DB Pension - Options available - either take annual value or transfer to another provider

MrsWenger

I would be grateful for any information in relation to my enquiry please.

I have a small DB pension from a company I worked for from 1991-1999. I have received a letter from Legal and General which gives two options; an annual pension of £945.00 or a cash sum surrender of £19,740.00. This cash sum was based on Triviality but I have other pensions so the combined value exceeds £30,000. 

I have spoken to Legal & General who advise that as I do not meet the criteria for Triviality my only options are to see if I can transfer to my other pension provider, Aviva, or to take the pension as an annual value. My preference would be to have taken the cash surrender value. Can anyone explain why this is not possible please?

xylophone

See

https://techzone.abrdn.com/public/pensions/Guide-triviality-small-pots

Trivial commutation lump sums - defined benefits

MrsWenger

Thank you for your reply and the link Xylophone. I’ll speak to Aviva and see what they say about transfer options.

Albermarle

For info the offer of nearly £20k for a pension of £950 pa looks about right.
Although it depends - if the pension starts at 60 and/or had annual increases linked to inflation + >50% to a spouse if you died, then it would be a bit low.
If it started at 65 with annual increases limited to say 3 or 5% then the offer looks better.

dunstonh

You may find it difficult to transfer a DB pension to another provider.   Whilst the rules say that you can transfer without advice it if its under £30k, receiving schemes often will not accept a DB transfer in, regardless of value unless an adviser is transacting it (stakeholder pensions excluded).

When you speak to aviva, make sure you tell them that the source scheme is defined benefit.

Remember that just because the amount is small, doesn't mean it is sensible to transfer it.  Plus, the annual income will increase.  So, it will be less than 20 years before it breaks even (assuming the £945 is the current figure that has been uprated and not the original figure when leaving)

xylophone

Before you consider the transfer out option....

You have reached Normal Scheme Pension Age?

Were you employed by L&G (so a member of their occupational scheme)?

Or L&G  administer your former employer's occupational scheme?

Or you have a S32 policy with L&G?

This scheme was contracted out of SERPS?

If so, what is said about post 88 GMP/excess and annual pension increase?

Was any commutation (lump sum/smaller annual pension) offered?

If you transferred out to a DC scheme in order to access this pension, had you considered MPAA (if applicable)?

Have you obtained a state pension forecast?

FIREDreamer

MrsWenger said:

I would be grateful for any information in relation to my enquiry please.

I have a small DB pension from a company I worked for from 1991-1999. I have received a letter from Legal and General which gives two options; an annual pension of £945.00 or a cash sum surrender of £19,740.00. This cash sum was based on Triviality but I have other pensions so the combined value exceeds £30,000. 

I have spoken to Legal & General who advise that as I do not meet the criteria for Triviality my only options are to see if I can transfer to my other pension provider, Aviva, or to take the pension as an annual value. My preference would be to have taken the cash surrender value. Can anyone explain why this is not possible please?

Is £945 the annual pension when you left in 1999 or the annual pension now (it looks a bit low for 8 years service and 25 years in deferment). 

cloud_dog

dunstonh said:

You may find it difficult to transfer a DB pension to another provider.   Whilst the rules say that you can transfer without advice it if its under £30k, receiving schemes often will not accept a DB transfer in, regardless of value unless an adviser is transacting it (stakeholder pensions excluded).

When you speak to aviva, make sure you tell them that the source scheme is defined benefit.

Remember that just because the amount is small, doesn't mean it is sensible to transfer it.  Plus, the annual income will increase.  So, it will be less than 20 years before it breaks even (assuming the £945 is the current figure that has been uprated and not the original figure when leaving)

Anecdotally I am aware that Vanguard will (have previously) accept a DB transfer for a value less than £30k.

MrsWenger

Albermarle said:

For info the offer of nearly £20k for a pension of £950 pa looks about right.
Although it depends - if the pension starts at 60 and/or had annual increases linked to inflation + >50% to a spouse if you died, then it would be a bit low.
If it started at 65 with annual increases limited to say 3 or 5% then the offer looks better.

Thank you Albermarle. It does start at 60 and the spouse entitlement upon my death would be £472.56 per annum.

MrsWenger

dunstonh said:

You may find it difficult to transfer a DB pension to another provider.   Whilst the rules say that you can transfer without advice it if its under £30k, receiving schemes often will not accept a DB transfer in, regardless of value unless an adviser is transacting it (stakeholder pensions excluded).

When you speak to aviva, make sure you tell them that the source scheme is defined benefit.

Remember that just because the amount is small, doesn't mean it is sensible to transfer it.  Plus, the annual income will increase.  So, it will be less than 20 years before it breaks even (assuming the £945 is the current figure that has been uprated and not the original figure when leaving)

Thank you dunstonh. 

I spoke to Aviva earlier and made sure to state the Legal and General pension is defined benefit. I was on the phone over an hour; the guy I spoke to had to keep putting me on hold to seek answers from a colleague. He assured me that based on the value it could be transferred to the policy type his department look after, those that start with TK. I must say I was not entirely convinced by him. 

I have another Aviva pension that the policy number starts with PM but I was told I need to speak to a different team to ask if that accepts transfers. I will do that tomorrow as I had a hospital appointment this afternoon.

Thank you for the information in relation to considering whether to transfer it. The section of the letter L&G emailed to me after I spoke to them yesterday is below. (The value changed slightly as my 60th birthday was in June) - 

Pension Split - Post 88SMP

Amount - £965.28
Rate of Increase - RPI

Basis of Increase - RPI Applied April (Min 0%, Max 3%)

MrsWenger

xylophone said:

Before you consider the transfer out option....

You have reached Normal Scheme Pension Age? Yes, I was 60 in June.

Were you employed by L&G (so a member of their occupational scheme)? No, I didn’t work for L&G.

Or L&G  administer your former employer's occupational scheme? Yes, L&G administer the scheme.

Or you have a S32 policy with L&G? I am not sure what a S32 policy is, apologies. The scheme name is called “Motor Industry Pension Plan (Tranche2)” if that helps.

This scheme was contracted out of SERPS? Yes, the notes in the letter state it was contracted out of SERPS.

If so, what is said about post 88 GMP/excess and annual pension increase? There are no notes relating to 88 GMP but it is mentioned in the Pension Split section for option 1, please see my reply to dunstonh. The notes contain this paragraph - 

“The above pensions include a Secured Minimum Pension (SMP). The Motor Industry Pension Plan (Tranche 2) . was contracted-out of the State Earnings Related Pension Scheme (SERPS) and this benefit is part of the overall State entitlement. It is the minimum level of pension that is payable in respect of your contracted-out service prior to 06/04/1997.”

Was any commutation (lump sum/smaller annual pension) offered? No, there was just the annual payment or the transfer value detailed in the revised letter.

If you transferred out to a DC scheme in order to access this pension, had you considered MPAA (if applicable)? I am looking to retire in the coming months so will not be earning a salary.

Have you obtained a state pension forecast? Yes, £12,517.64 (£239.90 per week) It states “this is the most you can get.”

Thank you again Xylophone. I have added answers to the question you asked.