Transferring final salary pension?

plymouthscubagirl · 10 May 2018 at 11:04AM

Hi

Just lost my very long message before pressing send so I'll keep this short this time!

Current circumstances: Single, 43 and have a 7yr old son.

Old pension I paid into from 2004 until outsourced in 2012. Still work for the same company via the outsourced company so a new pension started in 2012 which is 20% contributions (currently around £60k).

Final salary pension is currently estimated at £6296p/a (index linked) and cash value is £108,956.

Things that are swaying me. I'd have more control over the age I'd like to access it, say from 55 with much less penalties. The pension age is not fixed on current plan, currently at 68 I think but can increase. Think it would benefit my son more in a personal pension as I think he'd only receive 25% in the current final salary one, whereas I think he'd get more in personal pension.

Any thoughts or advice is welcome?

Thanks x

El_Torro · 10 May 2018 at 11:21AM

If you can't access your final salary pension until you're 68 then there could be some value in transferring it and accessing it from 55. The value they've given you of £109k isn't bad if you want the flexibility. If all you wanted was to buy an annuity then keeping it where it is would be better.

is there a lump sum payable with your final salary pension?

Also what are you going to live on in your old age? £6.3k a year plus state pension is a pretty good foundation. You can always concentrate on your DC pension between now and when you retire if you want some flexible cash. As long as you don't buy an annuity with it your son will also inherit it.

As with most final salary schemes you'd be crazy to get rid of it now if you're going to live to 100. Who knows how long we've got though?

dunstonh · 10 May 2018 at 12:02PM

I'd have more control over the age I'd like to access it, say from 55 with much less penalties.

If you are planning to retire at 55, then it could come into play but a wider view of your circumstances would be carried out. For example, could your other pensions and investments fund the gap. If so, would it be better to use those and then let the DB scheme kick in later.

You dont need every penny available at age 55. Bits can kick in at different ages.

he pension age is not fixed on current plan, currently at 68 I think but can increase.

Obviously, that info would need to be verified. Normally the scheme age on a DB scheme is set and rarely changes. DC schemes can change easily because there is no penalty and you can take it when you like. Are you perhaps getting them mixed up?

Think it would benefit my son more in a personal pension as I think he'd only receive 25% in the current final salary one, whereas I think he'd get more in personal pension.

is he not going to do well out of his inheritance from you?
Death benefits can be a valid reason but would you be compromising your retirement to get him more? Especially with the CETV appearing to be very low.

plymouthscubagirl · 10 May 2018 at 1:37PM

Thanks for your responses. I found some more paperwork.

So you're right, the pension age is 65 for this final salary one. I also get 25% lump sum.
Concerned that it could be likely that I might never marry in that time, so where would this money go? I'd like my son to benefit from this but someone mentioned he would only get 25% say of this, whereas if I put it in a SIPP or similar, he would get 50%?

My thoughts were that I would be spreading my options a little - re-investing this one into a SIPP say and adding additional money towards this. This would have the option of getting at it earlier, then I would have my current work pension that would kick in at 65, along with hopefully full state pension. I also have a couple index trackers.

I also realise people say final salary pensions are supposed to be good.

Lost a lot of a people around me before they've reached the grand old age of 60, so really trying to work towards a sort of early or at least a part time retirement.

plymouthscubagirl · 10 May 2018 at 1:52PM

Also whats the difference between DB and DC?

Silvertabby · 10 May 2018 at 2:04PM

£108,956 in return for a guaranteed index linked annual pension of £6,296 plus a tax free lump sum of £18,888 (x 3? - or larger, 25%, lump sum with possibly smaller pension) is extremely poor value.

As the transfer value is more than £30K, you will have to seek (and pay for) financial advice - and I doubt that any reputable IFA will be happy recommending that you transfer.

If you were to go ahead with the transfer to a SIPP, then the value of your £108K will be at the mercy of the stock market and your investment choices. It could go down.

Yes, you could then access your pension benefits at 55 - but you won't get an actual pension as such. Instead, it will be up to you how much you take out (drawdown) each year. If you drawdown £6K per year from age 55 then there will be nothing left of your original £108K after just 18 years - for you or your son.

El_Torro · 10 May 2018 at 2:24PM

plymouthscubagirl wrote: »

So you're right, the pension age is 65 for this final salary one. I also get 25% lump sum.
Concerned that it could be likely that I might never marry in that time, so where would this money go? I'd like my son to benefit from this but someone mentioned he would only get 25% say of this, whereas if I put it in a SIPP or similar, he would get 50%?

OK, accessing your final salary pension at 65 (not 68) makes the option of keeping this pension even more attractive.

I don't think you get 25% lump sum. Your lump sum should be a fixed sum, usually a multiple of the annual income you'll be getting from it.

I doubt your son would get any of your final salary pension when you die. Normally that's reserved for spouses. It should say in the terms though. He might get something if you die before he becomes an adult.

Yes, if the money is in a SIPP then he can access it tax free. Why is that such a big attraction though? Your priority should be making sure that you are OK in retirement.

plymouthscubagirl wrote: »

My thoughts were that I would be spreading my options a little - re-investing this one into a SIPP say and adding additional money towards this. This would have the option of getting at it earlier, then I would have my current work pension that would kick in at 65, along with hopefully full state pension. I also have a couple index trackers.

Is your current work pension final salary? I assumed from you first post that it wasn't.

plymouthscubagirl wrote: »

Also whats the difference between DB and DC?

DB - defined benefit - also known as a final salary pension.

DC - defined contribution - A SIPP for example.

Bravepants · 10 May 2018 at 2:54PM

Normally for a self administered pension pot, or drawdown from an ISA in retirement, a safe withdrawal rate of 4% per year is assumed (sometimes even 3.5%). The "safe withdrawal rate" is the assumed estimated annual amount you can withdraw from the fund and not run out of money due to returns from investments. This is based on historic data and is an average...Google "safe withdrawal rate and pension savings" to find out more.

Forgetting about the £18k lump sum for the moment... If you take your £108000 and assume a safe withdrawal rate of 4% per year, that's £4320 a year. You would also have to increase your drawdown each year by inflation, so that your cash coming in keeps up with prices.

Compare the amount due to the safe withdrawal rate, with the £6300 per year from your final salary pension. The final salary pension is equivalent to a 6% withdrawal rate! Also you don't have to worry about running out of money! Also you don't have to worry about keeping up with inflation, because your final salary pension is index linked and will be increased by inflation without you having to worry about it!

I'm afraid I'm a member of the church of "Never, Ever Transfer A Final Salary Pension!"

plymouthscubagirl · 10 May 2018 at 3:59PM

Great responses, kind of what I was hoping to hear really.

I'm pretty clueless about finances, relative newcomer to it all. Just researching and trying to cover all bases for a happy retirement.

El Torro - no they pay 20% of our salary into pension fund - its not final salary. Think you're right about the 25% too, this was valid whilst the pension was active, but I don't think it is now. I get that with my new work pension. I think based on what you've all said, I'll leave it where it is and hope I outlive the years to make it worth while and concentrate on building a nest egg to access earlier elsewhere maybe.

JoeCrystal · 10 May 2018 at 4:29PM

20% from your employer? That is really generous! Thought I pointed that out!

jamesd · 10 May 2018 at 5:10PM

The UK initial safe withdrawal rate is 5.8% of the pot size over a 40 year retirement if the Guyton-Klinger rules are used, less 30% of costs, so say 5.3%. This means that at 55 if you only had £108,000 you could sustainably take £5,724 a year.

Safe withdrawal rates are those which wouldn't have led to having to cut more than the plan provides for in the specified percentage of historic cases. This one is OK in 90% and the failure cases are largely related to the second world war. With even average investment performance this would increase throughout retirement.

Whenever you die with a DC pension like a SIPP you can have your son get 100% of what's left. Tax free when he takes it out if you die before you're 75, else taxable as he takes bits out.

But you're 43 and that's at 55. The UK historic average stock market growth is a bit over 5% a year plus inflation before costs, so say 4%. That would increase the real value of £108,000 taken now by 1.6 times to £172,800 and £9,116 income.

If you were to wait until 65 that'd be 2.37 times, to £255,960 and £13,565 income.

Waiting until 65 to get only £6,296 doesn't look so clever, particularly given your early retirement and inheritance desires and probable timing flexibility.

Since you know that you'll get the state pension you can start higher at 55, knowing you'll get that later.

The transfer looks quite sensible given your objectives but you still need to invest a lot more before retiring at 55 is likely to look like a good move.

Transferring final salary pension?

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