Final Salary Scheme - what to do with friends advice.

DairyQueen

Terron wrote: »

Of course many DB schemes are not indexed linked or have a cap to the increases.

Good point.

I forgot to mention that a significant percentage of my FS income would not have been index-linked.

C_Mababejive

But if the OP retired at 60 and worked on a retirement lifespan of 30 years, they could draw £33kpa even without investing the money. This doesnt take into account the state pension which will also kick in.

Obviously i havent done the maths re year on year rpi increases on a DB pension but then is that even guaranteed anyway? Some schemes have already tried to challenge this and have it reduced to CPI. If the money is in YOUR SIPP then you have true title to it. Whilst its in a company pension scheme, they just meter out an amount less than the 33k pa you could have. How long would it take before the DB pension equalled 33k pa based on rpi increases?

Also if just left in cash and drawn down, you wouldnt have to pay a typical 1% IFA management fee pa.

happyandcontented

C_Mababejive wrote: »

But if the OP retired at 60 and worked on a retirement lifespan of 30 years, they could draw £33kpa even without investing the money. This doesnt take into account the state pension which will also kick in.

Obviously i havent done the maths re year on year rpi increases on a DB pension but then is that even guaranteed anyway? Some schemes have already tried to challenge this and have it reduced to CPI. If the money is in YOUR SIPP then you have true title to it. Whilst its in a company pension scheme, they just meter out an amount less than the 33k pa you could have. How long would it take before the DB pension equalled 33k pa based on rpi increases?

Also if just left in cash and drawn down, you wouldnt have to pay a typical 1% IFA management fee pa.

This what has us wondering if we should take this route. Decisions, decisions!!

MarkCarnage

I may have missed it, but don't see anywhere the amount of your pension stated. You will also be able to take tax free cash of 25% from it should you choose.

Nor do I see it stated how it will increase if future, but I imagine it will be inflation linked but capped, either to CPI or RPI.

The 'advice' that you can probably take £33k for 30 years even if you hold it in cash in a SIPP completely ignores two things:

1) The not insignificant possibility that you live a bit beyond the 30 year horizon and you need money to pay for quality care
2) The effects of inflation. Even at 2.5% (BoE central assumption, and it might be higher), the real value of £33k will more than halve over that timeframe. Holding your pot in cash is an example of reckless conservatism.

Using the rule of 4% might work, but I would probably aim for 2.5-3%, which is closer to the natural yield of an equity income/corporate bond portfolio, and gives some prospect of growth of income as well as maintenance of capital for long enough to matter.

That would probably still be ahead of the FS pension you will get by staying put, but you will give up the very important guaranteed annuity characteristics. I was happy to do that for a couple of smallish secondary DB pension funds, where the transfer values were nearer 35x but no way for my main one. I used to be responsible for investment management of a very large UK DB pension fund.

My tuppence worth would be to stay put, take some tax free cash, and enjoy it while you can.

You would also have a hefty adviser fee to pay for transfer advice, and very possibly indeed probably advice not to transfer.....which would probably mean you could only do it with a very limited number of providers if at all.

As an earlier poster has said, it's suitable for a small minority of people who can tick most of a range of boxes. I'm not sure you do.

Your friend sounds like she wants you to do the same as her to 'validate' her own decision...sounds a bit insecure to me, which is exactly what you might be if you follow her 'advice'.

[Deleted User]

Leave it where it is. Generally, very few people should give up the guarantee of DB pensions. Exception is someone meeting all or most of the following requirements:

1. Your DB pension is outside of the state sector and the company is at risk
2. You have lots of years left before going into the withdrawal mode
3. You understand risk, have experience in investing your money
4 You experienced bear markets and had the discipline to keep investing

It’s obvious you don’t meet these conditions

[Deleted User]

C_Mababejive wrote: »

But if the OP retired at 60 and worked on a retirement lifespan of 30 years, they could draw £33kpa even without investing the money. This doesnt take into account the state pension which will also kick in.

Obviously i havent done the maths re year on year rpi increases on a DB pension but then is that even guaranteed anyway? Some schemes have already tried to challenge this and have it reduced to CPI. If the money is in YOUR SIPP then you have true title to it. Whilst its in a company pension scheme, they just meter out an amount less than the 33k pa you could have. How long would it take before the DB pension equalled 33k pa based on rpi increases?

Also if just left in cash and drawn down, you wouldnt have to pay a typical 1% IFA management fee pa.

And what if he lives till he is 95? Dying poor isn’t all it’s cracked up to be. Also, inflation could be devastating to the real value of 33k.

C_Mababejive

Well i just threw my cash drawdown only scenario in the mix because i know thats what people might think when faced with the same decision. There is quoted inflation and then there is personal inflation of course. We also have to balance that against investment/advisory costs. True though even if you only managed 3% pa on £1m you'd still trouser £30k pa without touching the capital. I'm faced with a similar dilemma so interested in the discussion and of course i'm an amatuer compared to some of the expertise which is generously shared on here and for which I and im sure many others are very grateful

80934

DairyQueen wrote: »

I am one of the few who were recommended to transfer out of my DB scheme after taking independent advice from a pensions specialist. Note that such advice is expensive and increasingly difficult to find.

My circumstances are unusual and the majority will not meet the criteria for such a recommendation:

- I have reduced life expectancy
- I am married but OH is well-pensioned and does not require my widower's benefits
- We have sufficient other guaranteed, pension income and assets to meet our needs
- I have no children but any unused funds would be of benefit to my nephews
- I am not risk averse. If a drop of 20%+ drop in value (and a 5+year bear market) scares the hell out of you then don't even consider transferring.
- I already managed a reasonable-sized pension pot. No pretensions to expertise but sufficiently comfortable with self-management not to suffer the heebie jeebies at the thought of an extended bear market.
- Drawdown will be more flexible and tax efficient for our circumstances
- I was offered an enhanced transfer value (x 32).

I stress that transferring is the wrong decision for most people and the only way to determine whether you are one of the exceptions is to invest in independent professional advice. Forget the well-meaning advice of your mates. I wonder just how enthusiastic your friend will be when the markets next take a substantial drop?

Can anyone please explain to me which figure is used in such a calculation.

- I was offered an enhanced transfer value (x 32).

Is it the full projected annual pension payable at normal retirement age without any lump sum being taken?

MallyGirl

yes that is the one.

Freeman24reverseFpenny

BBH123 wrote: »

I'm sorry if this is repetitive but I had a friend nagging me at the weekend about the above. She has recently transferred a £200k pension pot to Scottish Widows to look after on the advice of a financial advisor her brother knows. I am not sure if it was a F.S scheme or not.


The reason she is nagging me is that she thinks I can do better and have more flexibility if I do the same.


Her main thinking is that as I have no dependants transferring it will allow me to draw down with more freedom than having a set amount per annum. Also if I should pass away a few years after retirement the money is lost whereas an investment can be left in my estate to pass on to whoever I like.


I can see the logic but didn't want to consider anything until my pension age of 58 in 3 yrs time when I will know my figures.


FWIW at the moment the pension is forecasting to be a pot circa £1million so I would presumably have 25% tax free lump sum and the rest to either invest or leave where it is to provide an annual sum. This will have to last me until I die and although I have other assests / income I want it to be safe which is one of the attractions of leaving it be.


What would most people without dependants do and what should I consider before deciding please.

My advice - don't go anywhere near it !!!

Thank you friend for her advice, but say you've decided to keep things as they are.