Can i cash in a pension early?

longwalks1

..     ..              ..     

Dox

britishboy said:

Here goes. I'm 42 and have a final salary pension, currently worth £11k per annum.  If I work to 58, it will be worth £20,900.  If i work to 60, it will be worth £24,300.

Some colleagues who recently retired sold thier's out and got 38 times its annual value, which I know is very good.  Can I, if i want to, ask for a price for mine now, and put it into my other pot (DC/AVC's) and let that grow?  I'm currently growing my smaller AVC pot (currently worth £48k) by about 10% a year, so thought if I could get the 38 x £11k to sell my final salary, and put that in the DC/AVC pot, that would grow quicker per year

Would you need to know anything else before commenting?

Your DC pot might grow quicker, but what about the guaranteed benefits you are losing? Masses of threads on this forum on this topic, so read one of those. Remember too you'll need to take advice (your transfer value will be £30K+, so that's a requirement) before you can move forward with any such transfer. Finding an adviser who is authorised to act and is prepared to do so is going to be a challenge, and comes at a cost - think thousands of pounds.

Thrugelmir

britishboy said:

 I'm currently growing my smaller AVC pot (currently worth £48k) by about 10% a year, 

As an investor never over estimate your own abilities. Particularly when investing in a bull market and an era of depreciating exchange rates. 

Paul_Herring

Here goes. I'm 42 and have a final salary pension, currently worth £11k per annum.  If I work to 58, it will be worth £20,900.  If i work to 60, it will be worth £24,300.

Personally, I wouldn't mess with it. 

 I'm currently growing my smaller AVC pot (currently worth £48k)

A very conservative estimate (2.5%) gives you £1,200 a year.
At the moment. Focus on growing that.

 so thought if I could get the 38 x £11k to sell my final salary, and put that in the DC/AVC pot, that would grow quicker per year

Nice idea.
It won't work that way, though. Past performance caveats on all those financial adverts, and values may drop as well as plummet etc.
You currently have a certainty, and some play-room with stuff that might not be so certain. 

Don't move everything into that "not so certain" basket.

Gary1984

Also would you need to stop paying into the scheme if you were to transfer out? Giving up your future accrual and link to salary is likely a very bad idea.

Albermarle

Gary1984 said:

Also would you need to stop paying into the scheme if you were to transfer out? Giving up your future accrual and link to salary is likely a very bad idea.

I was going to say the same. Whatever you do , stay in the scheme going forward( which may not be possible if you transfer out)  Employer contributions into DB schemes are typically a lot higher than into DC , as a guaranteed lifetime income is expensive to fund.
You are lucky to still be in a final salary scheme. Many people wish they were.

longwalks1

Hi all
Revisiting this old thread I started as my position has now changed.  My company are ending the DB pensions as of March 2021, so i now have no choice but to go into the DC pension like everyone else.  My DB pension freezes, and grows with inflation each year until I retire (which i assume given the current economic climate, will be very little growth - if any?)

I've been offered 39 times my yearly pension value to transfer out, and using a rather crude and basic compound interest calculator, even at 5% growth a year would leave me in a much better position than if i let the DB stay frozen until i retire. 
I know none of you can give advice, and the proper advice is likely to cost me thousands (I know others who had the advice recently from the same company when they transferred out their DB pensions) but does this change to my company pension scheme make any of you rethink your advice on here?  Genuine question by the way...

Thanks again everyone

Dazed_and_C0nfused

My DB pension freezes, and grows with inflation each year until I retire (which i assume given the current economic climate, will be very little growth - if any?)

So it isn't frozen then it's deferred.

There is no "growth" as it's not a pot of money (DC scheme).  It's a guaranteed income for life which has some element of inflation proofing.

I'd be very surprised if you get anyone suggesting you look further into transferring it from DB to DC.

Marcon

britishboy said:

I've been offered 39 times my yearly pension value to transfer out, and using a rather crude and basic compound interest calculator, even at 5% growth a year would leave me in a much better position than if i let the DB stay frozen until i retire. 
I know none of you can give advice, and the proper advice is likely to cost me thousands (I know others who had the advice recently from the same company when they transferred out their DB pensions) but does this change to my company pension scheme make any of you rethink your advice on here?  Genuine question by the way...

What makes you think you can get a 5% return year on year? 

Others may have received advice to transfer out (or received advice not to, and gone ahead anyway, as is their right), but that doesn't mean it was right for them, and certainly doesn't mean it is right for you. There's great comfort in having a guaranteed inflation-linked income stream in retirement.

Albermarle

  My DB pension freezes, and grows with inflation each year until I retire (which i assume given the current economic climate, will be very little growth - if any?)

There will be no 'growth' at all . However the spending power of the pension will be maintained due to the inflation link.

even at 5% growth a year would leave me in a much better position than if i let the DB stay frozen until i retire. 

It is better to look at these % after inflation . Most calculations assume a 2.5% inflation rate , so your 5% = 2.5% actual growth .

Although nobody knows there does seem to some kind of consensus that the next 10 years will not as good for investors as the last 10 and a typical 60% equities portfolio will be luck to achieve 2% above inflation . 

To try and get 5% actual growth ( after inflation ) you would have to go 100% equities and get ready for a roller coaster ride for which you will need a strong stomach !

Bravepants

There is no way on God's good earth I would give up a guaranteed, index-linked, DB pension!

Of course your company is offering you a good multiple (39), they want shot of the liability for your DB pension!