions?
What are the NRAs of the other pensions? Can you take them early, with reduction?
Do you qualify for full state pension?

that sort of thing

FatherAbraham

MarkB wrote: »

Hi Guys,

I have a Final Salary pension from Nortel Networks (about 9 years paid in) that has been going through the global wrangling over the split of funds that has (finally after nearly 9 years!!) been settled and therefore the funds are close to coming out of PPF.

I am 42 years old, not married and have other pensions with IBM (about 8 years) and with my current employer (just over a years worth). I'd ideally like to retire at ~55.

I now have to choose from one of the following 3 options (1 is the default if no action is taken):

1) Deferred Pension with annual increases in payment
- estimated £4,532 a year

2) Deferred Pension with NO increases in payment
- estimated £7,857 a year

3) Transfer Value to another fund
- estimated £275,513

I'll seek independent advice if needed (it's actually mandatory if I was to remove the £275k), but wanted to get some guidance on these options from your knowledgeable selves prior to taking the next steps....

Well, are your other pension arrangements defined-benefit or defined-contribution?

You plan to retire at 55, which is only 13 years away. How much are you putting away for retirement right now (or more appropriately, what projected benefits are you accumulating currently)?

In an ideal situation, you would take an inflation-linked pension, so that you don't get poorer and poorer as time goes on.

The pension rates you're quoted (e.g. £4,532 annually) -- are they:

• available at 55?
• payable without a reduction at 55?

Your state pension is available when? When you're 68? So you need to fund an £8,250 annual shortfall for thirteen years between being 55 and 68?

What's your combined personal pension-income-projection, adding together all your pension arrangements?

Retiring at 55 is practically impossible for most average people, but it might be possible for you if there's some special circumstance which you haven't made clear.

Warmest regards,
FA

PS £275,000 is peanuts, when it comes to buying safe, inflation-proofed retirement income.

ProDave

Those are some strange figures

Transfer value £275,513, max pension (with no increase) £7,857

So if you took that pension at age 55 (if you can) it would take you 35 years (until you are 90) just to get the fund value out. If that figure is based on drawing it at some older age, it is even worse "value"

Faced with that, I personally would transfer it to a drawdown SIPP. Even if you just leave it as cash in the SIPP you would have to live to beyond 90 to be better off with the pension they have offered. But if you invest it in the SIPP it would be near certain to do better.

Plus you get the option to draw what you want, when you want. e.g what a lot of people forget is the state pension, so you might want to draw more from 55 until SP age, then reduce the rate you draw on it.

It's nice having the flexibility to adjust the rate you draw, which almost certainly your other pensions won't have.

MallyGirl

I suspect options 1 and 2 are not the figures for taking at 55

MarkB

MallyGirl wrote: »

I suspect options 1 and 2 are not the figures for taking at 55

Figures are based on retirement at 60.

ProDave

MarkB wrote: »

Figures are based on retirement at 60.

So revise my earlier calculation, you would have to live to 95 just to get the pot value out in pension.

So it makes even more sense to transfer it to a SIPP to do with as suits you.

AlanP_2

I have an old DB scheme. Will pay ~8800 at Age 60 with increases only applied to the pre-88 GMP element so say 1/4 to 1/3 of the pension at best.

The CETV my scheme is offering is ~170k so yours does seem very generous in comparison. Whether it is the right thing for you to do or not is a different issue.

Linton

ProDave wrote: »

So revise my earlier calculation, you would have to live to 95 just to get the pot value out in pension.

So it makes even more sense to transfer it to a SIPP to do with as suits you.

Wont the pension be subject to annual revaluation which could reduce the payback time significantly?