Transfer out or leave in, thoughts please

BlackCat68

I have a pension pot with an employer that I left 20 years ago.  The value of my pot has reduced drastically in the past 5 years from almost £400k to £200k.  As it stands if I draw the pension now I would get £45k tax free lump sum and £6k pa.  I have taken some financial advice and for £150k I can get an enhanced annuity that pays £18-20k pa and a lump sum of £50k.  If I were to die before taking this pension the money is lost as I no longer work for the company, there is a spouses pension but I'm not married and nothing would go to my daughter.  Its a final salary scheme and my final salary on leaving the company was fairly low.
A couple of former colleagues have said I should leave it where it is as its such a good scheme, I didn't make any AVCs, but as far as I can tell, even if I leave it where it is until age 70, I'd get about £9k a year (but a much bigger lump sum). It seems a no brainer to me but my colleagues who are trusted friends are making me doubt this decision and I wonder if I am missing something obvious?

JoeCrystal

Sorry but just to confirm you only got DB pension scheme with no AVCs then the "value" of your pot it irrelevant and meaningless. Are you sure your £9k is in today term or merely when you left twenty years ago?

Mark_d

You pension was a final salary scheme so it makes no sense to talk about the value of your pot.  What matters are the benefits you get at retirement and any death benefits.

It sounds like your former colleagues know what they're talking about.

It is possible that your financial advice hasn't understood all the benefits of your existing pensions.  But on the other hand, it's also possible that you have health conditions which could qualify you for a higher pension (knowing that your life expectancy is short)

daveyjp

Your starting point is knowing and understanding exacty what you have and not what you could have.

Its a DB pension, so you don't have a 'pot', you have an amount the DB pension provider will pay you to absolve them of having to pay you a pension for life.

Moving out of the DB pension will cost you thousands for initial advice.

flaneurs_lobster

For an enhanced annuity to be paying £18k/yr for a payment of £150k there must be some serious health conditions that the OP has only alluded to.

dunstonh

I have taken some financial advice and for £150k I can get an enhanced annuity that pays £18-20k pa and a lump sum of £50k.  If I were to die before taking this pension the money is lost as I no longer work for the company, there is a spouses pension but I'm not married and nothing would go to my daughter.

Defined benefit schemes do not have a pot.  They do not have a value.  So, it hasnt halved in value as you suggest.       The CETV is not value in the same sense a defined contribution pension would be.  It's effectively the cost of buying the same benefits elsewhere.     As gilt yields have risen, annuity rates have gone higher and therefore the cost of buying benefits elsewhere has gone down and therefore the CETV has gone down.

A couple of former colleagues have said I should leave it where it is as its such a good scheme, I didn't make any AVCs, but as far as I can tell, even if I leave it where it is until age 70, I'd get about £9k a year (but a much bigger lump sum). It seems a no brainer to me but my colleagues who are trusted friends are making me doubt this decision and I wonder if I am missing something obvious?

Have the benefits on the DB scheme been updated to reflect their current worth?  (often they are not unless you request them to be).

Is the annuity on the same terms as the scheme pension?  (e.g. is the annuity quote level, LPI or RPI)
If the annuity is level and the scheme pension has indexation then you are not comparing like for like.  My gut feeling on the figures are that it is level and not indexed.

What death benefits have you built into the annuity quote?

QrizB

Welcome to the forum.

BlackCat68 said:

I have a pension pot with an employer that I left 20 years ago.  The value of my pot has reduced drastically in the past 5 years from almost £400k to £200k.  ...  Its a final salary scheme 

There is no "pot" with a Final Salary (Defined Benefit, DB) pension scheme. What you're seeing is the cash Equivalent Transfer Value (CETV) which is how much the scheme would pay you if you transferred out. This is not the same thing.

BlackCat68 said:

As it stands if I draw the pension now I would get £45k tax free lump sum and £6k pa. 

That sounds unlikely. As above, the £6k pa could be the value when you left the scheme; it will probably have been index linked. £6k in 2005 is close to £11k today.

BlackCat68 said:

 I have taken some financial advice

From whom, exactly, have you taken this advice? Financial advice is a regulated activity.

Did your advisor explain what your DB pension is worth today?

How old are you? Is "68" your year of birth, whouch would make you 57-ish?

Bostonerimus1

The value of that “enhanced annuity” seems very dubious, what are the terms of the enhancement? Would this annuity be purchased through your financial advisor. Call me cynical, but have you considered that your advisor sees a large sum on money and wants to get the fees they could charge on it.

kinger101

I'm sceptical the advice you received was in your best interests.  Can you mention who the financial advisor is?  

Enhanced annuities like you have suggested require something which will mean you've a high probability of dying early.  

If this is the case, then it might make sense but I can't help thinking you're being targeted by someone nasty here 

Marcon

BlackCat68 said:

I have a pension pot with an employer that I left 20 years ago.  The value of my pot has reduced drastically in the past 5 years from almost £400k to £200k.  As it stands if I draw the pension now I would get £45k tax free lump sum and £6k pa.  I have taken some financial advice and for £150k I can get an enhanced annuity that pays £18-20k pa and a lump sum of £50k.  If I were to die before taking this pension the money is lost as I no longer work for the company, there is a spouses pension but I'm not married and nothing would go to my daughter.  Its a final salary scheme and my final salary on leaving the company was fairly low.
A couple of former colleagues have said I should leave it where it is as its such a good scheme, I didn't make any AVCs, but as far as I can tell, even if I leave it where it is until age 70, I'd get about £9k a year (but a much bigger lump sum). It seems a no brainer to me but my colleagues who are trusted friends are making me doubt this decision and I wonder if I am missing something obvious?

Seems to be yet another case of friends who mean well but don't have all the relevant facts on which to base their comments, which appear to be based on the common mantra of 'never transfer out of a final salary scheme'.

If (and it's a very big 'if') the figures in your post are accurate and up to date, and you fully understand what you are giving up and what you'll be getting in return, then it would make sense to consider transferring. You will need to take the necessary full financial advice required before your final salary scheme can release a transfer value to a scheme which will give you the freedom to do what you describe. Somehow I doubt that the financial advice you say you have taken will be anything like comprehensive enough - or have been given by someone with the requisite FCA permissions to advise on such transfers. Expect to pay at least £5K for the advice.

dunstonh

I'm sceptical the advice you received was in your best interests.  Can you mention who the financial advisor is?  

It may not even be regulated advice at this stage.  i.e. if the OP may have just had a brief discussion and asked an IFA to provide an annuity quote on a fund value of £200k.   It may be quick and dirty, non-chargeable info at this point.

At this time, it appears the main scheme hasn't provided updated figures.   The adviser would have to compare those on a similar basis as well as alternative annuity shapes.      We don't know that the OP has paid for regulated advice yet.  So, we shouldn't jump the gun at this stage.