Small pension - is it worth me transferring out?

Phaser

Hi - my head is scrambled with so much info and possible options so I’d be really grateful if anyone could give any input.
I previously had a job whilst raising the family with a contribution scheme which has resulted in a pot of £150,000.
I’m almost 55 and am now self employed. I’ve not paid into further pensions as I ploughed money back into the business and i intend to continue to work. I love my work and hopefully will always work all be it part time.
Within the present scheme, if I started to draw on it at 55 I would get just short of 4.5k a year if I don’t take a lump sum or 2.9k a year if I took 20k tax free.
Neither of which is life changing but it would allow me to change my tack slightly and I want to get the best out of it. I do know that with this particular scheme massive penalties are incurred for taking early. Unfortunately, I’ve never been allowed to add to it.
I think I may be able to make better use of the money if I start to take it early than wait until I’m 67 (shift some working hours around and improve quality of life) as I really don’t think it will grow enough to sustain a guinea pig even! We’ve also had sadness with people we know passing and it sort of focuses the mind. Particularly as I said it’s not a life sustaining amount.
We own our house, live simply, have no financial dependents and have already decided we would down size later.
So.......
Do I buy an annuity or leave it be? Some online calculators show better returns with the annuity route - (some a 36k lump sum and just over 4K annually but maybe that’s too good to be true!)
And as well as that decision is it too late for me to add to something for 12 years to come or do I save some in isa’s?
I’m risk adverse so a draw down product worries me & taking the whole of it (after seeing an advisor) would incurr massive tax costs.
Any advice or input would be appreciated - thank you.

xylophone

You mention a "pot" but is this in fact a deferred defined benefit pension with a CETV of £150,000?

Phaser

Hi, thanks very much for the reply. It’s the transfer out value of a workplace contribution scheme.

xylophone

It’s the transfer out value of a workplace contribution scheme.

DB occupational pensions can be contributory.

https://www.moneyadviceservice.org.uk/en/articles/defined-benefit-schemes

Is this a deferred DB Scheme?

If not a DB Scheme are there any "safeguarded benefits" (Guaranteed Annuity/ DB underpin etc?) valued in excess of £30,000?

Phaser

Hi Xlophone - yes it is a DB scheme but has not been added to (it wasn’t permitted) since I left and went self employed years ago.
Although I’m risk adverse I’m now thinking of looking into draw downs as I’ve read so much stuff regarding annuities. As I said in my thread head - scrambled for solid answers.
Thanks in advance

xylophone

This is a deferred Defined Benefit Pension.

Assuming that it isn't an unfunded Public Service Scheme (transfers out to non DB Schemes not permitted), then in order to transfer out to a DC scheme offering drawdown from age 55, you would need to obtain (and pay for) the advice of a Pension Transfer Specialist.

https://www.royallondon.com/Global/documents/GoodWithYourMoney/COMPANY-PENSIONS-FIVE-REASONS-TO-TRANSFER-OUT-AND-FIVE-REASONS-NOT-TO.pdf

This would not be cheap and the PTS might not be willing to give a positive recommendation to transfer, in which case your choice of receiving scheme could well be limited.

If you succeed in transferring out, you would be able to access the 25% PCLS - any additional withdrawal would be taxable as income at the rate appropriate to your circumstances.

Taking the additional withdrawals would make you subject to the MPAA in respect of future contributions to a DC pension. See post 9

https://forums.moneysavingexpert.com/discussion/comment/75062464#Comment_75062464

From what you have said, it might be possible to access your scheme pension from age 55 but with a stiff actuarial reduction.

It seems that there will be the opportunity to take a tax free pension commencement lump sum but the monthly pension would then be taxable according to your circumstances.

Phaser

Hi Xylophone, thank you. Yes I understand that I would need to get the advice and that it’s not cheap - but as the current scheme can’t give me a crystal ball prediction of if it would be worth staying put - and the rethink of life & outlook I’d decided to take it at 55 anyway. They have no restrictions on what products I can transfer out to. I just wondered if the money would work for me better in an annuity or drawdown (giving flexibility)? Then the more I looked at it - lots have said no don’t buy annuities - and I haven’t spoken to any with experience where drawdown performances are concerned.
The penalties built in means for me taking it early from where it is now might mean it would be better off elsewhere? There is no flexibility as it stands. I can take a lump sum, but as soon as I do, the rest is triggered. I can’t stop it or add to it. The transfer out value is something that has made me look at this.
I’m really grateful for your input.

dunstonh

Although I’m risk adverse I’m now thinking of looking into draw downs as I’ve read so much stuff regarding annuities.

The defined benefit pension is low risk. Drawdown is higher risk. Drawdown would see your income subject to investment returns and may be required to be lowered at times. You could erode your pension before you die. The DB pension will pay an annually increasing pension for life.

Annuity wouldnt come into this in most cases.

lots have said no don’t buy annuities

I have just arranged an annuity this afternoon. They still have their place (in this case it was part annuity, part drawdown).

ut as the current scheme can’t give me a crystal ball prediction of if it would be worth staying put - and the rethink of life & outlook I’d decided to take it at 55 anyway.

That could be very costly and a bad move.

The penalties built in means for me taking it early from where it is now might mean it would be better off elsewhere?

Those penalties are not avoided as they would be reflected in the transfer value.

kidmugsy

Phaser wrote: »

I’m almost 55 and am now self employed. I’ve not paid into further pensions ....
Within the present scheme, if I started to draw on it at 55 I would get just short of 4.5k a year if I don’t take a lump sum or 2.9k a year if I took 20k tax free.

We can start there: suppose you did take it early. Forgoing £1.6k p.a. from age 55 buys you only £20k. What lousy value! Consider it the other way round: suppose some reputable insurance company said to you "You give me £20k and I'll give you an index-linked £1.6k p.a. for the rest of your life, and then half that to your widow for the rest of hers"? That would be an 8% p.a. index-linked annuity. Fantastic value!! So, no, don't take the lump sum. And while you are at it, note how expensive commercial annuities are - that's one reason that even intelligent, prudent people who see the point of annuities tend to avoid them.

Phaser wrote: »

Neither of which is life changing but it would allow me to change my tack slightly and I want to get the best out of it.

We own our house, live simply, have no financial dependants and have already decided we would down size later. .......

I’m risk averse so a draw down product worries me & taking the whole of it (after seeing an advisor) would incur massive tax costs.

Unless they think the finances of their DB schemes are shonky, the risk-averse should incline to keep their DB pensions. So, for you, it's a case of weighing up taking the DB pension early or waiting until your normal retirement age for the scheme - which is what?

kidmugsy

Another way to look at it is to say that your pension scheme is willing to give a 55 year-old £150k to remove a liability of £4.5k p.a. index-linked off their books. Two questions:

(i) How good is their index-linking deal? Is it CPI, uncapped, for example?

(ii) For the risk-averse the big attraction, it seems to me, would be the 25% TFLS. Do you need that? Are you prepared to pay the emotional price of managing the investment of the other 75%, with all the risk on your own shoulders?

xylophone

They have no restrictions on what products I can transfer out to.

The point is that the scheme to which you would like to transfer might not accept a transfer unless with a positive recommendation from the PTS.

I’m risk adverse so a draw down product worries me & taking the whole of it (after seeing an advisor) would incurr massive tax costs.

If you are risk averse, why give up the security of your (presumably index linked) DB pension with (presumably) widow's pension?

You say that you are happy in self employment (and presumably earn enough to keep the wolf from the door) so why consider taking a pension at this time?

What is the reduction for taking your pension early?


If you did transfer out, why would you want to take it all at once? You would draw down gradually as best suited your circumstances.

I’m almost 55 and am now self employed. I’ve not paid into further pensions

You could do so.

https://www.which.co.uk/money/pensions-and-retirement/personal-pensions/contributing-to-a-private-pension-explained/tax-relief-on-pension-contributions-explained-a27f53z7qg3f