Winding up lump sum offer

Mrupsidedown

Age: 63. Self employed with SIPP.
Pension from previous employer from 6/4/1980 to 31/01/1986 as a student on summer placements.
Deferred benefit: £522.84 per annum. From 1/4/2027,  not available before then?
Received a letter from the administrators to offer a winding up lump sum of £7107, of which 25% or £1776 is tax free.
So I would receive £1776 plus 80% of (7107-1776)=1776+ 4264 = £6040 lump sum.
There is a transfer value offered of £7200 but that is not confirmed.

What do I do?

I could do nothing and receive £522 PA for the next 30 years, my Father died at 92.
522 x 30= £15660. I suspect the £522 figure is index linked as I looked a couple of years ago the sum was £400 ish  PA.

Maybe I need someone to look over the pension in detail?

QrizB

The decision is yours, but the simplest option could be to transfer it into your SIPP.

Mrupsidedown said:

Deferred benefit: £522.84 per annum. From 1/4/2027,  not available before then?

At current annuity rates, £522.84 per year and increasing by RPI for a 65-yo in good health would cost almost £10k. So the windin-up lump sum or transfer doesn't seem particularly good value.

Mrupsidedown said:

Maybe I need someone to look over the pension in detail?

Probably not worth it for a £10k-or-less pension, unless you've already got an IFA looking after your investments for you and you can get their opinion as part of your ongoing service.

Mrupsidedown

Thank you. So do nothing looks favourite.

Marcon

QrizB said:

The decision is yours, but the simplest option could be to transfer it into your SIPP.

Mrupsidedown said:

Deferred benefit: £522.84 per annum. From 1/4/2027,  not available before then?

At current annuity rates, £522.84 per year and increasing by RPI for a 65-yo in good health would cost almost £10k. So the windin-up lump sum or transfer doesn't seem particularly good value.

Look at the dates: 6/4/1980 to 31/01/1986. Highly likely the scheme was contracted out, with:

• a GMP element which is increasing in deferment but won't increase once the pension is in payment
• anything in excess of the GMP which relates to pre-1.1.85 employment/pension scheme membership won't increase either in deferment or once the pension is in payment
• anything relating to post-1.1.85 employment/pension scheme membership won't increase once the pension is in payment.

So the lump sum/transfer value doesn't look unreasonable, unless there are 'better than statutory' features OP hasn't mentioned (and probably doesn't know about!).

OP - putting that into English, only part of your pension will increase each year before you start to draw the pension. It won't increase once the pension is actually in payment, unless the scheme rules provide otherwise.

Mrupsidedown said:

Thank you. So do nothing looks favourite.

Transferring to your SIPP is worth considering. 

Albermarle

You are best to calculate that you will live another 20 years, which is more the statistical average for a man of you age .
On the other side the yearly pension may well be taxed, depending on your other income ( note the state pension is taxable) .

As said something around £10K would seem a fairer figure, but to be honest I am sure 90% of people offered it would just have taken it without thinking. 

QrizB

Mrupsidedown said:

Thank you. So do nothing looks favourite. 

Marcon has gone into more detail than I did (thank you) and I agree that.my.£10k could well be on the high side.

Do you know what increases this pension would get if you held on to 2027 and put it into payment?

Mrupsidedown

Thank you for your detailed comments, particularly Marcon.
It is a final salary scheme.
The GMP element benefits from RPI protection after State Pension Age, The excess pension element will have an increase seemingly offered by the administrators based on the schemes viability and surplus?
But I am unsure of the split between the GMP and the excess.
There was a reported surplus of £30 million of a total scheme value of £900 million in the last year or two, I skim read it, so not sure of exact details.
It it TI Group General pension, administered by Smiths Pensions, to move to a buyout by Rothesay.

Marcon

GMP - that used to be the case, with pension increases on pre-88 GMP being paid by the state (not the scheme). The position has changed for those reaching State Pension Age from 2016 on. Unless the scheme rules specifically provide for the scheme to pay increases on pre-88 GMP pensions in payment, there won't be any. Possibly a point to clarify - ditto the split between GMP and the excess over GMP.

Administrators have no say in respect of discretionary increases. That is in the gift of the sponsoring employer, although some schemes give the trustees some power where a scheme is in surplus. There will be no discretionary increases once a scheme has been bought out.

DRS1

But as part of the winding up the surplus or part of it may be applied to enhance benefits in some way (eg adding a guaranteed level of pension increase) and that enhancement would then be part of the buyout terms.

Marcon

DRS1 said:

But as part of the winding up the surplus or part of it may be applied to enhance benefits in some way (eg adding a guaranteed level of pension increase) and that enhancement would then be part of the buyout terms.

Indeed, but it's not clear if the scheme is in surplus on a discontinuance basis, so there may be no surplus to consider. If there are enhancements then members would have been told about them as part of the comms process, and given the chance to raise objections with the pensions regulator about how the surplus, if any, had been handled. OP, have you yet had any info covering that? 

DRS1

Interesting that they seem to have done some buy ins in 2022 and earlier

Smiths Group scheme secures final £640mn buy-in | News | Pensions Expert

I am guessing that means no additional benefits are coming the OP's way.

The winding up was triggered in February this year.