Transfer or Stick??

Lucys_Da

Hi I am looking some of your thoughts, I appreciate I should and would take professional advice on this matter but I have a few queries that I hope some of you wizened individuals can help me with to help get me started....

So I have a couple of different pensions from the two careers I have had to date and am trying to decide my best options in regards to my previous pension. I am currently 42 years of age.


I was originally employed by a large UK company and have a Final Salary pension from my time with them. I worked for them from 1998-2007. The current status of my pension with them is as follows:

- Current Transfer value £258k (has gone up approx. £60k in the past 3 years)

- Annual Pension at date of leaving scheme (I assume 2007) and according to the documentation this does not include any increases applied since - £7.8k

- Estimated annual pension on retirement (showing as 2041 but I 'd like to retire by 2034) £10k


I have another pension with my current employer is administered by Aviva and is a standard contributory type pension with a pension value of about £170k. The monthly contribution is approx. £0.7k in total (between me and the company I work for). This has been performing well and I have been getting about 15% per annum capital growth (excluding contribution increase).

I defo don't want to wait until I'm 65 to retire so ideally I'd like to do another 15 years or so and get out when I'm about 58.

So I guess the main questions really are as follows:

1. The transfer value of my previous pension looks pretty appealing to consider taking now and transferring in the hope of potential greater capital growth over the next 15 years or so.

2. Or given it is a final salary pension and is pretty gold plated should I just sit on it and leave it there?

3. Why has the transfer value grown so much in the past 3 years and is it likely to grow a lot more?

4. Not really understanding how pension transfers work is it likely (I appreciate I would need to ask) but can I potentially transfer this pension capital into my current Aviva pension scheme to increase the capital and thus improve the overall capital growth potential of the pension.

Thanks for reading and any views you have would be much appreciated!!

Marcon

Not sure I like being described as wizened: 'shrivelled or wrinkled with age'...!!

1. and 2. Depends what your attitude to risk is. If you want the prospect of better capital growth, you will need to take risks which involve potential loss of capital - and certainly a fairly bumpy ride as a result of market volatility.

3. The TV has 'grown' for two reasons: the state of the markets; and the fact that you are 3 years closer to retirement, which means the transfer value has less time to grow to meet the promised benefits. Transfer values are widely considered to have 'peaked' so you aren't likely to see the same sort of growth in the next 3 years (or longer).

4. Same answer as 1. and 2.

grey_gym_sock

what is your target income for when you're retired (in terms of current £s, so actual figure will be higher after inflation)?

how much state pension are you on target to get (probably from age 67)?

transferring out of DB pensions does look more attractive than it used to, for people who can live with greater investment risk. however, another possible method of handling a DB+DC combination of pensions is to leave the DB where it is until normal retirement date, but use the DC pension to bridge the gap and make early retirement possible.

e.g. suppose your target retirement income is £18.5k. and that you'll get the full "flat rate" pension of c. £8.5k (you may not - check this if you don't know).

then if you leave the DB pension until you're 65, when it pays £10k, that combined with state pension would cover you fully from age 67. so, to bridge the gap and retire at 57, you need £18.5k for the first 8 years (from ages 57-65), plus £8.5k for the following 2 years (from 65-67). that's a total of £165k.

which is almost identical to the current value of your DC pension. which you are also planning to pay more into over the next 15 years, and you'd expect some growth, too, in real terms (BTW, don't expect 15% a year growth to continue - markets happen to have been favourable in recent years, and it would be surprising if they continued doing so well).

so on those (probably complete wrong) assumptions, you could easily retire early without touching the DB pension early. it's worth considering this method, but starting with real figures, instead of the ones i assumed.