Transfer preserved final salary pension to SIPP or not?

GazzaBloom

Hi all,

I'm 53 and I have a preserved final salary pension from a previous job. I stopped paying into it in 2002. It will pay out a £35K tax free lump sum at age 55 and £5.5K a year with a portion of it inflating in line with CPI. I received a cash equivalent transfer value of £174K in January 2019. 50% of benefits are payable to my wife on my death.

On that basis it will be paying out just annually just 3.5% of the CETV after deduction of the £35K lump sum so I'm seriously considering transferring it to a SIPP as I believe I can get a fair bit more than a 3.5% return via good mutual funds and still draw the £35K or more.

I am aware I have to get professional advice on this, although I cringe at the thought of paying £2-4K for this. Does anyone have any thoughts on this?

AnotherJoe

One consideration is, what other pensions do you have ? I had a similar decision to make (and a CETV ratio similar to yours) very recently which I posted about here but although in theory I could have got more income from the lump sum, I decided to take the ongoing pension because with that and my SP my basic expenses would be covered and then there's less stress for me on managing  the rest of my pension pot for income as it's not critical. 
As for doing the transfer I suspect you'll find it much more than £2k or even £4K, plus a huge hassle to find someone who will even look at it.  There are some epic threads here on the issues people have had. 

GazzaBloom

I have a DC pension pot that I am building that will provide the main income in retirement. The preserved DB pension £5K is just extra. I'm taking it early at 55 even though there is a reduction in benefits taking before the scheme's normal retirement age of 65 as I have calculated it take 21 years to catch up with the £89K I can take from age 55-64, it's a no brainier to take it early even thought I will be taxed at 40% until I stop working.

I don't find the thought of managing a portfolio of buy and hold mutual funds in a SIPP with a regular drawdown particularly stressful.

I've got an enquiry out with a local FA at the moment who carries a pension transfer Gold Standard mark...whatever that is! They offer a free initial consultation, I'll see what they say.

Albermarle

You should search the forum for 'Final salary' 'CETV ' ' DB transfer ' etc 
It's a popular subject on the forum !
Be aware when you see the IFA that they are all anxious about litigation if they recommend you transfer and you make a hash of it and then claim you were given wrong advice.

squirrelpie

Also note the difference between an 'FA' and an 'IFA'. Very important and much discussed in other threads.

Brynsam

Endless threads on this forum, so no point in regurgitating all that's been said many times before. Bear in mind your current CETV could be higher or lower than the one you received 18 months ago - but don't request an updated CETV until you've found an IFA who is actually authorised to advise on transfers and is actually prepared to do so. A CETV is only valid for the 3 month 'guarantee' period and your IFA will need all of that to clear the numerous hurdles required. You are only entitled to one free CETV  in any 12 month period and your scheme may either decline to issue another within the space of a year, or charge you (typically around £500 + VAT) for the privilege.

xylophone

Remember that you will need a Pension Transfer Specialist.
https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/pension-transfers-conversions/

jimi_man

Just looking at the figures. You don't say what proportion of it is protected by Index linking, so I'll assume 50% of it at 2%. At age 55, with an average life expectancy of 86, that's 31 years, so that gives just over £200k in pension payments, plus the £35k lump sum - £235k. Coupled with the fees that you'd have to pay to transfer, it looks to me like a poor deal. 

If you take out the £35k from the £174k, then you're left with £139K to draw down £5500 per year, rising (proportionately) with inflation every year. That's 4%. I don't know if a continued 4% drawdown rate for the rest of your life, even if you live to be 100, is realistic? 

When you add in the spousal benefits, then it really looks like a poor deal. 

However as someone above said, it depends what other pension provision you have. If you have other (larger) DB pensions, with no need for this, then maybe that might swing it. 

GazzaBloom

jimi_man said:

Just looking at the figures. You don't say what proportion of it is protected by Index linking, so I'll assume 50% of it at 2%. At age 55, with an average life expectancy of 86, that's 31 years, so that gives just over £200k in pension payments, plus the £35k lump sum - £235k. Coupled with the fees that you'd have to pay to transfer, it looks to me like a poor deal. 

If you take out the £35k from the £174k, then you're left with £139K to draw down £5500 per year, rising (proportionately) with inflation every year. That's 4%. I don't know if a continued 4% drawdown rate for the rest of your life, even if you live to be 100, is realistic? 

When you add in the spousal benefits, then it really looks like a poor deal. 

However as someone above said, it depends what other pension provision you have. If you have other (larger) DB pensions, with no need for this, then maybe that might swing it. 

That mostly makes sense but getting notably higher that 4% gains in good equity funds should be achievable over the long term. I'm in funds with a 20 year history of 14-16% average annual gains after fees.

coyrls

GazzaBloom said:

I'm in funds with a 20 year history of 14-16% average annual gains after fees.

I don't believe you.

Thrugelmir

GazzaBloom said:

jimi_man said:

Just looking at the figures. You don't say what proportion of it is protected by Index linking, so I'll assume 50% of it at 2%. At age 55, with an average life expectancy of 86, that's 31 years, so that gives just over £200k in pension payments, plus the £35k lump sum - £235k. Coupled with the fees that you'd have to pay to transfer, it looks to me like a poor deal. 

If you take out the £35k from the £174k, then you're left with £139K to draw down £5500 per year, rising (proportionately) with inflation every year. That's 4%. I don't know if a continued 4% drawdown rate for the rest of your life, even if you live to be 100, is realistic? 

When you add in the spousal benefits, then it really looks like a poor deal. 

However as someone above said, it depends what other pension provision you have. If you have other (larger) DB pensions, with no need for this, then maybe that might swing it. 

That mostly makes sense but getting notably higher that 4% gains in good equity funds should be achievable over the long term. I'm in funds with a 20 year history of 14-16% average annual gains after fees.

Which funds are in invested in to have achieved these returns?