My pension: What to do?

d0nnyoz

OK, this is a starter question looking for ideas (not necessarily advice!) on what I can do with my pension pot!
I am looking at taking my pension soon and I have a few ideas, some of which I am sure I will be warned against!
I am soon to be 56. I have about 20 years of a pension with BT, whom I left in 2005. I have checked the 'transfer out' value of the pot and its £700k. 
The easiest option is to take a lump sum out now whilst taking the rest in an annual pension. If I die before my wife, she will get half of that pension until she dies. After that, I believe the benefits of the pension cease. So lets say I only live for another 10 years (more on that later), then my wife lives for a further 10 years, this doesn't exhaust the pot and therefore BT are 'quids in'! (Unless I have got this wrong)
Another idea I have had is that I take the full transfer out and open some sort of SIPP or other annuity whilst taking a lump sum (25% tax-free). At least with this option, I can be in charge of the full pot and even if I die, the rest of the money still belongs to my family (I have two grown children).

Some further ideas I have is that I still have a large interest-only mortgage on my main property. Its £300k outstanding on a property probably worth in excess of £800k, maybe more. (The idea when we purchased was that we would down-size at some point).

So, the first question or debate is should I take the pot out and have total control over it till it is exhausted? I think a lot of people would say don't take it out of the BT Pension Scheme! I was of that thinking for a long time but I can now see the 'beneifts' of taking control of the money!
Recently, I was diagnosed with thyroid cancer. I have had my thyroid removed and undergone radioactive treatment to clear it up. Its too early to judge whether it has totally gone but the scans have been good so far. The only fly in the ointment is that there was a build up of Iodine in my bowel that they now want to check. After the Radioactive Iodine treatment, the method of reducing your radioactivity is through your pee and poo! And they think this might just be a build up waiting to excrete itself, but they are checking. So you can see that I might be slightly concerned about my health.

Dazed_and_C0nfused

(Unless I have got this wrong)

Yes.  Unless you transfer out there is no "pot".  BT have the responsibility (and cost) of paying that pension for the rest of your life and then a smaller amount to your spouse for the rest of her life.  Which is why they are willing to get rid of you.

But given your medical concerns it is maybe worthy or more consideration than it would be for some. 

Would your wife be happy having responsibility for the pension fund in due course?

Albermarle

This is probably the most popular topic on this forum , Scroll through a few pages looking for similar threads or use the search box.
For example: Final Salary Pension - unsure what to do! — MoneySavingExpert Forum
One point worth mentioning is that it is not easy , or cheap, to transfer. Again another popular topic.
I am soon to be 56. I have about 20 years of a pension with BT, whom I left in 2005. I have checked the 'transfer out' value of the pot and its £700k. 
There is no pot as such . You have a pension that guarantees you an income for life , inflation linked , spouse benefit on death etc . Separately the scheme has made you an offer to buy themselves out of this expensive liability .
So lets say I only live for another 10 years (more on that later), then my wife lives for a further 10 years, this doesn't exhaust the pot and therefore BT are 'quids in'! (
There is no pot designated for you , it is a collective scheme. The ones that die early help to pay for those who live to a ripe old age. These schemes are very expensive to run and they cost the employer a lot over the years . Most private sector final salary schemes have been stopped due to this.

dunstonh

hen my wife lives for a further 10 years, this doesn't exhaust the pot and therefore BT are 'quids in'! (Unless I have got this wrong)

There is no pot.  
Transfer values are artificially higher than their historic levels due to low gilt yields and a range of assumptions that make transfer values look more attractive than they would historically be.

Another idea I have had is that I take the full transfer out and open some sort of SIPP or other annuity whilst taking a lump sum (25% tax-free). At least with this option, I can be in charge of the full pot and even if I die, the rest of the money still belongs to my family (I have two grown children).

Buying an annuity wouldn't likely be a good option and most don't do that any more.  And you are not in charge of the full pot as you have exchanged the value for income putting you in much the same position as the scheme pension.  You could buy more death guarantees but it may or may not be viable.

So, the first question or debate is should I take the pot out and have total control over it till it is exhausted?

Impossible to answer.  it is a highly complex and expensive transaction that takes into account your personal circumstances, needs and objectives.    Statistically, the answer is no most of the time.
Do you have any experience with investing?  If not, then starting off with a £700k fund where a typical 20% market fall would see £140k wiped off its value would come as a shock to a new investor but not an experienced investor.  That is not an "if" scenario but a "when".   You would likely see four or five or those scale drops in your remaining lifetime.    The first time is always hard for new investors.  However, those with investing history usually see their first one when their values are lower.  Then over time, their values go up and the second time becomes easier and by the third time its a case of "here we go again" and they shrug it off.    Going straight in at £700k doesn't give you that build up.  A lot of people just cant handle it and end up making bad decisions.

Health can be a key driver in transfer outs because of death benefits.

d0nnyoz

OK, thanks for the responses regarding the BT 'pot' (or not as the case may be) and the transfer out.
And I understand that this is a highly complex decision that relies on so many different personal factors - health being quite a major factor.
So thanks for the clarification on the BT pension. As I understand it, when I or my wife dies, the pension benefits just stop and I understand why that is given the details you have provided (expensive to run and the money goes to those living to a ripe old age!). Probably the wrong terminology to call it a 'pot' - I know its not a pot really. I just called it that through laziness. I just think that I have a sort of endless benefit if I leave it with BT (meaning they'll pay my pension even if I live to be 150!) but if I die after 10 years and I have no wife, I essentially lose those benefits whereas if I took the transfer out value, I would at least have access to that 'pot' even after I die (through my wife or my children). But I do understand it is a highly complex decision.

One other thing is that the maximum lump sum I can take right now from the BT Pension is about £90k. If I transfer out, I can take 25% (tax free) which would equate to about £175k, so a bit of difference to what BT are offering me (although I know that has an impact on my annual pension). Not sure why??

The next question is if I do decide to transfer out, what actually happens? Do BT send me a cheque for £700k? I don't think so.
So what would happen? And is there a god/best way of investing that money, either all of it or the remainder once I take a lump sum?
Is it just left to me to decide on what best to do with it?

dunstonh

One other thing is that the maximum lump sum I can take right now from the BT Pension is about £90k. If I transfer out, I can take 25% (tax free) which would equate to about £175k, so a bit of difference to what BT are offering me (although I know that has an impact on my annual pension). Not sure why??

Because there is no pot, there is no 25% lump sum with the BT pension.  The amount is set in the scheme rules.     
If you had the same benefits accrued 10 years ago, the CETV would have been lower.   10 years before that it would have been significantly lower.  Consequently, the 25% based on the CETVs at those times would have been lower.

The next question is if I do decide to transfer out, what actually happens? Do BT send me a cheque for £700k? I don't think so.

No.  Because you would lose almost half of it in tax.

So what would happen? And is there a god/best way of investing that money, either all of it or the remainder once I take a lump sum?

You are required to use a financial adviser independent from the scheme. i.e. an IFA.

Dazed_and_C0nfused

The next question is if I do decide to transfer out, what actually happens? Do BT send me a cheque for £700k? I don't think so.
So what would happen? And is there a god/best way of investing that money, either all of it or the remainder once I take a lump sum?
Is it just left to me to decide on what best to do with it?

You are starting to see some of the downsides/complexities/costs associated with what you are considering.

You would have to engage a suitably qualified IFA to progress this.  Costs will be four figures, potentially closer to five.  If they recommend against the transfer then you can still proceed but the initial transfer has less options although once it is a DC pot rather than DB transfer you may well be able to move it on again to a provider you really want to use.

You usually either pay an IFA to manage things for you or do this yourself.  It is a lot of money to invest.  How would you feel if your £525k (after TFLS assuming you plan on taking that up front) became say £475k a week after investing it?

You will need to decide what income to take or whether to buy an annuity (probably not suitable in your case).  If you don't need the TFLS upfront you can take this as part of each payment, for example draw £20k/year of which £5k is the TFLS element and £15k is taxable income.

Marcon

d0nnyoz said:

One other thing is that the maximum lump sum I can take right now from the BT Pension is about £90k. If I transfer out, I can take 25% (tax free) which would equate to about £175k, so a bit of difference to what BT are offering me (although I know that has an impact on my annual pension). Not sure why??

One reason why is that any lump sum you take from the BT scheme reduces your pension, but not the pension which would be paid to your wife if you die before her. Her pension would be calculated as if you'd taken no tax free cash.

xylophone

What you are considering is a "Transfer Out" of your pension - you transfer out to another pension scheme - one example of such a scheme would be a SIPP.
See links here
https://forums.moneysavingexpert.com/discussion/comment/78073650#Comment_78073650

AlanP_2

It's a tricky one and I can understand your interest in the possibility, both because of your personal health situation and because of the high value for CETVs at the moment.

How does the overall "family unit" financial situation look now and in retirement? For example if your wife was going to get her own £20k a year DB pension at 60/65 then the "risk" would be different when compared to "wife has no pension provision except State Pension".

As a general comment the spouse benefit comments we see on threads like this make me smile sometimes:

"I have no spouse so the spouse benefit of the DB is worth £0 therefore transfer makes more sense for me".

"I have a spouse, therefore ensuring that they get it all if I die means a transfer makes more sense for me"

Completely opposite points of view but can be used as a logical basis to support a personal transfer preference. 

Albermarle

https://www.royallondon.com/media/press-releases/2018/may/five-good-reasons-to-transfer-and-five-good-reasons-not-to-royal-london/