another pension value/ transfer question

[malks222]

I have a pension from a previous job and enquired about how much is in the pot/ transfer value and was kinda surprised. this was a pension in my first job, when I started in the role it was a ‘final salary’ based pension, but shortly before I left the role that pension scheme closed and it became a ‘defined contribution’ scheme.

At the time I was at a pretty junior position, didn’t think i’d made that much in contributions..... my statement/ transfer value came through and it states:

£20k transfer value
£1,200 per year income

now I’ve not worked at this place for 9yrs, I really didn’t think the pot would have that value.

I’d like to transfer this value into my SIPP and continue making contributions from my limited company. I’m 33, so wont be receiving any benefit for quite a while. but would I be crazy to do this? Am I missing any obvious benefit moving that cash to my SIPP? £1,200/yr isn’t gonna keep me in the future, but a £20k start to my SIPP seems reasonable.....

[Ginge R]

Have you considered having the best (in principle) of both worlds? The modest £1,200 pa will, in theory, always be there to put bread and jam on the table - especially if used with a state pension. It's pretty much a banker even though it's small. You could consider using the intervening years to grow your DC fund to orbit around it, to buy the rest of the stuff you need.

No guarantee any of them will still be around in their current guises mind. The Multiple (£1,200 pa v's £20,000 TV) is low.

[malks222]

yes, I have considered leaving the money in the current pension pot and just starting off on my own.

And the £20k pot/ £1,200 per year is from only £4k of contributions from myself..... so has performed pretty well/ been topped up by previous employer.

my main driver for moving this sum over to my sipp was to simplify things, have it in one place and focus on maximising that one pot.

[sas62]

What is your retirement age for the DB pension.? The transfer value is very low for age 60 and still quite on the low side for 65.

They have offered you about 16.6 years pension as a transfer value. (Simplistic calculation 20,000 / 1200)

If it was nearer 20 times multiples then I'd be considering it, but not at 16.6.

If you think there's a chance of the company / pension fund going under then that's different.

[vindaloo79]

When i transferred out it was for 35 times (Lloyds). Most people i have spoke to who were advised to transfer out were 40-60 times (Barclays Bank, Virgin Money).

I'd stick with that for the time being. Will that amount grow with inflation ?

[malks222]

Pension would be due to start at 65

the pension would increase by: 'lower of 2.5% or RPI price inflation each year'

as for the company/ pension going under, I'm not overly concerned, but it is a large construction company and no-one wouldve have predicted carillion going pop......

I dont need to do anything with this, and as ginge said- its a banker of £1,200 per year come retirement. also I didnt think the pot would even be what it is at the moment, I thought my pot would've been about £5k and returning 3 bags of haribo a month in retirement.

my biggest thing now is getting the head down for the next 20-30yrs to make sure I have a reasonable retirement. Thanks for all your help.

[Ginge R]

Primum non nocere.. ‘First, do no harm’. You might make a few quid extra by shifting it, but you stand to lose something vital. Certainty, and peace of mind. Even a year is a long time in retirement legislation these days, but you used the word ‘banker’ and I think that’s as good a word as any.

A DB Pension of that size won’t lose you much in the way of reduced indexation if it goes into PPF (you may well be better off with different early commutation factors), it won’t impact adversely on your lifetime allowance (fingers crossed) and if yields change against your favour so that you do need to transfer it at some point, the pot is modest enough not to be overly badly affected by a reduced transfer value.

Any commander will tell you, something that offers a higher degree of certainty has a force multiplying effect out of all proportion to its more obvious, tangible size. I think you might have taken the right decision there, but take regulated advice that you trust if you want a more formal and personal steer.