Transferring an old pension

Marcon

dunstonh said:

So am i best to find out what the projection is and then see if it's worth leaving as is or transfer it to my workplace pension or SIPP in the hope of a better return?

You could ask them to update the figure.   However, the expectation will be that the updated figure will be significantly higher and have an early breakeven point to the CETV, meaning that it would be unsuitable to transfer.

It is highly unlikely your SIPP or workplace pension would beat it.

Rephrasing that slightly (and still agreeing totally with the concluding sentence!):

• the transfer value of £11,903.26 is the scheme's own estimate of what it would cost the scheme to provide the benefits promised under the scheme when you reach age 65
• because the scheme is underfunded (not enough cash in it by a long chalk), you are only going to get £7,737.12 if you do decide to transfer out. In other words, you'll only get enough cash transferred to buy you 2/3 (£7,737/12/£11,903.26) of the promised benefits - that's 66%
• if the employer goes under and the scheme is put into the Pension Protection Fund, you'll still get 90% of the benefits to which you would have been entitled had the scheme continued to run on.

xylophone

As explained above, you do not have a GMP because you joined the scheme on or after 6/4/97.


In brief,  from 6/4/78 to 5/4/97, if a pension scheme was contracted out of Additional State Pension (SERPS/S2P),  members of the

scheme had to be guaranteed a pension at least as great as they would have accrued had the scheme been contracted in.


From 6/4/97 and up to 5/4/16, such schemes had to comply with  what was known as the Reference Scheme Test. The Scheme

Actuary had to confirm that  the benefits provided were at least equivalent to those set out in related legislation. These are known as

S9(2b) rights.


You were long enough in the scheme for your benefits to "vest" so that when you left, you had the right to a deferred pension.

The law required that your  benefits should revalue in deferment so as to protect them in some measure from being eroded by

inflation.



Your benefits were accrued between 1999 and 2002.

Deferred pension rights accrued since 1 January 1986 must be revalued annually to normal retirement age in line with prices.  On 

a statutory basis this is capped at 5% for service to 5 April 2009, but scheme rules may be more generous. 

Before  2011/12, the Index used was RPI but since then your scheme may have switched to CPI. 

If your ex employer (scheme sponsor) becomes insolvent, see links in previous post concerning PPF.

Your scheme administrator should be able to confirm how your benefits are revaluing in deferment.

gm0

Factual questions

Spouse rules. 100%. / 50% / None - what happens after first death to 2nd.

Indexation basis - cpi, rpi, fixed %. Is there a discretionary element.  Any other rules. Any annual caps.

Rules to take it early vs "normal retirement age" - (lower pension for longer), or later (higher pension for less time). 
What is the nra - for you in this scheme. Key fact.

Commencement Lump sum rules and options (or not) to take that (cash vs higher indexed pension without it)

Income value if notionally taken this year - with all the indexation to date correctly applied - would be a helpful number- not because you can or will take it - but it gives you an easier figure to work with for planning today.

It is easy to see from what you have shared that the CETV (transfer quotes are not very attractive)

On the web - to buy 1k annual income as joint life indexed annuity at 3% 50% spouse - is about 18k. (not the best price obtainable no doubt).  Or to plan a long drawdown at 3.5% draw it's more like 28k pot at the start.

It begs the question why would you countenance taking 8k or indeed 12k for an income promise worth more and then take a load of investment risk to try and grow it back first to where you are now.  And then beyond.

Sure - it could grow more - over 30+ years from now.  But the adventure in between could be very exciting.  And the risk to your pension income and size of haircut on the journey which could be unhelpfully timed - for you - is way bigger than what you face today.

Get to grips with what indexed income is really worth.

Then have a good hard think about risk and long term returns which you will need to care about if you transfer. As the investment risk and control comes from them - to you.

Onestepcloser

So finally got a estimated value at retirement age, which tracks CPI
Option 1:
£2200 full annual pension.

Option 2: a pension commencement lump sum of £10600 and reduced annual pension of £1500.

Added text.

You may choose to receive a smaller cash lump sum than the maximum amount available under the

Scheme rules (the amount shown in Option 2), which would mean a larger initial pension.

The estimate of your benefits we have provided is not a guaranteed promise or

entitlement beyond that stated in the Scheme Rules. Whilst every effort has been made

to ensure the accuracy of the statement, it is based on the information available at the

time it was produced. If any of this information is incorrect then the figures on the

statement may change. The Trustees in accordance with the Trust Deed and Rules will

determine the entitlement at the time the benefits are taken.

Important note: We have based our calculation of your benefits on the assumption that the

Scheme will continue until your chosen retirement date. The estimate of your benefits we have

provided is not a guaranteed promise or entitlement beyond that stated in the Scheme Rules.

From 6 April 2024, the Lifetime Allowance (LTA) on tax relievable pension saving has been abolished

but we still need to collect Lifetime Allowance information to determine the extent to which your

benefits can be paid tax-free as Pension Commencement Lump Sum (PCLS).

The Lump Sum Allowance (LSA) limits the amount of tax-free cash you can take. That limit is 25%

of the lifetime allowance of £1,073,100, or £268,275.

Should you elect to take your benefits we will ask you to complete a Lump Sum Allowance

Declaration to allow us to determine the extent to which your benefits can be paid tax-free in

respect of any Pension Commencement Lump Sum.

In providing this illustration we have assumed you have the full Standard Lump Sum

artyboy

Ok so a good (if expected) result then. I have a question for the more knowledgeable people here - how would such an estimate be provided, given I believe we're talking about another 19 years to go, on top of the 22 years to date where the revaluation can already be calculated precisely?

I know scheme rules may improve on this, but as a minimum you could take the latest statutory revaluation order

https://www.legislation.gov.uk/uksi/2023/1265/article/2/made

and say that as of today, the deferred value is 84.1% higher than 2002 figure of £767 (ie £1,412) - are there a set of statutory assumptions on CPI that are used to project that value into the future?

xylophone

Presumably once the pension is in payment there will be an annual increase?

Albermarle

Onestepcloser said:

Marcon said:

Onestepcloser said:

Marcon said:

Onestepcloser said:

xylophone said:

 It used to a good pension back then if I remember correctly providing you stayed in it

I believe it's to do with not enough in the overall trust to cover transfers should everyone do it, or something like that, I would need to find the original letter.

Check!

As other posters have indicated, it does sound as though you have a deferred Defined Benefit pension.

If so, it should be revaluing in deferment.

Do you have a scheme guide or is the guide available on the internet?

When exactly were you a member of the scheme?

https://www.barnett-waddingham.co.uk/comment-insight/blog/revaluation-for-early-leavers/ may be worth a read  but you should check 

the scheme guide/ the letter you have received.

Ok, so I've found some paperwork they sent out.

The transfer has been reduced because at the current time there is insufficient assets in the scheme to provide full transfer values to all members.

If I remain in the scheme and the sponsoring employer becomes insolvent the scheme would be wound up and I would receive minimum benefits which may be significantly lower.

It is as I suspected a heavily underfunded defined benefit pension scheme. The fact it is offering reduced transfer values is to protect other scheme members (if they let some members transfer out the 'full' value of their benefits, that would be unfair to the remaining members).

If the employer becomes insolvent, then you are protected to a very large extent by the existence of the Pension Protection Fund: https://www.ppf.co.uk/ The benefits will be less than you'd anticipated, but you'd still get 90% of your entitlement under the scheme (100% if you've already reached the scheme's normal retirement age), and some pension increases.

Onestepcloser said:

Statement of entitlement.
Pensionable service start/15/02/1999
End/17/02/2002

Unreduced transfer value £11,903.26
Reduced transfer value £7,737.12
Calculation date 11/04/2024

Preserved benefits at the date of leaving pensionable service is £767.37 per annum.

Pension earned 06/04/1997 to 30/04/2005 - £767.37

Total preserved pension £767.37

Death benefits

Death before retiring spouse receives £383.69

After retirement, 50% lump at date of death, within 5 years of death a lump sum to the equivalent of the unpaid balance in the 5 year period.

There is a part about Guaranteed Minimum Pension and state second pension that I don't understand.

Revaluation of preserved benefits

The pension I have accrued in excess of my GMP is increased in line with price inflation. These are applied for complete years between date of leaving and normal retirement date.

The part of my preserved pension which is GMP if any will be revalued from your date of leaving up to my GMP age

Increase per tax year
6 April 1997 to 5 April 2002 - 6.25%
6 April 2002 to 5 April 2007 - 4.5%

Pension earned from 2005 is subject annual increase in consumer price index (maximum of 2.5%)

Hope that clears some of it up, as it doesn't make much sense to me.

You haven't got a Guaranteed Minimum Pension (GMPs stopped in 1997, and you didn't join the scheme until 1999), so ignore all that. Nor do you have any post-2005 service.

Your pension at the time you left was £767.37, payable from the scheme's normal retirement age. It will have been quietly clocking up increases each year from the time you left in 2002 until you come to access your benefits, such increases being related to price inflation* - so it'll be worth quite a bit more than £767.37 by now.

*without knowing the exact rules of your scheme, it's not possible to say whether this is RPI or CPI, and whether it is 'capped' at a particular level, or is 'in line' to the extent that it matches such increases. Your administrators could confirm if asked - and you might see if they'll give you a projection of what your pension is now.

Excuse me if I'm getting this wrong as I struggle with stuff like this.  So when I left the pension in 2002 I would get £767 per annum if I was 65, so if I leave this till I'm 65 which is another 19 years this will track inflation to some degree therefore increasing the value of the pot?

Is that correct?

At the time you left in 2002, you had 'earned' pension benefits of £767, payable at age 65. Your pension became 'deferred' (payable at some later date) at the time you left.

Since 2002, your deferred pension has been steadily increasing in value, year on year, depending on the rate of inflation. So yes, the pension has been going up in value from 2002 and will continue to do so for the next 19 years. If the employer becomes insolvent, and the scheme goes into the Pension Protection Fund, you'll get 90% of that 'revalued' figure.

A defined benefit pension doesn't have a 'pot', although many people think of the transfer value as a 'pot'. In this case, because of the funding position of the scheme (awful, and with an employer clearly in no position to put matters right or the Pensions Regulator wouldn't have agreed that the scheme could offer 'reduced' transfer values), don't bank on that increasing. 

So am i best to find out what the projection is and then see if it's worth leaving as is or transfer it to my workplace pension or SIPP in the hope of a better return?

Very much appreciate you taking the time explain this as well as all the other responses.

Just be aware that even though a transfer would not be a large amount, if you mention DB transfer to most SIPP and workplace pension providers, they will just refuse to accept the  transfer.

xylophone

I have a question for the more knowledgeable people here - how would such an estimate be provided, given I believe we're talking about another 19 years to go, on top of the 22 years to date where the revaluation can already be calculated precisely?

Scheme rules may cap the increase  at a certain percentage  and the estimate has been calculated on that basis?

Onestepcloser

Albermarle said:

Onestepcloser said:

Marcon said:

Onestepcloser said:

Marcon said:

Onestepcloser said:

xylophone said:

 It used to a good pension back then if I remember correctly providing you stayed in it

I believe it's to do with not enough in the overall trust to cover transfers should everyone do it, or something like that, I would need to find the original letter.

Check!

As other posters have indicated, it does sound as though you have a deferred Defined Benefit pension.

If so, it should be revaluing in deferment.

Do you have a scheme guide or is the guide available on the internet?

When exactly were you a member of the scheme?

https://www.barnett-waddingham.co.uk/comment-insight/blog/revaluation-for-early-leavers/ may be worth a read  but you should check 

the scheme guide/ the letter you have received.

Ok, so I've found some paperwork they sent out.

The transfer has been reduced because at the current time there is insufficient assets in the scheme to provide full transfer values to all members.

If I remain in the scheme and the sponsoring employer becomes insolvent the scheme would be wound up and I would receive minimum benefits which may be significantly lower.

It is as I suspected a heavily underfunded defined benefit pension scheme. The fact it is offering reduced transfer values is to protect other scheme members (if they let some members transfer out the 'full' value of their benefits, that would be unfair to the remaining members).

If the employer becomes insolvent, then you are protected to a very large extent by the existence of the Pension Protection Fund: https://www.ppf.co.uk/ The benefits will be less than you'd anticipated, but you'd still get 90% of your entitlement under the scheme (100% if you've already reached the scheme's normal retirement age), and some pension increases.

Onestepcloser said:

Statement of entitlement.
Pensionable service start/15/02/1999
End/17/02/2002

Unreduced transfer value £11,903.26
Reduced transfer value £7,737.12
Calculation date 11/04/2024

Preserved benefits at the date of leaving pensionable service is £767.37 per annum.

Pension earned 06/04/1997 to 30/04/2005 - £767.37

Total preserved pension £767.37

Death benefits

Death before retiring spouse receives £383.69

After retirement, 50% lump at date of death, within 5 years of death a lump sum to the equivalent of the unpaid balance in the 5 year period.

There is a part about Guaranteed Minimum Pension and state second pension that I don't understand.

Revaluation of preserved benefits

The pension I have accrued in excess of my GMP is increased in line with price inflation. These are applied for complete years between date of leaving and normal retirement date.

The part of my preserved pension which is GMP if any will be revalued from your date of leaving up to my GMP age

Increase per tax year
6 April 1997 to 5 April 2002 - 6.25%
6 April 2002 to 5 April 2007 - 4.5%

Pension earned from 2005 is subject annual increase in consumer price index (maximum of 2.5%)

Hope that clears some of it up, as it doesn't make much sense to me.

You haven't got a Guaranteed Minimum Pension (GMPs stopped in 1997, and you didn't join the scheme until 1999), so ignore all that. Nor do you have any post-2005 service.

Your pension at the time you left was £767.37, payable from the scheme's normal retirement age. It will have been quietly clocking up increases each year from the time you left in 2002 until you come to access your benefits, such increases being related to price inflation* - so it'll be worth quite a bit more than £767.37 by now.

*without knowing the exact rules of your scheme, it's not possible to say whether this is RPI or CPI, and whether it is 'capped' at a particular level, or is 'in line' to the extent that it matches such increases. Your administrators could confirm if asked - and you might see if they'll give you a projection of what your pension is now.

Excuse me if I'm getting this wrong as I struggle with stuff like this.  So when I left the pension in 2002 I would get £767 per annum if I was 65, so if I leave this till I'm 65 which is another 19 years this will track inflation to some degree therefore increasing the value of the pot?

Is that correct?

At the time you left in 2002, you had 'earned' pension benefits of £767, payable at age 65. Your pension became 'deferred' (payable at some later date) at the time you left.

Since 2002, your deferred pension has been steadily increasing in value, year on year, depending on the rate of inflation. So yes, the pension has been going up in value from 2002 and will continue to do so for the next 19 years. If the employer becomes insolvent, and the scheme goes into the Pension Protection Fund, you'll get 90% of that 'revalued' figure.

A defined benefit pension doesn't have a 'pot', although many people think of the transfer value as a 'pot'. In this case, because of the funding position of the scheme (awful, and with an employer clearly in no position to put matters right or the Pensions Regulator wouldn't have agreed that the scheme could offer 'reduced' transfer values), don't bank on that increasing. 

So am i best to find out what the projection is and then see if it's worth leaving as is or transfer it to my workplace pension or SIPP in the hope of a better return?

Very much appreciate you taking the time explain this as well as all the other responses.

Just be aware that even though a transfer would not be a large amount, if you mention DB transfer to most SIPP and workplace pension providers, they will just refuse to accept the  transfer.

I don't think I'm going to move it. Would be wiser to leave and take the lump sum and reduced annual pension.

Is there anything in the wall of text I should look out for?

Albermarle

So finally got a estimated value at retirement age, which tracks CPI
Option 1:
£2200 full annual pension
Option 2: a pension commencement lump sum of £10600 and reduced annual pension of £1500.

This is all you need to know. 
The lump sum offer is not very generous considering the pension you will be giving up, but it is your decision in the end.