Transfer out or leave in, thoughts please

BlackCat68

Can anyone help me understand why final salary pension schemes are so good and shouldn't be transferred out of?  I understand it if you're still working for the company, but I stopped working for this company 20 years ago and my final salary was low compared to what I am now earning.  So any final salary I get will be based on that surely?  I was in the scheme for about 18 years, my final salary was about £19k, and as far as I am aware those figures won't/can't change.  Using the formula  (£19,000 ÷ 60) x 18 years = £317 x 10 = £5,706 which is roughly what my pension forecast says, plus lump sum.  There are no death benefits, I can't see what the advantage to me is

DRS1

BlackCat68 said:

Can anyone help me understand why final salary pension schemes are so good and shouldn't be transferred out of?  I understand it if you're still working for the company, but I stopped working for this company 20 years ago and my final salary was low compared to what I am now earning.  So any final salary I get will be based on that surely?  I was in the scheme for about 18 years, my final salary was about £19k, and as far as I am aware those figures won't/can't change.  Using the formula  (£19,000 ÷ 60) x 18 years = £317 x 10 = £5,706 which is roughly what my pension forecast says, plus lump sum.  There are no death benefits, I can't see what the advantage to me is

Well you're going to have 20 years of deferred pension increases to add on to that figure.

I know you say there are no death benefits but I would imagine that there may be a spouse's pension payable if you do die (before or after you start the pension).

Dazed_and_C0nfused

BlackCat68 said:

Can anyone help me understand why final salary pension schemes are so good and shouldn't be transferred out of?  I understand it if you're still working for the company, but I stopped working for this company 20 years ago and my final salary was low compared to what I am now earning.  So any final salary I get will be based on that surely?  I was in the scheme for about 18 years, my final salary was about £19k, and as far as I am aware those figures won't/can't change.  Using the formula  (£19,000 ÷ 60) x 18 years = £317 x 10 = £5,706 which is roughly what my pension forecast says, plus lump sum.  There are no death benefits, I can't see what the advantage to me is

You are forgetting that there will almost certainly be an annual revaluation using an inflation increase within the scheme rules.  

For example it might be RPI or CPI from a particular month each year.  Or RPI/CPI but capped at 5%. Or many other possibilities.

So £5,706 when the pension was deferred 20 years is likely to much more today.

If you are going to get the standard new State Pension then you are looking at guaranteed pension income of in excess of £20k which in most people's eyes is probably a pretty decent foundation for retirement 

DRS1

BlackCat68 said:

The annuities suggested to me are with Aviva, Canada Life and Scottish Widows, not SJP.  Origan/Origen (sp?) are the other adviser I'm waiting to speak to.

There are some other annuity providers - Just, Legal & General and Standard Life.

Last year Standard Life was best for me.  This year Scottish Widows were.

One thing the providers are expected to do is say if their quote is the best you could get.  That won't stop them also telling you to shop around though.

BlackCat68

I really don't understand why the scheme has provided me a pension forecast, saying if I were to take it now I would get just under £6k p.a. and £45k lump sum.  Surely they'd need to tell me what the 20 years deferment have done to the pension?  There is a small spouses pension but I don't have a spouse and they have confirmed there is no death benefit for her.  I feel like I'm being really stupid here

Dazed_and_C0nfused

BlackCat68 said:

I really don't understand why the scheme has provided me a pension forecast, saying if I were to take it now I would get just under £6k p.a. and £45k lump sum.  Surely they'd need to tell me what the 20 years deferment have done to the pension?  There is a small spouses pension but I don't have a spouse and they have confirmed there is no death benefit for her.  I feel like I'm being really stupid here

Forecasts for DB schemes aren't always forthcoming as no one can accurately predict what future inflation will be.

But you should be able to find out what your original ~£5.7k has now become from the scheme administrator.  

DRS1

BlackCat68 said:

I really don't understand why the scheme has provided me a pension forecast, saying if I were to take it now I would get just under £6k p.a. and £45k lump sum.  Surely they'd need to tell me what the 20 years deferment have done to the pension?  There is a small spouses pension but I don't have a spouse and they have confirmed there is no death benefit for her.  I feel like I'm being really stupid here

There are people on here who know the answer to your first question.  I am not one but I think I may have seen suggestions that schemes only give you the revalued figures when you can take the pension.  Your best bet is to ask the scheme administrators what the revalued figures would be.  You'd need those to make a valid comparison with any annuity quote.

You'd also need to know what increases would be applied to the pension when it is in payment.  If the pension increases at 3% there is no point comparing it to an annuity which increases in line with RPI (or one which doesn't increase at all)

These are all things which you would expect your adviser to cover.

If you don't have a spouse then obviously there is no-one to pay a spouse's pension to.  It is worth mentioning that if you have a civil partner they would qualify as a spouse.

Some schemes (LGPS for example) have a pension for an alternative financial dependant (typically a "common law" spouse - ie a partner to whom you are not legally married but you have to go through hoops to prove it and getting married may be simpler!)

Cobbler_tone

Dazed_and_C0nfused said:

BlackCat68 said:

I really don't understand why the scheme has provided me a pension forecast, saying if I were to take it now I would get just under £6k p.a. and £45k lump sum.  Surely they'd need to tell me what the 20 years deferment have done to the pension?  There is a small spouses pension but I don't have a spouse and they have confirmed there is no death benefit for her.  I feel like I'm being really stupid here

Forecasts for DB schemes aren't always forthcoming as no one can accurately predict what future inflation will be.

But you should be able to find out what your original ~£5.7k has now become from the scheme administrator.  

Mine must be a better one. You can see a live view from today - retirement. Clearly there are adjustments due to varying inflation numbers.

xylophone

Do you have a statement of deferred benefits on leaving?

What does it show re pre 88 GMP/post 88 GMP/excess over GMP?

What does the scheme guide say regarding how your pension revalues in deferment and any actuarial reduction for taking the

pension before scheme pension age?

https://www.barnett-waddingham.co.uk/comment-insight/blog/revaluation-for-early-leavers/

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

QrizB

BlackCat68 said:

Using the formula  (£19,000 ÷ 60) x 18 years = £317 x 10 = £5,706 which is roughly what my pension forecast says, plus lump sum. 

Your scheme booklet should tell you how it revalues in deferment.

20 years of CPI for example, would make that worth something like £10200 today.