Final salary transfer multiples

Paddington66

I’m 54 currently, likely to retire within the next year or two (will live from savings) I have a mix of pensions, but my main one is a final salary one that pays from age 60, with a large ex employer .  Alongside that I have only around £200k in defined contribution pensions.   Some time ago I checked and assumed that the payout multiple was around 30-35 and decided on balance to keep in the scheme due to the surety and ease.

the pension administrators have just launched a new update which shows the current pension and also an indicative transfer value.  The pension is c.£20k a year currently and I was expecting a transfer value quote around £600-650k.  Instead (and this is indicative only) they’ve given a transfer value of £870k or 43.5 times the annual benefit due presumably to the reduction in gilt yields.

Assuming that quote was good that would push me right to the lifetime allowance.

 I don’t know if one can transfer a percentage, but at this new multiple it looks tempting enough to explore.  On a conservative draw down pension view this could easily pay 3% indexed or slightly over given standard guidance.  Of course markets are not without risk currently so not likely to want to do immediately.  This multiple makes it looks more tempting *(and of course the pension scheme more underfunded!).

Thoughts or observations?  Have others seen similar?

Albermarle

Is the £20kpa what you would get at age 60 in todays money , or is it what you would get if the pension was paid today ( ie reduced because you are taking it 6 years early. ) If the £20K is the latter figure then this artificially inflates the multiple
. Possible not every body would agree with that way of calculating it but ASFAIK it is the correct way .
However note the multiple is only a rough guideline figure and not the basis for making a decision.
You might know from reading the other numerous final salary transfer threads on the forum that even if you want to go ahead the process is not straightforward.

garmeg

Albermarle said:

Is the £20kpa what you would get at age 60 in todays money , or is it what you would get if the pension was paid today ( ie reduced because you are taking it 6 years early. ) If the £20K is the latter figure then this artificially inflates the multiple
. Possible not every body would agree with that way of calculating it but ASFAIK it is the correct way .
However note the multiple is only a rough guideline figure and not the basis for making a decision.
You might know from reading the other numerous final salary transfer threads on the forum that even if you want to go ahead the process is not straightforward.

Would say that the second option is the best way of looking at it and the multiple is not overstated as both values are current values ...

CETV Now and what drawdown it could support "now" at 3% withdrawal rate, or whatever
cf
Early retirement Pension available if taken "now"

If the £20k is due in 6 years time it makes the comparison more difficult as you need to allow for inflation and the time value of money.

Paddington66

Thanks both.  The pension at £20kpa is quoted for normal retirement age ie at 60.  It will index with inflation (up to 5%) before being paid.  Were I to take from 55 it would of course be lower but I have no intention of that.  I expect to have enough savings to cover me to 60 without touching either defined contribution or final salary pensions.
I’m aware it would be a painful experience to transfer to a SIP, but know people who have done of course.

both current figures and indeed the indexed annuity quote for age 60 on HL I just checked as £2k per £100k so equivalent to a 50 multiple.
Im assuming at some stage the multiple becomes too much to ignore - it is now the highest it has been so this was the thrust of of question, but I added some details to make it more relatable
i also am slightly wary over The 5% rpi link which is excellent in today’s world, but with so much money printing globally at present it’s not hard to imagine significant inflation could be coming our way, whereupon defined benefit schemes could lose their value over a few years - of course looking 30/35 years ahead is problematic in the best of times!

Albermarle

In this case it is a large multiple and you have to consider it . I turned down a smaller one at 32X , partly because I already had larger  DC pots and it seemed sensible to keep a mix .
 I don’t know if one can transfer a percentage

This is down to the scheme administrators . Normally it is all or nothing, but sometimes there is a possibility of a partial transfer , so best to ask. 

Marcon

Albermarle said:

 I don’t know if one can transfer a percentage

This is down to the scheme administrators . Normally it is all or nothing, but sometimes there is a possibility of a partial transfer , so best to ask. 

No it isn't - it's down to the scheme rules, or possibly a trustee/employer policy. The administrators certainly have no power to make such decisions, so please don't badger them if the answer is no!

At present a number of schemes have amended their rules to allow partial transfers, but only in respect of unequalised GMPs. Again, be aware that this isn't a free for all in terms of allowing partial transfers.

Dox

Paddington66 said:

 I don’t know if one can transfer a percentage, but at this new multiple it looks tempting enough to explore.  

Ask the administrators if the rules permit a partial transfer.

NedS

Or take the transfer and use the portion you would have left in the DB scheme to buy an annuity if some guaranteed income is what you desire.

Paddington66

Albermarle said:

In this case it is a large multiple and you have to consider it . I turned down a smaller one at 32X , partly because I already had larger  DC pots and it seemed sensible to keep a mix .
 I don’t know if one can transfer a percentage

This is down to the scheme administrators . Normally it is all or nothing, but sometimes there is a possibility of a partial transfer , so best to ask. 

Thanks again.  That’s what I was thinking, I was amazed at the multiple!  At a multiple in the 30/35 range I would not be tempted as I’m sure once retired some sure income would provide less stress.  In total I have this, one other small DB pension so £21.5 plus full SP when get there in 12 years (£9k so effective total DB £30.5) and anticipate next year having between savings and DC c£400-450k (some indeterminacy around a property sale and work) which in my mind I’ve equated to a bit under  the single person Which “luxury” income £33k post tax by the time I self fund 5 years, and then fill in the gap before SP so it’s quite tight, Ie enough for expected costs (obviously no mortgage), or more specifically to £30k plus £150k reserve (health, extra holidays, property renovation) which I’ve estimated from current spending to be comfortable.

So impact of adding £100-£200k through generous multiple (or it going wrong) quite significant

garmeg

Paddington66 said:

Albermarle said:

In this case it is a large multiple and you have to consider it . I turned down a smaller one at 32X , partly because I already had larger  DC pots and it seemed sensible to keep a mix .
 I don’t know if one can transfer a percentage

This is down to the scheme administrators . Normally it is all or nothing, but sometimes there is a possibility of a partial transfer , so best to ask. 

Thanks again.  That’s what I was thinking, I was amazed at the multiple!  At a multiple in the 30/35 range I would not be tempted as I’m sure once retired some sure income would provide less stress.  In total I have this, one other small DB pension so £21.5 plus full SP when get there in 12 years (£9k so effective total DB £30.5) and anticipate next year having between savings and DC c£400-450k (some indeterminacy around a property sale and work) which in my mind I’ve equated to a bit under  the single person Which “luxury” income £33k post tax by the time I self fund 5 years, and then fill in the gap before SP so it’s quite tight, Ie enough for expected costs (obviously no mortgage), or more specifically to £30k plus £150k reserve (health, extra holidays, property renovation) which I’ve estimated from current spending to be comfortable.

So impact of adding £100-£200k through generous multiple (or it going wrong) quite significant

i would keep the DB pension personally. By taking the CETV you are getting to LTA territory which would be a big no no to me.

ADA58

I ve also seen CETV rise recently 30x 12 months ago , to 39x recently for a well funded private sector fund with CPI max 2,5% limit , 1/2 spouse etc ,  clearly driven by the market changes , assuming mainly gilts, as inflation forecasts not (yet) on the up, and longevity not significantly impacted despite the devastation COVID has brought to some.