Should I Transfer My Final Salary Pension Fund?

The value of your DB pension benefits is greater that £30,000 and to transfer out to a DC Scheme you will require the advice of a Pension Transfer Specialist.

https://www.fca.org.uk/consumers/pension-transfer



https://www.moneyadviceservice.org.uk/en/articles/transferring-out-of-a-defined-benefit-pension-scheme

https://www.royallondon.com/Global/documents/GoodWithYourMoney/COMPANY-PENSIONS-FIVE-REASONS-TO-TRANSFER-OUT-AND-FIVE-REASONS-NOT-TO.pdf

https://adviserbook.co.uk/

Bimbly wrote: »

It is very rare that a person is better off transferring a pension that will pay a guaranteed income every year until you die in exchange for a pot of money that can run out.

It's not remotely close to being rare, it's more like the normal situation. Fifteen years ago transfer values were far lower than they are today and it was much less likely to be a good idea to transfer than it is today.

Today it can normally provide substantially higher starting income, using rules that no UK investment performance in the last 120+ years would have led to running out of money,. It can start higher until the state pension starts and much guaranteed income can be purchased by deferring claiming the state pension. It can also be arranged to match the usual spending decline as people get older and use that to increase income while young.

pensionnovice wrote: »

I am 59 years old (60 on 30th Nov). I was made redundant before I was 50, so I did not receive my full pension. I will not get my full pension until I am 65 on 30/11/2023. I can access it when I want, but I will lose 5% for each year under 65 years old. For example, I would lose 25% if I was to access it when I'm 60. My last transfer valuation was on 28th June 2017 and was £406,407. My early retirement options on 14th Sept 2017 were: Option 1: A pension of £12,281 pa, a spouse pension of £6,140 pa without a lump sum payment. Option 2: A lump sum of £55,936, a pension of £8,391 pa and a spouse pension on death of £6,140.
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I have spoken to a financial advisor and she says I should definitely transfer it. She makes it seem like a no-brainer. I'm just worried that she could be telling me this so that she will get commission.

An IFA would be paid a fee whether they recommended transferring or not. It's not a no-brainer but in purely financial terms you're likely to be a good deal better off by transferring.

The difficulties aren't the financial things but whether it suits your temperament and overall circumstances.

Finance first, though. Your transfer value is about 33 times the income and that's fairly typical these days.

If the Guyton-Klinger drawdown rules are used with 60% equities (shares) the initial UK safe withdrawal rate for a 40 year retirement is 5% of the pot size after deducting 30% of total costs of 1.5%. That means starting on £20,320 a year.

The starting on bit is important. Those drawdown rules try to get more income than older rules but to achieve that they will skip inflation increases after a bad year for investment performance. In really bad times they make outright cuts. It's unlikely that your income would fall below the DB income level but it is possible if you happen to live through very bad investing times. In average investing times or better income is likely to increase instead.

You can protect yourself from the lower end of the result range in several ways:

1. You can defer claiming your state pension. It'll be increased by 5.8% a year. If you do this for five years and start with the single tier state pension at 8500 a year this adds 2465 of guaranteed income for life at a cost of 42500. If you have a spouse you could fund the same for them, it's often a good way to get them useful guaranteed income. Say you have a spouse in the same situation, you could both defer for 8 years at a cost of 68000 each, 136000 combined, and get extra state pension for each of you of 3944, 7888 combined. I chose that to be similar to option 2s 8391 of guaranteed income.

2. Buying annuities with some of the money. These start to become good value in your 80s if your life expectancy is normal but if it's lower they can offer good value at younger ages. The level type that doesn't increase with inflation is by far the most popular, accounting for almost 90% of purchases. No inflation increases means it starts out paying more and in spending power gradually declines, helping to match the normal spending decline as people get older.

You probably don't really want to start on 20320 then get say 8500 more when your state pension starts. More early on so its fairly level tends to be more useful. Easy enough to arrange a top-up for 7 years. Say you want an extra 8000 a year that'd cost 8000 * 7 = 56000 of capital. That reduces the long term income by 5% of 56000, so 2800 a year less. So you'd start on 20320 - 2800 + 8000 = 25520 and later have 20320 - 2800 +8500 = 26020 with the state pension included.

I've assumed that you need the income now and want to exploit the flexibility of a transfer to have more income early on, at the cost of a possibly reducing long term income as you get older if you live through bad investing times.