£45k pension offer OF £2014Pa

philng

My wife has an old pension value of £45k but has a small underpin which prevents her transferring to a SIPP without advice as its over £30k.

She is age 67 and been offered £2014 pa indexed linked up to max 5% a year.

Is this reasonable? It seems poor to me but there are little other options.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6674563/45k-pension-offer-of-2014pa

Is there a (tax free) pension commencement lump sum as well or is it just the pension of £2014 with no lump sum?

philng

https://forums.moneysavingexpert.com/discussion/comment/82054039#Comment_82054039

That is the full pension. There is an option to take a tax free lump sum of £12k & a lower pension of £1836pa.

I think the total pension value is actually £45k plus an AVC of £9.1k.

LHW99

It's the index-linked to 5% guarantee that is important. Also, what are the spouse provisions, and are they affected should she take a lump sum & reduced pension.

If she put off claining for a year, would the annual pension be increased or not?

You could check to see what an annuity would pay for £55k at age 67, with a given spouse provision and increase level on various websites for comparison. I haven't looked, but I suspect it would be less than what is being offered.

Have you checked her / your SPA provision, read it all, because topping up is well worth it.

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

QrizB

There is an option to take a tax free lump sum of £12k & a lower pension of £1836pa.

£12k for £178? That's an unusually generous commutation rate of 67, if my sums are correct.

Are you sure about the numbers?

If for example the £2014 pension was already paying out the AVC as a lump sum, and the additional lump sum was £3k, it would be a commutation rate of ~16 which is more normal.

Marcon

https://forums.moneysavingexpert.com/discussion/6674563/45k-pension-offer-of-2014pa

Your wife is likely to be well over the scheme's normal retirement age, in which case she has no statutory right to transfer out. The current £45K 'value' isn't the same thing as a transfer value, unless the information she has explicitly says it is - and even then, the cost of advice (think at least £5K) is going to take a major bite out of her fund.

Has she checked if she could transfer her AVCs, assuming she might wish to do so? Depending on the structure of the pension scheme, advice may not be needed to move just the AVC funds - assuming she is still allowed to transfer, given her age.

Phossy

https://forums.moneysavingexpert.com/discussion/comment/82054102#Comment_82054102

The AVC portion is liklely what is skewing your commutation calculation.

Phossy

https://forums.moneysavingexpert.com/discussion/6674563/45k-pension-offer-of-2014pa

Why does it seem poor to you?

My simplistic view on these is to multiply the annual amount by 20 to get a rough 'value' for a DB pension

So this seems reasonable to me as a rough figure (not really understanding what you mean by value nor understanding the AVC impact)

philng

I am rechecking the info

Offer One is a pension of £2512pa index linked

Offer Two is a pension of £1836pa index linked PLUS £12243 tax free LS

Pension pot is valued £45k but checking if that includes the £9k AVC or not

Age 67

mrklaw

I don’t know if the 45k value is a transfer value - if not then the comparison is irrelevant. But just some quick estimates if that 5% is a fixed increase not a cap, you’d break even around 18 years. If its a cap and it rises by CPI it’ll likely be a bit less and so the breakeven will be more like 20+ years.

sounds about right really. Bear in mind thats more likely £1600 net as you’ll pay 20% on the lot with the state pension using your personal allowance (and perhaps some other pension income)

philng

https://forums.moneysavingexpert.com/discussion/comment/82054178#Comment_82054178

Yes its not fixed its a CAP and yes 20% basic rate tax to pay. Just seems low when you could invest £45k and get a yearly return higher and still have the capital but i guess thats how it is with annuities.