Is it worth it to consolidate this Tesco pension

Andrew1981

Hopefully a fairly simple question.

I'm 42 and a small SIPP, and a growing civil service pension. I was going to add my old (10 years) Tesco pension to my Hargreaves Lansdown SIPP pension.

The paperwork came through and the Tesco pension transfer value is £17,000. If I don't transfer, then Tesco will pay me £1,550 a year at age 66.

Assuming that the pension payable increases at a roughly similar rate to if I was to invest the £17,000 in shares/bonds (would that be a fair assumption?) then I'm then left with the decision as to whether the £17,000 would buy me more at retirement, or £1,550 a year for life. Lots of unknown factors obviously, but given that from what I read, £100k gets you apx £4-5k/year, then it stands to reason that £17k would het me apx £700-£800/year...... and so the £1,550 from Tesco is far superior.

My conclusion would therefore be to not transfer..... unless I'm missing something?

Thanks in advance  

dunstonh

The paperwork came through and the Tesco pension transfer value is £17,000. If I don't transfer, then Tesco will pay me £1,550 a year at age 66.

Assuming this is the later defined contribution pension version then remember that the income figure is based on assumptions, pessimistic and in todays terms.  Not future money terms.  You tend to ignore the income figure used as its too vague and not personalised to what you want to do.

Assuming that the pension payable increases at a roughly similar rate to if I was to invest the £17,000 in shares/bonds (would that be a fair assumption?) then I'm then left with the decision as to whether the £17,000 would buy me more at retirement, or £1,550 a year for life.

Again, forget the income.  Its irrelevant for when doing comparisons.   Defined contribution pensions are all about the lump sum value.

Lots of unknown factors obviously, but given that from what I read, £100k gets you apx £4-5k/year, then it stands to reason that £17k would het me apx £700-£800/year...... and so the £1,550 from Tesco is far superior.

You will get you about 3 to 3.5% a year if you want indexation.  It doesnt matter if you are in the Tesco DC scheme or a SIPP.  3 to 3.5% is the sort of figure that is generally classed as sustainable (depending on how you invest and your age of taking benefits).

If you had the Tesco DB pension then income is important.  But you wouldn't be looking to transfer the Tesco DB pension as that would be daft in 9 out 10 cases.       

Andrew1981

Hi,

Many thanks for your reply. This pension was earned between 2012 and 2015 and so the Defined Benefit scheme (although called a 'formerly contracted out salary related' scheme on the documents).

From what you're saying (in the last sentence), it seems that my assumption was correct, and that as it's DB it would be wise not to transfer.

Thanks again for your comments 

hyubh

Andrew1981 said:

Many thanks for your reply. This pension was earned between 2012 and 2015 and so the Defined Benefit scheme (although called a 'formerly contracted out salary related' scheme on the documents).

Most DB schemes were COSR back in the day. It meant both you and your employer paid a lower rate of NI, for the loss of some additional state pension rights. However that's all historic, in practice you'll now easily accrue a 'full' post-2016 state pension given your age.

From what you're saying (in the last sentence), it seems that my assumption was correct, and that as it's DB it would be wise not to transfer.

Slight caveat, like most private sector DB schemes, inflation proofing is subject to a cap. However pension increases capped to 5% pa is still not bad going. Also a good funding position (I wouldn't worry about the post-Liz Truss wobble) and a strong sponsoring employer behind it.

That said, how long have you been in the civil service job? If less than a year, it might be worth investigating transferring into Alpha (DB->DB).

Andrew1981

Thanks for the COSR explanation, I never knew that could be an issue! It is a 5% cap and although that doesn't feel much now, it should be a good start.

I've been in CS 7 years alpha DB 7 years now so the pot is growing nicely. 

Looks like it's best to leave things be!

Thank you 

Dazed_and_C0nfused

Andrew1981 said:

Thanks for the COSR explanation, I never knew that could be an issue! It is a 5% cap and although that doesn't feel much now, it should be a good start.

I've been in CS 7 years alpha DB 7 years now so the pot is growing nicely. 

Looks like it's best to leave things be!

Thank you 

But just like your Tesco pension there is no "pot".

You are accruing an amount of pension based on your pensionable earnings each year.

Andrew1981

I guess I was using the word 'pot'  as a generic term for my future pension.