Is there a relationship between "Full pension" (as % of LTA) and Transfer Value of a DB Pension?

151Taddy

I have a DB pension due to me that has IFA approval to transfer to my existing SIPP.

The transfer value quote from the Pension company is approx £83,000. 

In the paperwork from the Pension company a figure of £175,000 is given for the "value of your full pension", being 16.4% of the standard lifetime allowance for the current tax year.

Question 1: Is there a relationship between these two figures?
Question 2: Should the transfer value be closer to the "Value of your full pension"?

If I decided to take the pension, rather than transfer, the annual salary would be a (Tax free) lump sum of £22k and an annual pension of £7,300, (with 50% payable to my spouse if I "pass" before her).
The value of the transfer equates to just over 8 years of pension payments + lump sum.

Question 3: Is the transfer value realistic?
Question 4: Is there a "Rule of thumb" for calculating the transfer value of a DB Pension?

Dazed_and_C0nfused

151Taddy said:

I have a DB pension due to me that has IFA approval to transfer to my existing SIPP.

The transfer value quote from the Pension company is approx £83,000. 

In the paperwork from the Pension company a figure of £175,000 is given for the "value of your full pension", being 16.4% of the standard lifetime allowance for the current tax year.

Question 1: Is there a relationship between these two figures?
Question 2: Should the transfer value be closer to the "Value of your full pension"?

If I decided to take the pension, rather than transfer, the annual salary would be a (Tax free) lump sum of £22k and an annual pension of £7,300, (with 50% payable to my spouse if I "pass" before her).
The value of the transfer equates to just over 8 years of pension payments + lump sum.

Question 3: Is the transfer value realistic?
Question 4: Is there a "Rule of thumb" for calculating the transfer value of a DB Pension?

How old are you?

Are you really thinking of giving up guaranteed income of £7,300 (plus TFLS of £22k) for just £83,000 🤔

HappyHarry

There is no relationship between the old LTA calculation used and the CETV of a DB pension.

Right now, lots of multiples are around the 20 mark, but that’s just a product of interest rates and not correlated to the old 20xDB pension LTA calculation.

The CETV is arrived at by estimating how much your DB pension will likely cost the trustees over yours and your spouses lifetime, then trimming that figure a little in the hope you might be greedy enough to take it and so reduce the liability to the pension scheme.

LHW99

Well receiving £83k in exchange for giving up a pension of £7300pa (presumably increasing by a certain amount pa) seems a poor exchange IMO (only a factor of just over 11x)

Don't know how old you are but using the L&G quick calculator you would need around twice that amount to buy a £7300pa annuity, and that's probably a single life that wouldn't make provision for a spouse.

https://www.legalandgeneral.com/retirement/campaigns/pension-annuity-calculator/?cid=PPCAnnuitySitelinkGoogle001&ef_id=EAIaIQobChMIi5SUov-GkgMVqaNQBh01AC5TEAAYASABEgLQIfD_BwE:G:s&s_kwcid=AL!12569!3!772057166635!e!!g!!annuity calculator!21046557304!163018957150&nst=0&gclsrc=aw.ds&gad_source=1&gad_campaignid=21046557304&gclid=EAIaIQobChMIi5SUov-GkgMVqaNQBh01AC5TEAAYASABEgLQIfD_BwE

DRS1

But presumably if an IFA has approved the transfer it can't be that bad a deal?  Aren't we told that such approval is rather rare these days.

BTW if the LTA has been abolished why is the OP getting a "value" for the pension and then a percentage of the LTA that the value represents?

Silvertabby

If those figures are correct, I can't believe that you have found an IFA willing to approve the transfer.  

Marcon

151Taddy said:

I have a DB pension due to me that has IFA approval to transfer to my existing SIPP.

The transfer value quote from the Pension company is approx £83,000. 

In the paperwork from the Pension company a figure of £175,000 is given for the "value of your full pension", being 16.4% of the standard lifetime allowance for the current tax year.

Question 1: Is there a relationship between these two figures?
Question 2: Should the transfer value be closer to the "Value of your full pension"?

If I decided to take the pension, rather than transfer, the annual salary would be a (Tax free) lump sum of £22k and an annual pension of £7,300, (with 50% payable to my spouse if I "pass" before her).
The value of the transfer equates to just over 8 years of pension payments + lump sum.

Question 3: Is the transfer value realistic?
Question 4: Is there a "Rule of thumb" for calculating the transfer value of a DB Pension?

I wonder where the LTA comes into it, given that it was abolished from 6 April 2024? 

3. If your IFA supports the transfer, they will be able to answer that (and their written report will cover the point). The transfer value certainly doesn't look too exciting, but without knowing your age and other facts, it's impossible to give an informed answer.

4. No.

Silvertabby

DRS1 said:

But presumably if an IFA has approved the transfer it can't be that bad a deal?  Aren't we told that such approval is rather rare these days.

BTW if the LTA has been abolished why is the OP getting a "value" for the pension and then a percentage of the LTA that the value represents?

Based on the figures supplied by OP, that would be an horrendous deal!  

 The total tax free cash that can be taken (from all pensions) is still 25% of what was the LTA, so probably just the way the letter was worded.  

DRS1

Silvertabby said:

DRS1 said:

But presumably if an IFA has approved the transfer it can't be that bad a deal?  Aren't we told that such approval is rather rare these days.

BTW if the LTA has been abolished why is the OP getting a "value" for the pension and then a percentage of the LTA that the value represents?

Based on the figures supplied by OP, that would be an horrendous deal!  

 The total tax free cash that can be taken (from all pensions) is still 25% of what was the LTA, so probably just the way the letter was worded.  

I wondered about that but £22k is nowhere near 16.4% of the LSA.

Silvertabby

DRS1 said:

Silvertabby said:

DRS1 said:

But presumably if an IFA has approved the transfer it can't be that bad a deal?  Aren't we told that such approval is rather rare these days.

BTW if the LTA has been abolished why is the OP getting a "value" for the pension and then a percentage of the LTA that the value represents?

Based on the figures supplied by OP, that would be an horrendous deal!  

 The total tax free cash that can be taken (from all pensions) is still 25% of what was the LTA, so probably just the way the letter was worded.  

I wondered about that but £22k is nowhere near 16.4% of the LSA.

It's the total value.  Suspect it's due to an auto generated letter that hasn't been properly updated.

QrizB

Dazed_and_C0nfused said:

151Taddy said:

atuff

How old are you?

From previous posts, OP was gainfully employed in 1974 so I'd guess they're in their mid-60s or older:

https://forums.moneysavingexpert.com/discussion/comment/81254775/#Comment_81254775