Financial advisor for LGPS transfer out £31000

AlanP_2

OK, so you have about 7 years until you want to retire and start drawing on the pension.

LGPS pays £2500, and will increase by CPI between now and when you take it.

If CPI were to be 2.5% a year for 7 years that would take you to about £3k a year nominal value.

LGPS actuarial reduction for a male going years early is 40.6% so annual pension would be reduced to about £1800.

If you transfer your £31k out you need to be convinced that it will provide you with a matching amount, that increases by CPI each year, every year until you die.

Working on say 5% growth over next 7 years your £31k could grow to about £43k, or, if markets fall it could reduce to £20-25k. As you can't risk that level of fall and need a fairly "stable" pot until you start accessing it you are more likely to invest in lower return possibility options so not getting that potential 5% but limiting the downside.

Say you grew it to £40k by Age 55 you would then need to be taking 4.5% to get your £1800 a year and hoping that investment returns keep the pot topped up, or at least not dropping by much each year as in Year 2 you would need to take £1800+CPI to match the LGPS.

It isn't impossible for this to work but you would be exposed to a great deal of risk that you can avoid by staying in LGPS.

My comments, and those of the rest of us, are based on knowing little about your overall situation. What other pension provision you have, what savings, whether spousal pension after you pass away is important, whether you need the £31k just for the 55-65 period or until you are 90+ so your specifics could cast a different light on things.

hyubh

Silvertabby wrote: »

hyubh - are you aware of the new pre 1998 leavers regs?

... in which things get more complicated indeed! I made an educated guess that the original poster was a post-1998 leaver to keep things simple ;-)

Silvertabby

hyubh wrote: »

... in which things get more complicated indeed! I made an educated guess that the original poster was a post-1998 leaver to keep things simple ;-)

Exactly. I wouldn't like to be the one to have to explain to a pre 1998 deferred member that they now can't have their pension at 60 because their NRA is 60+.

Or that they can't have their commuted pension at 55 because they have failed the GMP test...!

Johnnyboy11

hyubh wrote: »

If drawing benefits before 65 is your main reason to transfer out, then that isn't a good reason because you could draw the pension early anyway, albeit with a actuarial reduction (which is intended to be cost-neutral rather than penal). So long as you left the scheme on 1 April 1998 or later, then the minimum age is now 55 (it's just been [retrospectively] changed for pre-April 2014 leavers - previously was 60).

Interesting, did the 'Rule of 85 Protection' also get brought forward to age 55?

hyubh

Johnnyboy11 wrote: »

Interesting, did the 'Rule of 85 Protection' also get brought forward to age 55?

Same situation as for post-March 2014 leavers - simplifying slightly, it's an employer discretion to do that, with a 'strain charge' normally due from the employer if they agree (i.e. the employer effectively buys out the actuarial reduction for the member).

hogpog12

Thanks for the detailed answer. I've moved several other defined contribution pensions into one "pot" and the LGPS was the last pension to be transferred. I'm looking to drawdown to help towards buying a property in Spain as we're moving there in the next 2 years. I joined and left the LGPS after 1998, think I joined in 2007 and left college employment in 2013.

xylophone

It seems foolish to give up your index linked deferred pension for £31,000, especially when you consider that you'll be paying a large fee to a pension transfer specialist.

Could you not increase contributions to your DC pensions or save hard for a few years to fund the house purchase?

Have you and your wife checked your state pension position?

https://www.gov.uk/check-state-pension

hogpog12

Me and my hubby (we're two fabulous guys btw) are both on track for max state pension. There'll be approx £120000 net from a house sale to fund the move and setting up of business in Spain in approx 2 years time, and in approx 5 years we would look to buy a residential property. We want the flexibility of drawdown but after comparing the pension vs transfer value of the defined benefit LGPS to the defined contribution schemes we've recently consolidated it seems better to keep the LGPS where it is. For now...

hogpog12

Plus I'm going to add an amount £100-£150 into the new defined contribution pot which has my recently consolidated previous employer defined contribution schemes. Interestingly, my BT defined benefit scheme gave me a much larger transfer value Vs annual pension than the LGPS are offering.

Silvertabby

!!!8220; Interesting, did the 'Rule of 85 Protection' also get brought forward to age 55?
Originally posted by Johnnyboy11

hyubh wrote: »

Same situation as for post-March 2014 leavers - simplifying slightly, it's an employer discretion to do that, with a 'strain charge' normally due from the employer if they agree (i.e. the employer effectively buys out the actuarial reduction for the member).

Let's just say that, in my experience, employers only throw more money into the pot if they really have to (ie, redundancy). More likely that anyone who takes their benefits from 55 will have at least 5 years of early payment reductions.