Cash valuation transfer out of final salary scheme

Mick70

Sorry, question no.2…
Having been made redundant, I have a final salary pension which will trigger very soon (age 50) that will generate £26k p.a (rising then with inflation each year) , tax free lump sum 80k, and spouse pension 15k. I had paid into this scheme from age of 17.

However I have now been offered a cash transfer valuation of £1.4m , which I assume I can then transfer into a low risk DC pot from age 50 and can then access/withdraw from age 55. I am not familiar with DC schemes as never had the need beforehand but am starting to read up on how they work and am now aware of the LTA tax charge also , although not fully sure how that works year on year (see my first post 0 ).
At new job which start soon (luckily found one) our DC scheme will be employee 8% employer 16% (employee can pay in more if want but employer rate is capped) - again unsure if this is good or not if already over the LTA anyway ?
I was always lead to believe that only a fool would transfer out of a final salary scheme , is this still the case though ?
Any advice much appreciated
Mick

Spreadsheetman

I think you need to pay for some advice on general strategy from an IFA - the LTA implications are large and you would need to use one anyway if you wanted to do that transfer from your DB.


(I personally think you would be nuts to transfer that DB pension, it looks to me like you have drawn the golden ticket with your current circumstances)

JoeCrystal

The DB pension scheme is treated a lot more generous under Lifetime Allowance. As far as I can see, it is treated as worth £600,000 which will enable you to build up extra £400,000 outside the DB pension scheme, Also, having a DB pension doesn't trigger MPAA either. If you were able to draw on £26,000 pension from 50, nothing is stopping you racking up employee contribution to take advantage of tax relief either.

Silvertabby

It's the old, old question - how long will you live?

If you think that you will meet your number 13 bus in the next year or so, then the transfer may be the way to go.

Live into your 90s, however, with your wife surviving you for a few more years, then that transfer figure could be poor value.

Albermarle

that will generate £26k p.a (rising then with inflation each year) , tax free lump sum 80k, and spouse pension 15k.

It is unusual to quote an actual figure for the spouse pension, as it is usually a proportion of your pension when you die . Unless you mean there will actually be immediately a spouse pension when you reach 50 in addition to your own pension?
This would be unusual but would explain the very large cash transfer value .

Silvertabby

Albermarle wrote: »

It is unusual to quote an actual figure for the spouse pension, as it is usually a proportion of your pension when you die . Unless you mean there will actually be immediately a spouse pension when you reach 50 in addition to your own pension?
This would be unusual but would explain the very large cash transfer value .

It's normal for a DB pension to quote the spouse's pension entitlement (which also increases each year in line with inflation). It would only be paid in the event of the pensioners death.

Albermarle

It's normal for a DB pension to quote the spouse's pension entitlement (which also increases each year in line with inflation). It would only be paid in the event of the pensioners death.

If that is the case ( and I accept it is normal now I have checked my own paperwork ) the CETV offered to the OP is incredibly high .

Dox

Albermarle wrote: »

If that is the case ( and I accept it is normal now I have checked my own paperwork ) the CETV offered to the OP is incredibly high .

If it's a protected pension age of 50 (which seems to be the case), that could go a long way towards explaining the TV quoted.

Mick70

yes its protected final salary pension of age 50

spouse pension entitlement (inc with inflation also) is only triggered on pension holders death

thanks for replies so far guys

Triumph13

You may do better with the transfer out, you may not. You will almost certainly sleep better if you don't transfer
Personally I would be keeping the DB and either deferring it for a higher income later (if that option is available and attractive) or using the income from it to let you contribute all income otherwise taxed at 40% to your DC scheme until you are ready to retire. It's hard to put a price on the piece of mind that comes with guaranteed income.
Things that might push you in the other direction are if you and your wife have reduced life expectancies and/or you have a big desire to pass on a large inheritance.

Aiki

Golden ticket indeed. I would be taking the DB pension now and never working again with that much inflation protected money. Hassle free route. However if you like investing and making money a transfer out might be fun for you. I think you will need a formal review with an IFA with the report submitted back to your former employer if you want to transfer. The transfer value does seem incredibly high though so would be fun to play with this much money.