Transfer value of £100k or £2k pa pension

bennyuk

I fear I am oversimplifying my situation but here goes.

I worked for a blue chip company for 3 years back in 95-98, paid into a pension (no idea how much)

I'm 49 now.

I've checked my deferred pension with them and they say its going to be approx £2k per year. I think that's fine based on how long I was there.

They've also told me my current transfer value is £102k.

So I'm thinking, if I take the £102k and transfer it into a new drawdown pot, I'd assume a 5% growth pa, so after 5 years (to take me to 65, as an example) that would be worth £207k.

With a drawdown pot of £207k I would estimate that I could take £8k per year and not run out.

I'm not a pension expert, I'm just running some basic figures here, but it looks like £8k is better than £2k pa. 

Have I missed something here (I suspect I have), as when I ask "pension experts" they say "keep it where it is". 

Any views?

Dazza1902

The only thing your missing is that it will cost you a fortune for advice, which is compulsory. You'll probably be told to stay put and if you insist on moving it nobody will accept. 

Marcon

bennyuk said:

I fear I am oversimplifying my situation but here goes.

I worked for a blue chip company for 3 years back in 95-98, paid into a pension (no idea how much)

I'm 49 now.

I've checked my deferred pension with them and they say its going to be approx £2k per year. I think that's fine based on how long I was there.

They've also told me my current transfer value is £102k.

So I'm thinking, if I take the £102k and transfer it into a new drawdown pot, I'd assume a 5% growth pa, so after 5 years (to take me to 65, as an example) that would be worth £207k.

With a drawdown pot of £207k I would estimate that I could take £8k per year and not run out.

I'm not a pension expert, I'm just running some basic figures here, but it looks like £8k is better than £2k pa. 

Have I missed something here (I suspect I have), as when I ask "pension experts" they say "keep it where it is". 

Any views?

Is that at today's value, or projected forward to take into account statutory revaluation (which can at best be only a guess)?

bennyuk

Dazza1902 said:

The only thing your missing is that it will cost you a fortune for advice, which is compulsory. You'll probably be told to stay put and if you insist on moving it nobody will accept. 

Yes, true. I've had advice (not paid) from pension experts and they suggest to stay put. However they havent given me figures to support their advice. If my figures are incorrect then I'll reconsider, but the advise given so far is "I recommend that you retain your benefits within the current pension scheme."  That suggests a personal opinion of the advisor with little numerical evidence to back up their opinion.

I'm tempted to ask a pension advisor "If I invested £100k in a drawdown pension for 15 years, what would be my estimated figures at retirement?"  I'd bet it would be more than £2k pa.

Marcon said:
Is that at today's value, or projected forward to take into account statutory revaluation (which can at best be only a guess)?

That's what I've asked the pension provider (Hartlink / Capita) to confirm to me. The online portal "Retirement Illustrator" Gives a figure of Full Pension (excluding bridging pension): £2,014.24 , but I do need to confirm that its a projected valuation... its not clear.

Dazed_and_C0nfused

In theory it's possible the £2k could be

1). The value at the point you stopped being a member of the scheme

2). The value now 

3). A projected value at NPA for that scheme

Until you know for certain you could be comparing apples and pears.

gm0

Apart from the now plentiful obstacles placed in the way of doing this.  What you may in any event be possibly forgetting to look at properly is the long term value of indexation of your DB benefits up to and beyond retirement independent of market conditions.  A small slice of guaranteed income above SP can be useful.  Examine the indexation terms and then use a few numbers to bring it to life as the chances of getting a useful or flexible forecast on assumptions you agree with are minimal.

For the DC version consider a sustainable drawdown figure say 3% and 3.5% initial WR of the potentially to be extracted pot. Knock off a few thousand pounds from the transfer pot this for costs of insured advice.  If you have income at date this year (and indexation rules) and a transfer value in the same year then you can do a comparison "today".  The DB scheme will follow its rules in uplifting the value of your salary benefit.

But for rounding and simplicity - let's call it 100k today net fees. So the sustainable drawdown income is 3k, 3.5k, 4k with 3% 3.5% and 4% WR.  This range being as reasonably "valid" 1st pass wild guess at a sustainable long term drawdown income with some basic inflation protection - indexation on the income included on it. Depletion assumed.  Investment in mainstream mixes of growth assets (equities) 40-70% assumed - not based on a "self annuity" of minimal risk assets only.  Such a thing would currently have -ve returns.

So the 2k is on the low side but whether this matters depends on how this real income promise inflates towards your actual retirement and thereafter and what level of spouse benefits exist.

As another data point - also consider the costs of buying a joint life, 50% spouse or 100% spouse to taste, and indexed (say 3% perhaps) annuity.  Now you would not buy this product in early or late retirement as you would likely just keep your existing indexed DB income if longevity insurance and decoupling from investments was an objective.  But the "price" to a DC pensioner of this guaranteed income stream in today's market conditions is illustrative nonetheless another data point as to whether your CETV is good value. 

Example annuity - £2401 for 100k for 100% spouse, 3% indexation at 60. or £3000 @ 65. This is what it costs to be added to a life company death date insurance gambling game.

A final suggestion is to consider how you and any partner sit with other pensions and retirement assets - houses/downsizing, ISAs, and SP and therefore how much resilience and "guaranteed income" you have and from what sources. 

Once this approaches a decent percentage of your "required income floor" (must have not would like) it enables a more risk embracing approach (if you want it to) for the rest of your investible retirement assets - S&S ISA, DC pension etc.  Some people need near absolute safety. Others are prepared to live at the income floor for a few years if the worst happens unbuffered and (probably) leave heirs better off and can tolerate some excitement along the way. 

I am mainly a DC pensioner but my spouse has some DB for which the transfer offer and value keeps rising.  We are not selling it.  For us the slice of guaranteed income above SP makes more sense with our risk appetite than the extra slice of heritable DC assets.   Every family situation is different as is attitude to investment. 

DC drawdown inevitably involves you carrying a great chunk of investment risk into your old age.  A slice of GI (SP and careful use of DB benefits) sticks a floor on income which is very helpful indeed (both emotionally and practically).   It is possible to make guesses about 50 years out and the only certainty is that any given guess will be completely wrong.  All the DC drawdown modelling tells you is whether a given method and assumptions would have worked in the past.  It eliminates the worst plans and most unrealistic assumptions.  But it doesn't prove anything about the future resembling the past.  That remains a leap of faith.

Statistical distributions of possibility for sequence of return and inflation exist which can bless you or curse you and there is little you can do about it other than mildly adjust the starting parameters at retirement to the conditions which exist at the time

Good luck with your decision making.

Dazza1902

Best read all the threads regarding cetvs. 
There are many people wanting to transfer db schemes, very many are unsuccessful. 

bennyuk

Thanks gm0, I appreciate your comprehensive thoughts. I also agree with the overall sentiment... (it just doesnt work with my figures)

However, the thing I cannot get out of my head is that this is a £2k pa DB, or a £100k CETV. Thats at 50x offer!

I have other investments, my wife has a pension, plus I'm about to (I know, very late in the game) to setup a new DC.

You say that "the sustainable drawdown income is 3k, 3.5k, 4k with 3% 3.5% and 4% WR" but thats on £100k, and if I'm aiming to retire in 15 years then I'd expect that £100k to be £200k (based on 5% growth) so 4% WR would be £8k.. (even with fees), leaving 

I hear all your considerations, but I keep coming back to £2k a year, (50% if I die to spouse)... 

If I had a DC wouldnt that go to spouse (after tax)? and wouldnt that be more than £2k per year?

I'm waiting for definitive answer on the figure from the DB admin, but if it is £2k vs £100k I still cannot find a single reason not to transfer. £100k will always be worth more than 2k pa unless I can live to 120.

I still havent seen any reason why I'd be better off staying in the DB.

As to getting it agreed by a IFA, I'm talking to mine tomorrow and will report back with the verdict and costs.

and Dazza1902, yes I've read the threads and I'm shocked at the struggles people have .Lets see what my IFA says tomorrow....

arnoldy

2k pension a year = £1.6k after tax and all gone when you pass (maybe small amount for surviving spouse)

FTSE All share yield = 3.4%. So £100 k gives you a natural yield of £3.4k - of which £700 will be tax free = £2.86k after tax, and you get all your capital back and the divis are likely to grow ahead of inflation over the cycle.

Yes there will be some transfer costs but that wont the numbers much

Albermarle

Yes there will be some transfer costs but that wont the numbers much

You could well be right , but if the advisor gives a negative recommendation then you will have paid £xK for nothing .

Hopefully the advisor involved will do an abridged analysis for a smaller fee , before going forward,

Scallypud

Good luck.
I transferred in January this year for 245K for a total cost of £1,250
It has increased by 20K so far