45k Capita Cash Pension - What to do, need help

pecunianonolet

Hi there,

I am a bit in the unknown about all things pensions and looking for some pointers and help.

From a previous employer I have a pension pot with ca 45k in it just now. It's not invested, just a cash pot. Every year the pot is increasing by inflation, up to a maximum of 5% so unless inflation sits above 5% spending power is retained. However, it doesn't grow either and is just sitting there now for almost 4 years and I probably missed out on a good chunk of growth since then, which is entirely my fault for not taking action sooner. Anyhow, better late than never.

I don't pay andy fees or anything with Capita. From today's perspective, I am around 25 years awayfrom pension age, unless this is going to change in the future with law changes.

I want to do something with this cash so it keeps growing and ca. 25 years should be sufficient time to do so.

I am going to ceases being a tax resident for the 2026/27 tax year (unless HMRC thinks otherwise) as I am moving to another EU country. Where I am by the time I retire, nobody knows but fairly certain it will be somewhere in the EU.

I am not an expert with investing knowing all ETF's and funds by heart but I would deem myself as financially savvy enough to pick up on things rather quickly once I bite into a topic.

I also know, that many providers incentivise you moving pensions, I guess mostly SIPP's with generous bonuses for opening an account and moving portfolios. Of course, if a couple of hundreds or even thousands could be added to the pot I am happy to do so.

With my current employer I have a pension pot with Standard Life with a current value of ca 21k invested in "Standard Life Sustainable Multi Asset (AP) Pension Fund. Basically the one that was set up by my employer and where monthly contributions go into. Once a year I claim back from HMRC as higher rate tax payer. Standard Life charges are 0.655% per year of portfolio value.

So, how do I go about with the Capita cash pot and Standard Life perhaps to when moving abroad?

I want to have it somewhere and maybe check in on it once or twice a year but mainly keep it untouched and not activly manage it every couple of months. Risk profile, " A bird in the hand is worth two in the bush"

Albermarle

It's not invested, just a cash pot. Every year the pot is increasing by inflation, up to a maximum of 5% so unless inflation sits above 5% spending power is retained. 

That sounds unusual. Normally if you hold cash in a pension pot, it earns some interest, but usually the interest rate is below what you can get in savings accounts. Typically at the moment you might expect 2.5%/3%. So no actual link with inflation at all. So it sounds like some kind of special arrangement.

However, it doesn't grow either and is just sitting there now for almost 4 years and I probably missed out on a good chunk of growth since then, You probably have although it depends on how it would have been invested,

I also know, that many providers incentivise you moving pensions, I guess mostly SIPP's with generous bonuses for opening an account and moving portfolios. Of course, if a couple of hundreds or even thousands could be added to the pot I am happy to do so.

Yes there are cashback offers, they tend to be offered for a fixed period, say two months. I know one at least is £50K minimum. There are some new very low cost players in the markets, with cashbacks, although with the potential complications of moving abroad, I would be sticking to a more established provider.

NoMore

Are we sure this Capita pension isn't some form of DB pension, it sure sounds like it in the way it revalues, but it's unclear what the 45k refers to.

Marcon

OP - do the words 'cash balance scheme' appear anywhere in the literature, or ring any bells?

pecunianonolet

Here the link, hope it helps as I am clueless. They also talk about a transfer value within my account, that shows ca 21k. Does that mean that if I want to move it to a different provider I would have to give up on more than half of the balance?

https://www.diageopensionscheme.com/lifestyle

Below what it says on top before they show the number breakdown. After they have applied the most recent increase, I am now sitting at just under 47k actually.

No idea if this is important or how it compares to other providers/deals in terms of death benefits.

Marcon

https://forums.moneysavingexpert.com/discussion/comment/81868790#Comment_81868790

Thank you - as I thought, it's a cash balance scheme. In (hopefully) simple terms, contributions are put into an account in the name of the employee. You don't get a choice of investments, but you get annual increases at a guaranteed rate as set out in the rules of the scheme, so don't suffer the risk of the capital value of your pension savings falling.

I don't know what the 'transfer value' refers to - did you by any chance transfer in benefits from a previous pension scheme? If not, I think you need to go back to the scheme to clarify. The only document I could find under the 'Deeds and Booklets' section was an amending deed - not the full original and certainly no nice simple booklet!

Death benefits - absolutely standard stuff. Just be aware that you need to keep your Expression of Wish form up to date while you still have benefits in the scheme, to guide the trustees on what you'd like to happen to your cash if you die before taking your cash out.

pecunianonolet

https://forums.moneysavingexpert.com/discussion/comment/81869085#Comment_81869085

Thanks a lot. Having done a bit further reasearch and asking AI, it suggests its a cash balance arrangement with defined benefit. In essence, it grows each year and I build up an entitlement, depending on what inflation is like over the next 25 years, I may reach 100k value there and buy an annuity that maybe gets me between 5 - 7k payment a year, not much but guaranteed for life.

AI suggests the transfer value is a cash bribe I could take if I wanted to move elsewhere and since interest rates are "high" the haircut is larger compared to times with 0% interest rates. AI explained that I don't have a 47k "cash pot", it is more an entitlement of what I will get at retirnment age and it's the pension providers/companies risk to generate enough return to fulfil those obligations

It suggests to me that I better stay put and forget about it and hope I make it far enough?

My thinking initially was that I could move, in cash terms, 47k into a SIPP and buy a range of ETF's or shares that outperform (real term growth) compared to "just" getting an inflation adjustment every year that is basicaly risk free.

Marcon

https://forums.moneysavingexpert.com/discussion/comment/81869116#Comment_81869116

I'm afraid this is a shining example of why 'information' gleaned from AI can't always be relied on.

There are very few cash balance schemes around, so AI's ability to 'learn' about these is limited. Rules vary from scheme to scheme, but the DB aspect of a cash balance scheme is the guaranteed rate of increase; otherwise it's basically akin to a defined contribution (aka money purchase) scheme.

A transfer value is not a 'bribe'; it is simply the amount available to a scheme member if they wish to move their funds elsewhere. I'm puzzled by the fact you appear to have been told the current value of your account is £47K and then refer to a transfer value of £21K, unless that is - as I've suggested above - possibly a reference to a pension you've transferred in to this scheme? I think it would be wise to check with the scheme exactly what the position is, so you are completely clear on where you stand.

You could consider transferring if you think you can do better elsewhere, but much depends on your attitude to risk and various other factors, possibly complicated by your mobile lifestyle. Contrary to what AI will tell you (I've just had a look), financial advice is not mandatory where the scheme in question is a cash balance scheme, even if the transfer value is £30K+.

Albermarle

 In essence, it grows each year and I build up an entitlement, depending on what inflation is like over the next 25 years, I may reach 100k value there and buy an annuity that maybe gets me between 5 - 7k payment a year, not much but guaranteed for life.

The problem is that even if it grows with inflation, the spending power in real terms remains at £45K.

So even if it grows to £100K in 25 years, and you get an annuity of £6K , that £6K will only buy you what £3K would today.

I am not saying the pension is bad, only that you have to think in real terms, taking account of inflation and that £45K is not a large sum in pension terms,

In general people underestimate how big a fund is needed to generate a decent income, that is guaranteed and increases each year. For example the current state pension which is about £12.5 K pa for most people, would cost about Quarter of a Million Pounds to buy the same pension on the open market.

pecunianonolet

https://forums.moneysavingexpert.com/discussion/comment/81869519#Comment_81869519

Maybe it is also just me using the wrong terms for the wrong things.

I only have 2 workplace pensions, the one in question and the one with my current employer at Standard Life so never transferred anything.

The 21k comes from a section within my profile. Can log in later today and take a screenshot if that helps.

https://forums.moneysavingexpert.com/discussion/comment/81869568#Comment_81869568

This is why I was thinking if I could get better returns. Basically the value I had accrued by the date I left my job is X, now every year the value only increases by inflation, capped at max 5%, spending power of X remains unchanged in 25 years because I only ever have a nominal increase but never a real term increase. In the previous years with inflation above 5% I made a real term loss. I paid 6% via salary sacrifice and employer topped up to 25% so seemed a good deal and I signed up to it and never really questioned things since.

If inflation is on average 3% and I could have a ROI of 6% on the stock market the value of my pot, and spending power, are increasing by 3%.

Seems like the choice is, guaranteed nominal increase of max 5% with losses in years with inflation above 5% vs higher returns possibility on open market but also the increased risk of being a player on the open market and would need to catch up aggressively. 21k transfer value would need a hell of a performance to catch up to the 47k current value.

Does that all somehow makes any sense?

Marcon

There are two possibilities here. Either:

your statement shows a value of £47K when projected to your scheme's retirement date (which would be about right, if you assume the starting point is £21K, with increases 'guesstimated' at 3.5% pa for the next 23 years); or

the reference to a transfer relates to this, taken from the scheme's website:

If you are considering transferring, then it is of course crucial to know which!