Pension has drastically reduced in value

JanS65

I have a Deferred Final Salary Pension Scheme with a Bank.  I asked for a transfer value in October 2001.  I had decided to retire at the age of 57 due to the large amount that was in my pension.  I have received a new transfer value but this has dropped by 43% putting my retirement plans on hold.  I have been told that there has been a decrease in Gilts however, no other pension company has dropped so much.  Can anyone give me some advice on how to proceed with finding out more details, as the letters received seem to be copy and pasted with conflicting information.  Thanks. 

molerat

A transfer value is simply the cost to the provider in providing the promise they gave you, that cost has drastically fallen. There was never "a large amount" in your pension, just a promise to pay a set amount per year for the rest of your life.  Your pension has not reduced, you will still get the same amount, increased by inflation, as you were promised when you left their employment.  That is the thing that you should have based your retirement plans on and not something that is subject to the whims of the markets.  Peak transfer values have now gone, you should have transferred it a couple of years ago if that is what you wanted to do, and are back to normal and unlikely to be repeated in anyone here's lifetime,

p00hsticks

molerat said:

you should have transferred it a couple of years ago if that is what you wanted to do 

That is of course, assuming you could find a Pension Transfer IFA prepared to advise that it would be in your best interests to transfer, or a Pension Provider happy to accept a transfer against advice as an 'insistent client', both of which posts on this board suggest are about as rare as hens teeth/.    

gm0

Your lovely (probably in some way inflation indexed) salary based pension still exists as it always did based on years of service accruals.  And then indexation uplifts.  Be grateful for that.    A DC pensioner with a "pot" invested conventionally conservatively with lots of bonds mixed in has had a torrid time of late.  Actually lost (at least temporarily) a decent proportion of their pension last year for the same reasons as your CETV has gone down. Central bank base rates have gone up. 

You have not lost a penny.

CETVs are just point in time snapshots of transfer "prices" to pay you to forgo the current benefit.  And are irrelevant to taking the pension as is.

Since you did your CETV so long ago transfer prices went up (mostly) for a while and then came back down - a lot.  All the while your pension entitlement only went up via accrual and indexation.

Your "option" to switch to taking investment risk and to have an inheritable  pot but without guarantee of income, of any investment returns or inflation index linking whatsoever - was briefly there as a possible option for you to pursue during the last 20 years when interest rates / gilt yields were at historic lows and then it effectively disappeared again (or became much worse value) via interest rates turning and rising and also the regulatory action to strongly discourage people switching defined benefit to drawdown.  Because mostly it *is* bad for them.  And for the government if more retirement incomes fail to deliver.

For many of us with normal jobs such a switch adds risk to a fairly safe retirement plan and makes little sense. 
Clearly some people are more risk embracing than others and would like to make the trade to take the risk, drawdown modestly and leave something for children.  DC pot drawdown is no picnic however as 2022 illustrates.

You would now struggle to get anyone (IFA) to do a DB to DC transfer now anyway - legally mandated advice that they are lifetime liable for that it was a suitable thing for you to do.  Wanting to or a vague intention around it doesn't make it so.

So very unlikely now unless your retirement plans were not really based on or dependent on this pension anyway.

Pensions are a very long term product and you can only do things at certain ages or realistically when employment changes.  So what "used to be possible" tends not to be that relevant.  Governments of all parties fiddle endlessly and the rules keep changing for all types of pension.  What was true in 2001 is ancient history.

bostonerimus

We were living in a time of very low interest rates and pretty silly pension transfer estimates. Now that rates have increased the transfer amounts have fallen. So it might be best to take the lifetime income option. 

Pat38493

Are you aware that you have to take IFA advice in order to transfer a DB pension to a pot, and you will struggle to find any pension provider who will accept a transfer if the IFA advice is that it's not in your best interests to go ahead.

And yes CETV values has dropped massively in recent times.

Albermarle

The info you have about your final salary pension ( technically known as a Defined Benefit pension) will be in two parts.

The first part is details about the guaranteed annual pension income you will receive when you reach the schemes Normal Retirement Age. This is not always updated every year, but you would have received a figure when you left the employment, that will have uprated each year by inflation.

Secondly on request you can get a CETV figure, that is the amount the pensions scheme will give you to buy you out of the scheme, and rid themselves of the liability of providing a guaranteed income to you in retirement.

The first part is the important part, as this pension income is guaranteed and therefore a valuable thing to have.

The CETV part is less important and can change from one year to the next. Taking the CETV is normally not a good idea, and as already mentioned there are many blockers in place that make it difficult.

It seems you have been wrongly focused on the CETV figure, and have misunderstood the basics of your Final Salary Pension, which has not gone down in value at all.

MEM62

JanS65 said:

I have a Deferred Final Salary Pension Scheme with a Bank.  

That is a very fortunate postion to be in.  

JanS65 said:

I had decided to retire at the age of 57 due to the large amount that was in my pension.  

Also very fortunate. 

JanS65 said:

I have received a new transfer value but this has dropped by 43% putting my retirement plans on hold.  

It shouldn't.  As this is a defined benefit scheme, the benefits paid to you in retirement are exactly that - defined.  They do not depend on the value of any 'pot'.  You speak of transfer values.  It is unlikely that you could transfer out of a DB scheme but, even if you could, it would be very unwise.  

Dazed_and_C0nfused

JanS65 said:

I have a Deferred Final Salary Pension Scheme with a Bank.  I asked for a transfer value in October 2001.  I had decided to retire at the age of 57 due to the large amount that was in my pension.  I have received a new transfer value but this has dropped by 43% putting my retirement plans on hold.  I have been told that there has been a decrease in Gilts however, no other pension company has dropped so much.  Can anyone give me some advice on how to proceed with finding out more details, as the letters received seem to be copy and pasted with conflicting information.  Thanks. 

The title of your thread is wrong.

Your pension hasn't drastically reduced in value, you will no doubt be entitled to the exact same pension you were expecting as a member of a final salary (DB) scheme.

What has changed is the amount of money the pension scheme are willing to bribe you with to get you off their books has reduced.

You can sleep easily knowing your actual pension remains the same as it ever was 😃.

dunstonh

 I had decided to retire at the age of 57 due to the large amount that was in my pension.  I have received a new transfer value but this has dropped by 43% putting my retirement plans on hold.  

Only the CETV has gone down.  The defined benefits of your pension are unchanged.  It shouldnt have made any difference to your planning or the need to go on hold.

 I have been told that there has been a decrease in Gilts however, no other pension company has dropped so much.

Pretty much all DB pensions have seen their CETVs drop back to pre credit crunch levels.     Do not mix up DB pensions with DC.

Can anyone give me some advice on how to proceed with finding out more details, as the letters received seem to be copy and pasted with conflicting information. 

CETVs are not going to rise again as they were a historical abnormality.  However, CETVs are completely irrelevant for 90% of people.   So, why is it impacting on you?