Can i cash in a pension early?

MarkCarnage

Ive worked out even with a 6% interest a year on my CETV value, id be in a better place, earlier for retirement

6% annualised rate of return is likely to be at the higher end of the range in future, given that cash return is zero, fixed interest lucky to be 1-2%. It would probably be very heavily in equities, and volatility is likely to be quite high. And this is before costs and charges. 

Your comment 'even with a 6% interest...' suggests you perhaps don't understand the likely risk/return trade off that this implies. Which in turn suggests leaving the DB pension where it is. 

MarkCarnage

I spoke to an IFA earlier this week who said long term average in their medium risk portfolio was 5-6% (minus the 0.75% annual fee), or between 13-14% in their high risk (they called it the 'adventurous' portfolio, minus the 0.75% annual fee).

Long term historic averages are fine as just that...history. Basic financial mathematics indicate that these cannot be sustained in future. 
We have been in a 40 year secular bull market in bonds (fixed interest) resulting in very low yields, and negative real rates of return unless there is deflation (there won't be). Equities have also benefited from very low discount rates and high government induced liquidity. To achieve even 5-6% requires them to continue performing above their long term average in relation to bonds. Possible but unlikely. 13-14% implied pretty serious risk taking even historically. Looking ahead, that's not realistic IMHO unless you are prepared to see significant losses if things don't work. 

NottinghamKnight

13-14% looks a bit unrealistic even for a higher risk fund as a long term average. Ftse world index for the last decade is certainly in double figures for annualised returns, but still a bit shy of the claimed amount and that is 100% equity, also depends on your view of long term.

jimi_man

jamesd said:

britishboy said:

Thanks everyone, and I can see it’s a resounding ‘no, don’t transfer it out’. 

It's more of a  resounding "it's not for me so it must not be for you either" than considering your own situation and wishes.

britishboy said:

I don't have any children and do not want to work to 65.  IF I wanted to transfer out (I’ve been offered £556k for it, at 42 years old I thought this a great offer),

It's a great offer alright. Even simple income drawdown rules imply that drawing 3% increasing with inflation a year is safe from age 55. With no growth other than inflation that implies £16.7k but growth in the next 13 years is likely, of course. A more flexible set of spending rules might start at 5%, £27.8k, but sometimes skip inflation increases and make extra cuts or increases. And that's assuming no more work additions from 42 to 55/58!

One thing you will need to plan for is an increase in the minimum pension access age from 55 now to say 60 for you. This means sufficient ISA investing to bridge the gap between desired retirement age and then.

It's highly likely that you'll really end up with 50-100% more income and the ability to shift some from older years when spending is normally lower.

Drawdown: safe withdrawal rates is an introduction to safe withdrawal rate theory that you should really understand.

I agree with you wholeheartedly that it's an individual decision, based upon the OPs situation. However I wouldn't necessarily say that it's a 'great offer alright'. It might be a great offer - purely in respect of the amount of money offered. Though as the OP has not given any detail about the pension that they've given up - such as age that the £11K becomes payable, CPI/RPI increases, spousal pension -  it's rather hard to say at this stage.

Whether it's a great offer overall, depends on a lot of things - all of the above, the state of the pension scheme, what other DB pensions they have and what proportion this DB represents of their overall DB pension provision, whether the OPs partner (if there is one) has any pensions of their own, what type etc, State pension amount (enough time to make it up to max anyway), attitude to risk, general health.  But there is virtually no detail given (understandably as this is an open forum) to assess this information.

The only thing that is known is that there are no children (which would tend to negate the transfer as there might not be a need for inheritance) and that colleagues have taken it (has no bearing either way) and that the OP is keen to take it (somewhat redundant as if they weren't, then this thread wouldn't exist). 

jamesd

britishboy said:

If you say by law I still can, even if advised against it I will persevere.

Yes, once you've taken advice you can, whatever the advice says.

There's reason to expect somewhat lower equity returns for the next decade, perhaps 2-3% plus inflation for UK markets instead of the historic bit over 5% plus inflation. Aside from a couple of blips we've been in a bull market since early 2009 and that's produced unusually good results.

Even though you can transfer now, your preserved pension will continue to increase with inflation and so will the transfer value normally, unless interest rates rise drop.

garmeg

jamesd said:

britishboy said:

If you say by law I still can, even if advised against it I will persevere.

Yes, once you've taken advice you can, whatever the advice says.

There's reason to expect somewhat lower equity returns for the next decade, perhaps 2-3% plus inflation for UK markets instead of the historic bit over 5% plus inflation. Aside from a couple of blips we've been in a bull market since early 2009 and that's produced unusually good results.

Even though you can transfer now, your preserved pension will continue to increase with inflation and so will the transfer value normally, unless interest rates drop.

I think you mean rise, not drop?

jamesd

Thanks, corrected.

AnotherJoe

britishboy said:

jamesd said:

vacheron said:

I have already been told that the likelyhood of anyone recommending the transfer to someone with my personal circumstances is almost zero. ... So it is not so much a question of "Should I?", but "Can I?", and in many cases the answer will be a resounding "No!"  

The law says that the answer to "can I?" after advice is always yes, whatever the advice says. The legal requirement is that the scheme being left sees proof that advice has been received; they can then transfer the money.

Thanks Jamesd, that is what i was (and still am) hoping.  I spoke with one IFA this week and they've said they wouldnt be prepared to give me advice if I was going to transfer my DB pension out.  I said I would be happy to pay their fees and sign any kind of waiver/form preventing any come backs in the future but they wasnt interested.  I wasnt sure if I was 100% insistent (against many on heres advice) on doing it, if I could find someone willing to help.  
If you say by law I still can, even if advised against it I will persevere.

That's because in the past people have signed such disclaimers then complained after their funds went down  and the regulator ruled that as they weren't professionals they didn't understand what they were signing and so the disclaimer was invalid and they got their compo.

Silvertabby

AnotherJoe said:

britishboy said:

jamesd said:

vacheron said:

I have already been told that the likelyhood of anyone recommending the transfer to someone with my personal circumstances is almost zero. ... So it is not so much a question of "Should I?", but "Can I?", and in many cases the answer will be a resounding "No!"  

The law says that the answer to "can I?" after advice is always yes, whatever the advice says. The legal requirement is that the scheme being left sees proof that advice has been received; they can then transfer the money.

Thanks Jamesd, that is what i was (and still am) hoping.  I spoke with one IFA this week and they've said they wouldnt be prepared to give me advice if I was going to transfer my DB pension out.  I said I would be happy to pay their fees and sign any kind of waiver/form preventing any come backs in the future but they wasnt interested.  I wasnt sure if I was 100% insistent (against many on heres advice) on doing it, if I could find someone willing to help.  
If you say by law I still can, even if advised against it I will persevere.

That's because in the past people have signed such disclaimers then complained after their funds went down  and the regulator ruled that as they weren't professionals they didn't understand what they were signing and so the disclaimer was invalid and they got their compo.

As Joe says.  It's still early days yet - give it another 10 years or so and I expect we will see a lot of sob stories in the media, from those who switched from DB to DIY in the early days of the 'pension freedoms' and have now run out of money.

mark55man

I think a multiple of nearly 40 would have most of us thinking twice - and the sum involved - nearly half a million will look very tempting however as Bravepants said in the post above, the reason why the scheme are prepared to pay that much, is that they are still getting a bargain under todays terms and conditions and macro economic solution.  What that says is that the guarantee is priced in the market as something very valuable indeed, and transferring suggests you can release better value elsewhere - which other posters on this thread suggest is unlikely to be true

Two main things I would be focussing on
* Will the currently elevated multiples last into the future as the world recovers - but remember it wasn't just Covid that elevated them, it was the underlying near zero interest rates and the government rules on what pensions can invest in - so I don't think things are going to change soon
* Does the fact this is being done as part of a fundamental change to the scheme make it easier to transact - ie are the company providing advice or enabling the transfer - if they are, then that would save you time and stress but in the scheme of things saving £5-£10K is not a huge deal

The final thing I would  say is that it seems to be the trend (and certainly in my case) that the multiple you are offered increases as you get older (my thinking is this is because the uncertainty (through inflation) in target income is less, and the time period to generate that target income (via investment growth) is less.  So I think in your shows, I wouldn't rush as you can't do anything with the pension until at least 55 anyway and you can transfer later - it's not limited to this moment in time.  Unless youhave evidence that the transfer is at preferential rates (and I'm not sure they can do that, as it would be unfair to the members remaining in the scheme)