Cashing in deferred final salary pension

Trog54

Hi I am 55, and have a small final salary pension from a job I  left 30 years ago. the transfer value of the pot is worth £70K and would pay out approximately £80 per month. However I wish to cash it in, but to do so I have to open another type of pension and then close that removing the cash. My reason for dpoing so, is that the pension only covers the interest on my mortgage which runs until i'm 70.  The sum would pay off my mortgage and leave me with £30K cash . I looked into it and the financial advisor said it would cost a lot of money to do and the regulator would probably not let me do so. This doesnt make sense to me as I would be much better off financially both now and in the future. It would cut my outgoings by £400 a month as against a pension sum of £100 a month. Is this right or should I try and find another advisor who doesnt charge the earth? 

QrizB

Welcome to the forum.

DB transfers (which is what you describe) are one of the most common topics on this forum. Yes you have to pay for advice, no you're not guaranteed to be able to transfer even after taking advice.

Here is a recent thread on the topic where it is discussed in some detail:

https://forums.moneysavingexpert.com/discussion/6301481/gaining-control-over-my-pension#latest

mark55man

QrizB is entirely correct - for any transfer from a DB scheme whose value is £30K or greater - you need advice, and increasingly obtaining a positive recommendation is very hard and acting without a positive recommendation is also very hard.

The logic is, that you are being offered a substantial sum to buy out the DB income because that guaranteed income stream is a very valuable thing, especially in these turbulent times.

The fact you have a plan for the money (and paying of mortgage is a common goal) doesn't mean that its the best idea.  Or certainly not an idea that is sufficiently strong to change the advice you will receive.   You talk about the benefits you get until you are 70 (when the mortgage will be paid off), but what about the money you need to live or enrich your retirement from 70 - 90?  If you are 55 now you are life expectancy (from someone who has already reached 50) is likely to be 80 or so!, with more and more making it long past that.

Marcon

Trog54 said:

Hi I am 55, and have a small final salary pension from a job I  left 30 years ago. the transfer value of the pot is worth £70K and would pay out approximately £80 per month. However I wish to cash it in, but to do so I have to open another type of pension and then close that removing the cash. My reason for dpoing so, is that the pension only covers the interest on my mortgage which runs until i'm 70.  The sum would pay off my mortgage and leave me with £30K cash . I looked into it and the financial advisor said it would cost a lot of money to do and the regulator would probably not let me do so. This doesnt make sense to me as I would be much better off financially both now and in the future. It would cut my outgoings by £400 a month as against a pension sum of £100 a month. Is this right or should I try and find another advisor who doesnt charge the earth? 

The regulator can't stop you transferring. What is your idea of 'charging the earth'? Costs of £3K-£5K are typical, mainly thanks to the very high level of risk the adviser is taking when advising on such transfers, and the huge hike in PI costs.

sandsy

You said the monthly DB pension is £80pm. But  it's highly unlikely that the transfer value is 70 times the annual payment.

Have you checked how the pension of £80pm has increased in the 30 years since you left? It's normal for increases to be applied between leaving and the pension coming into payment (also referred to as revaluation).

xylophone

the transfer value of the pot is worth £70K and would pay out approximately £80 per month. 

CETV seems exceptionally high at nearly seventy three times value of the annual pension.

However I wish to cash it in, but to do so I have to open another type of pension and then close that removing the cash. My reason for doing so, is that the pension only covers the interest on my mortgage which runs until i'm 70.  The sum would pay off my mortgage and leave me with £30K cash 

Had you considered how much tax you would pay on 75% of the £70,000?

Remember that it would be added to other income in the tax year of withdrawal  and taxed accordingly.

And the cost of the advice from a pension transfer specialist?

Had you considered the  possible effect of the MPAA on any future contributions you might wish to make?

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/money-purchase-annual-allowance-mpaa/#:~:text=Next Steps-,What is the MPAA?,a tax charge is payable.

Brie

I've been recently sorting out my pensions and discovered there was a possibility of slicing off the AVC portion of my DB plan to use it differently.  Obviously this would cover all your mortgage but might be something that is small enough to avoid all the scrutiny.  An alternative would be to see if you could transfer the DB to another occupational scheme - normally a DC one these days - but again may be easier to do and may still possibly be available sooner rather than later.

Thrugelmir

Trog54 said:

 the transfer value of the pot is worth £70K and would pay out approximately £80 per month. 

Is that if you draw the pension now and suffer the penalty for taking it before your normal retirement age? 

JoeCrystal

xylophone said:

the transfer value of the pot is worth £70K and would pay out approximately £80 per month. 

CETV seems exceptionally high at nearly seventy three times value of the annual pension

I have to agree. I put £80 in 1992 in the inflation calculator which came out as £176.16 per month or £2,113.92 per year which is basically 30x which sounds a lot more realistic. It might be higher depending on the scheme's inflation linking if any.

Notepad_Phil

JoeCrystal said:

xylophone said:

the transfer value of the pot is worth £70K and would pay out approximately £80 per month. 

CETV seems exceptionally high at nearly seventy three times value of the annual pension

I have to agree. I put £80 in 1992 in the inflation calculator which came out as £176.16 per month or £2,113.92 per year which is basically 30x which sounds a lot more realistic. It might be higher depending on the scheme's inflation linking if any.

Plus how much GMP they have within it. Most private DB pensions would use a fixed rate uplift of 7.5% per year for someone leaving in 1992. My DB pension deferred for a similar length (actually a bit shorter than the OP) has provided more than 3 times the original income shown when put into deferment.