DB Pension valuation.

spooookie1

Hello and thanks to anyone taking time out of their day to help me out here in advance.

I'll keep it short and to the point, I have no experience prior to this and generally do not understand the way many of these things work, and would like a layman's style explanation (where possible and a lack of acronyms ) 

I recently contacted a previous pension provider (Railpen) to ask if I could cash in my pension as it was a small amount. This was a DB pension.

The following is a summary estimate they sent me prior to me contacting them.

3. Contribution details: You are no longer contributing to the pension scheme. 4. Estimated value of your benefits at your Normal Retirement Date (NRD) or your next birthday if you are over your normal retirement age: Basic pension benefits before options: Lump sum £3453.14 Yearly pension £1203.40. 

Options available when you take your benefits: A maximum tax free lump sum and a Lump sum £6390.69 minimum yearly pension Yearly pension £958.60 Lifetime Allowance usage if taking the maximum lump sum option: 2.38% OR A minimum tax free lump sum and a Lump sum £0.00 maximum yearly pension Yearly pension £1491.16 Lifetime Allowance usage if taking the minimum lump sum option: 2.77% Death benefits if you die before claiming your benefits: A lump sum and a dependant’s pension Lump sum £6016.74 Yearly dependant's pension £791.50 Death benefits if you die after you start receiving your benefits: Yearly dependant's pension £791.50

And the reply was this:

Dear Mr ****** Railways Pension Scheme - South Western Railway Section Response to enquiry Thank you for getting in touch. We are writing in response to your request to exchange your pension entitlement in the above pension scheme for a one-off cash lump sum. This process is known as either ‘trivial commutation’ or a ‘small pot payment’. By law, to be eligible for a trivial commutation lump sum, the value of all the benefits in the Railway Pension scheme and other company or personal pension arrangements (excluding the State Pension) must not exceed £30,000.00 The value of your benefits in the Railway pension scheme is £35,456.20 Similarly, to be eligible for a small pot payment, the amount paid to you from the Railway Pension Scheme must not exceed £10,000.00. However, the payment from the Railway Pension Scheme would be £35,456.20, so would exceed this amount. Therefore, we regret to inform you that you are not eligible for a one-off cash lump sum payment from the Railway Pension Scheme because of the limits set by the government and HM Revenue & Customs. If you need further information, 

The reason I am here and asking you experts is that I have, as previously mentioned, no experience of such things, nor a numbers man, and while I have written back to them, it takes two weeks for a reply and I thought perhaps you could enlighten me on this. For example can I transfer this, and would it be the £3500 I was expecting it to be or the value they have place of £35000, and was the reply correct here because I genuinely believed it was simply the lower amount which would be claimed by me and had no idea it multiplied like this. I am over 55 and still working for a completely different employer.

I apologise if this makes little sense because this really is not my thing and hence the reason I am asking you all. Thanks again.

dunstonh

For example can I transfer this, and would it be the £3500 I was expecting it to be or the value they have place of £35000, and was the reply correct here because I genuinely believed it was simply the lower amount which would be claimed by me and had no idea it multiplied like this. I am over 55 and still working for a completely different employer.

It will cost you around £5000-£10,000 to transfer the pension and its unlikely you would be told its suitable.    It would need to be transferred to a personal pension and then if you cashed that in, 75% of the value would be taxble.

Basically, what you want to do is highly unlikely to be sensible and you would find a number of blockers designed to stop you making that mistake.  (you haven't given a reason why you want to do it but there are not many where it may make sense)

penners324

Small pension is considered to be £30k
 The CETV of this pension is above that.

It's now considered to be a bad idea to transfer out of a DB scheme.

handful

Basically you can't cash it in because it's over the small pot limit. You should in theory be able to transfer it but there are a lot of protections built in around DB pensions and you generally have to take advice from an IFA before they will release it and you will probably struggle to get one that will advise you to transfer it anyway. My knowledge is fairly limited so you will get some more qualified advice I'm sure but in IMHO I would say leave it where it is and just decide when to take the TFLS and start drawing it..

**edit, there were no replies showing when I replied!!

Marcon

spooookie1 said:

Hello and thanks to anyone taking time out of their day to help me out here in advance.

I'll keep it short and to the point, I have no experience prior to this and generally do not understand the way many of these things work, and would like a layman's style explanation (where possible and a lack of acronyms ) 

I recently contacted a previous pension provider (Railpen) to ask if I could cash in my pension as it was a small amount. This was a DB pension.

The following is a summary estimate they sent me prior to me contacting them.

3. Contribution details: You are no longer contributing to the pension scheme. 4. Estimated value of your benefits at your Normal Retirement Date (NRD) or your next birthday if you are over your normal retirement age: Basic pension benefits before options: Lump sum £3453.14 Yearly pension £1203.40. 

Options available when you take your benefits: A maximum tax free lump sum and a Lump sum £6390.69 minimum yearly pension Yearly pension £958.60 Lifetime Allowance usage if taking the maximum lump sum option: 2.38% OR A minimum tax free lump sum and a Lump sum £0.00 maximum yearly pension Yearly pension £1491.16 Lifetime Allowance usage if taking the minimum lump sum option: 2.77% Death benefits if you die before claiming your benefits: A lump sum and a dependant’s pension Lump sum £6016.74 Yearly dependant's pension £791.50 Death benefits if you die after you start receiving your benefits: Yearly dependant's pension £791.50

And the reply was this:

Dear Mr ****** Railways Pension Scheme - South Western Railway Section Response to enquiry Thank you for getting in touch. We are writing in response to your request to exchange your pension entitlement in the above pension scheme for a one-off cash lump sum. This process is known as either ‘trivial commutation’ or a ‘small pot payment’. By law, to be eligible for a trivial commutation lump sum, the value of all the benefits in the Railway Pension scheme and other company or personal pension arrangements (excluding the State Pension) must not exceed £30,000.00 The value of your benefits in the Railway pension scheme is £35,456.20 Similarly, to be eligible for a small pot payment, the amount paid to you from the Railway Pension Scheme must not exceed £10,000.00. However, the payment from the Railway Pension Scheme would be £35,456.20, so would exceed this amount. Therefore, we regret to inform you that you are not eligible for a one-off cash lump sum payment from the Railway Pension Scheme because of the limits set by the government and HM Revenue & Customs. If you need further information, 

The reason I am here and asking you experts is that I have, as previously mentioned, no experience of such things, nor a numbers man, and while I have written back to them, it takes two weeks for a reply and I thought perhaps you could enlighten me on this. For example can I transfer this, and would it be the £3500 I was expecting it to be or the value they have place of £35000, and was the reply correct here because I genuinely believed it was simply the lower amount which would be claimed by me and had no idea it multiplied like this. I am over 55 and still working for a completely different employer.

I apologise if this makes little sense because this really is not my thing and hence the reason I am asking you all. Thanks again.

As your requested, here's the layman's explanation:

• You can't cash in your pension if you leave it where it is.
• You could cash it in if you transfer it to a personal pension. 
• You would need to ask the scheme formally for a 'Cash Equivalent Transfer Value', which is likely to be around £35,000 and is guaranteed for 3 months from the date it is quoted. What you've received doesn't appear to be a formal CETV.
• The law requires you to receive (but not necessarily follow) regulated financial advice before the Railways scheme could pay over the transfer value to another pension provider.
• That advice, as mentioned above, isn't cheap! The scheme will check that you've received advice and require a certificate from the person giving the advice to prove you've done so.
• In practice, only a 'stakeholder' pension is likely to be prepared to accept the transfer if the advice is not to transfer (which it almost certainly will be, unless you have extremely good reasons for wanting to cash in the DB pension).

Dazed_and_C0nfused

I recently contacted a previous pension provider (Railpen) to ask if I could cash in my pension as it was a small amount. This was a DB pension

Perhaps you could explain why you did that?

What is wrong with the (gold plated) pension you have become entitled to?

Surely that plus your State Pension, probably £10,600/year at current rates, will be a good guaranteed foundation to your retirement.

hyubh

spooookie1 said:

 For example can I transfer this, and would it be the £3500 I was expecting it to be

Why were you expecting it to be £3500 when just the tax free lump sum at NRD is that..? The £1203.40 is an annual payment for life, increased by CPI each year from leaving (the RPS uses public sector pension increase review orders, so your deferred pension went up by 10.1% in April). To represent the value of the lump sum and annual pension, the CETV (= one-off payment into another pension) would have to be way north of £3500, even if NRD were decades away.

Dazed_and_C0nfused

hyubh said:

spooookie1 said:

 For example can I transfer this, and would it be the £3500 I was expecting it to be

Why were you expecting it to be £3500 when just the tax free lump sum at NRD is that..? The £1203.40 is an annual payment for life, increased by CPI each year from leaving (the RPS uses public sector pension increase review orders, so your deferred pension went up by 10.1% in April). To represent the value of the lump sum and annual pension, the CETV (= one-off payment into another pension) would have to be way north of £3500, even if NRD were decades away.

I suspect the op simply doesn't understand what a DB pension is and how they work.

Marcon

Dazed_and_C0nfused said:

hyubh said:

spooookie1 said:

 For example can I transfer this, and would it be the £3500 I was expecting it to be

Why were you expecting it to be £3500 when just the tax free lump sum at NRD is that..? The £1203.40 is an annual payment for life, increased by CPI each year from leaving (the RPS uses public sector pension increase review orders, so your deferred pension went up by 10.1% in April). To represent the value of the lump sum and annual pension, the CETV (= one-off payment into another pension) would have to be way north of £3500, even if NRD were decades away.

I suspect the op simply doesn't understand what a DB pension is and how they work.

Quite - along with a large number of other people in this country, which is why they posted their question here.

doodling

Hi,

Your pension consists of two parts:

• A lump sum of (currently) £3453.14, paid when you start taking the pension.
• A pension paid for the rest of your life of (currently) £1203.40 per year.

Both of those are probably estimated on the basis that you will start taking the pension when you are 60 (please check this) and those values will increase with inflation.  As explained in the letter, you have the option of (within certain limits) decreasing the lump sum and increasing the pension or vice versa.  (If you expect to have an average life expectancy then converting all the lump sum to pension probably results in you getting the most money out of the pension but there may be reasons why taking a lump sum works better for you).

You can only cash in the pension as a whole if the total value of the benefits is less than £30k, it is expected that it will cost more than that for the RPS to give you your lump and yearly pension for life so that is not possible.

Transferring the pension to somewhere else where it can then be taken as a lump sum is theoretically possible but you will need to get advice from a financial advisor at a cost of several thousand pounds.  It will be challenging to transfer the pension if the financial advisor advises against it but you will still have to pay their fee.  Based on what you have said so far, I would expect a financial advisor to advise against transferring the pension.  If you did transfer the pension then you could take 25% of the value tax free and would pay income tax at the usual rates on the rest.