Transferring out of a defined benefit pension to an annuity. Getting charged £13000!

MX5huggy

How much is the CETV? 

Jerry_Mander

AnnieB2018 said:

Those numbers are very unbelievable, somebody musta input the numbers wrong in the calculator..

In what way are they unbelievable? They are direct quotes from my company pension statement and from a quote from Legal and General for the 25 year level payment annuity. They are totally accurate.

Jerry_Mander

MX5huggy said:

How much is the CETV? 

CETV is £420,000

najan49

AnnieB2018 said:

Those numbers are very unbelievable, somebody musta input the numbers wrong in the calculator..

Not sure I agree. I have a deferred DB pension which will pay approx £3500 pa and a tax free lump of £23k (depending on CPI between now and NPA of course) - I had a CETV of £235k in 2019.

Double all those and you end up with a CETV of about £400k - £100k tax free and £300k to buy a level annuity @ 5.4% doesn’t seem OTT depending on age and health status of the OP.

af1963

AnnieB2018 said:

Those numbers are very unbelievable, somebody musta input the numbers wrong in the calculator..

Was my first thought too, but  it depends on how much the DB scheme is prepared to pay to offload the ongoing costs. The difference between £16K flat and £7K inflation protected is much less than it looks.

For a 65 year old, £16200 per year would cost about £320K based on the best flat rates I could see online ( no increases, no guarantees). Could cost a bit less if they are a smoker or in ill health. Plus lump sum of £100K - total cost about £420K.

For the same £320K cost, you'd get an RPI-protected annuity of only about £8.5K 

DB: 7K plus lump sum, probably equivalent to about 9K with no lump sum - which means they would need to be offering about 45x the annual pension as a transfer value, to generate the £420K needed. 

Albermarle

Jerry_Mander said:

MX5huggy said:

How much is the CETV? 

CETV is £420,000

That is very generous for a £7Kpa and £45K lump sum , but not unheard of .

Just to check, is the £7K pa a reduced sum for retiring before the normal retirement age , because that will make a CETV look  more generous ?

Plus just to be sure ( because we see this mistake being made by other posters ) it is the latest figure , uprated by inflation since you left the company and not the figure you were given when you left the company X years ago?

dunstonh

I've done a spreadsheet of all the options and the annuity is overall the better option, particularly if I die before the 25 years is up.

An annuity rate of 5.4% is possible if you are old enough.  However, the expectation is that inflation will be higher in the next few decades.  So, going level would be very high risk for someone that calls themselves risk-averse.   

I haven't seen L&G come out near top for many years on annuities.  Although if you are looking at fixed term 25 year annuities then it is possible they could do.  Although a risk-averse person would be unlikely to buy a 25-year annuity.   There is the possible argument for buying a short term annuity in expectation of rising rates and possible health issues but not sure a 25 yaer one would be a good idea.

I can imagine that getting a "good to transfer" advice outcome on a level fixed-term annuity of 25 years for a risk-averse person is not going to be likely.   This then turns it into an insistent client case and most annuities have to be bought via an intermediary.   No intermediary is going to transact an annuity purchase on a DB transfer on a non-advised basis.

Albermarle

I can imagine that getting a "good to transfer" advice outcome on a level fixed-term annuity of 25 years for a risk-averse person is not going to be likely.   This then turns it into an insistent client case and most annuities have to be bought via an intermediary.   No intermediary is going to transact an annuity purchase on a DB transfer on a non-advised basis.

In other words , the OP could pay X thousand Pounds for advice and they would be back at Square One a few Grand lighter, but no further forward.

Jerry_Mander

Albermarle said:

In other words , the OP could pay X thousand Pounds for advice and they would be back at Square One a few Grand lighter, but no further forward.

Well I'm in the early stages yet but the two IFAs I've had responses from are providing advice at no cost up to the point where they tell me if they can get me a better deal, after their fees, than I can get just by going through L&G.

Jerry_Mander

Albermarle said:

Just to check, is the £7K pa a reduced sum for retiring before the normal retirement age , because that will make a CETV look  more generous ?

Yes the 7K is the current figure and it's reduced only if I take the 45K tax free. I'll be taking it at 60 which is the normal retirement age for this company. The pension would be about £11k otherwise (that's a basic of £9k and £2k I'm not sure where that comes from)