Should I transfer my Final Salary Pension ?

errolt1 · 20 April 2017 at 7:52PM

I am 53 and have just had a valuation on my final salary pension that I left 10 years ago.
The valuation is 40 times my the salary that I would get at 55 and 30 times what I would get at 60 and 29 times what I would get at 65.
It is a life changing amount that will pay off my mortgage in 18 months time from the tax free element . I also have another £170k from various DC schemes since i left my final salaried job.

The valuation is from Feb 2017 and is valid for 3 months.
Is it worth me getting another valuation done ? This will cost me £300 and is there a chance the value has gone up since Feb 17 up to today ? I have been reviewing the web regularly to see if there are any reports showing if valuations are moving up or down.
Any advice from any of you in a similar situation would be appreciated.

chiefie · 20 April 2017 at 8:33PM

if I had those figures I would take it

But

The question is can you live off the proceeds and the dc pot till you die ? And can you take the risk of stock market volatility that the dc pension gives you ?

Why not take the tax free sum from your dc pot to pay &#55357;&#56496; ff your mortgage if the amount owing is bothering you ? But with interest rates so low do you really need to or is it the feeling of being mortgage free ?

I have some debts but what makes me feel better is holding a balance sheet of my investments/pensions on one side and the debt on the other. I am happy with the nett value and with most of it very low interest I am not worried about it.

If my missus knew she would have a fit though &#55357;&#56839;

errolt1 · 20 April 2017 at 9:28PM

Thanks for the response chiefie. You are spot on about being mortgage free especially living in London with a large mortgage over the last 17 years.
The thought of getting rid of that noose around my neck in 18 months time is the main reason.

Suffolk_lass · 21 April 2017 at 8:24AM

chiefie wrote: »

I have some debts but what makes me feel better is holding a balance sheet of my investments/pensions on one side and the debt on the other. I am happy with the nett value and with most of it very low interest I am not worried about it.

I used to take this view, and with a mortgage interest rate of less than 1% and all debt at low or no interest, I felt in control. I just don't like paying interest though - and I am relatively new to investing so most of mine was in savings, rather than investments. I realised that my accruing interest and growth was diminished by the mortgage interest which was still in the thousand plus and I just don't like giving that up.

I guess the time of your life and career, family responsibilities and where and what happens around you all affect our attitudes. For me, the sudden and unexpected death of a friend and the mess they left, has spurred me to simplify things a bit.

jamesperrett · 21 April 2017 at 1:39PM

As mentioned in a similar thread today, it would only make sense to take the money if you could pay off the mortgage with your 25% tax free lump sum. The rest would be taxed, There is also a danger that future pension contributions could be subject to the £4000 per annum MPAA limit.

ischofie1 · 21 April 2017 at 1:58PM

Just be careful about paying £300 for a new valuation.
You may find the value has gone down then you've taken a double hit.
If you're happy with what's on offer now then take it. If not then don't.

PensionTech · 21 April 2017 at 2:42PM

I think you're looking at this very myopically. Sure it would pay off your mortgage - but so what? Mortgage rates are pretty low at the moment. If it were a good idea to transfer out, it would quite probably be a good idea to stay invested afterwards. If you're borrowing on your mortgage at 2-3% and you're making 5-10% on your pension investments, you'd be a fool to disinvest the pension to pay off the mortgage.

And then there's the question of whether it's a good idea to transfer out. chiefie might be happy with those numbers but I'm not so sure. It's far too simplistic to just consider the "multiple" of your pension - what about indexation (which is easy to write off but makes a tremendous difference to the cost of providing the pension)? What about the spouse's pension? What about generally having security of income in your old age? And even if you did want to reduce it down to "40x at age 55, 30x at 60" - firstly I would say that you're probably looking at an actuarial reduction at age 55 anyway, so it wouldn't generally be a good idea to take your pension then anyway. So let's look at the 30x at age 60. Would you be able to replicate that income yourself, with indexation, with spouse's benefits, with absolute certainty? How long do you think people are expected to live these days? (Hint - it's longer than many people realise.) What kind of retirement do you want, anyway? How do you want to spend your money? Do you want a risk-free regular income stream or do you want to take out variable chunks? What other income are you expecting to get? What's your tax situation going to be like? Will you be facing a Lifetime Allowance excess charge if you convert to DC?

You'll be forced to get advice anyway if you do decide to transfer, so someone will go through this kind of information with you - but it really is a much more involved decision than you seem to allow at the moment.

On a new transfer value - well that's a bit more interesting. It does seem that gilt yields have dropped quite significantly since the end of January, which is probably what your transfer value is based on. If gilt yields drop, transfer values go up. Inflation expectations have also dropped a little as well though - which would push transfer values down. It depends what kind of metrics your scheme uses. I probably wouldn't bother paying for a new one. But you are running out of time to get financial advice while this one's still valid.

errolt1 · 21 April 2017 at 4:03PM

I just phoned capita and this is half the problem when dealing with their staff. If not reading from a script they just do not add any value.
Previously i was told if you get another valuation then both valuations are valid. Today the chap said previous valuation would no longer be valid and only new one and the clock would start again. A colleague at work has had a CETV and that was online and he could literally get one daily from Phoenix.
My one would take 5 to 7 days and no explanation on how it was calculated.
For the amount of money we are talking about to have no breakdown or transparency is shocking.

lovinituk · 21 April 2017 at 4:10PM

PensionTech wrote: »

I think you're looking at this very myopically. Sure it would pay off your mortgage - but so what? Mortgage rates are pretty low at the moment. If it were a good idea to transfer out, it would quite probably be a good idea to stay invested afterwards. If you're borrowing on your mortgage at 2-3% and you're making 5-10% on your pension investments, you'd be a fool to disinvest the pension to pay off the mortgage.

And then there's the question of whether it's a good idea to transfer out. chiefie might be happy with those numbers but I'm not so sure. It's far too simplistic to just consider the "multiple" of your pension - what about indexation (which is easy to write off but makes a tremendous difference to the cost of providing the pension)? What about the spouse's pension? What about generally having security of income in your old age? And even if you did want to reduce it down to "40x at age 55, 30x at 60" - firstly I would say that you're probably looking at an actuarial reduction at age 55 anyway, so it wouldn't generally be a good idea to take your pension then anyway. So let's look at the 30x at age 60. Would you be able to replicate that income yourself, with indexation, with spouse's benefits, with absolute certainty? How long do you think people are expected to live these days? (Hint - it's longer than many people realise.) What kind of retirement do you want, anyway? How do you want to spend your money? Do you want a risk-free regular income stream or do you want to take out variable chunks? What other income are you expecting to get? What's your tax situation going to be like? Will you be facing a Lifetime Allowance excess charge if you convert to DC?

You'll be forced to get advice anyway if you do decide to transfer, so someone will go through this kind of information with you - but it really is a much more involved decision than you seem to allow at the moment.

On a new transfer value - well that's a bit more interesting. It does seem that gilt yields have dropped quite significantly since the end of January, which is probably what your transfer value is based on. If gilt yields drop, transfer values go up. Inflation expectations have also dropped a little as well though - which would push transfer values down. It depends what kind of metrics your scheme uses. I probably wouldn't bother paying for a new one. But you are running out of time to get financial advice while this one's still valid.

Excellent post, thank you.

errolt1 · 21 April 2017 at 4:19PM

Pension Tech you respond just like my IFA . Very detailed and I agree in that I need to look at the bigger picture.
Who would have thought being in a final salary pension would potentially help you clear a sizeable chunk of your mortgage at 55 and also thanks to George O for providing access to this 5 years earlier .
The additional facts are that I will have a property well in excess of million that would be subject to inheritance tax but the Pension Transfer would not and would go tax free to the wife or kids if i die before 75 . Old man passed away at 74 so who knows ? and at marginal rate of tax if i died after 75.
The real other problem is that you know think of the value and numbers 24 hours of the day and even when you go to sleep. The valuation statement has changed everything. You only get once chance and that is why i need to make sure it is the right decision.

greenglide · 21 April 2017 at 7:23PM

You only get once chance and that is why i need to make sure it is the right decision.

What is really crucial is not to take the wrong decision.

Should I transfer my Final Salary Pension ?

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