Final salary pension
Discussion
I looked at coming out of the final salary pension scheme last year but never did.
A number of my work colleagues have done and I guess I was either too lazy to do it or bottled the decision
I've requested a revised settlement value to actually do something and it's £100k up from last year.
I've got a cap on my salary Vs pensionable salary and there is quite a differential now...almost paid 2x what my pension amount is due to various factors.
I'm 48 and looking to retire between 50 and 55 depending on job enjoyment and VR opportunities.
I'm in Leeds and I'm looking for recommendations for a good advisor in this field.
Additionally any other key factors I should consider.
Many thanks
A number of my work colleagues have done and I guess I was either too lazy to do it or bottled the decision
I've requested a revised settlement value to actually do something and it's £100k up from last year.
I've got a cap on my salary Vs pensionable salary and there is quite a differential now...almost paid 2x what my pension amount is due to various factors.
I'm 48 and looking to retire between 50 and 55 depending on job enjoyment and VR opportunities.
I'm in Leeds and I'm looking for recommendations for a good advisor in this field.
Additionally any other key factors I should consider.
Many thanks
If you take the money out, and manage it to provide a pension, you take on all the risks:
stock market risk
inflation risk
exchange rate risk (unless you invest only in GBP, but that would be a bigger risk)
in your final salary scheme, all of these are carried by the employer. So tread very carefully.
stock market risk
inflation risk
exchange rate risk (unless you invest only in GBP, but that would be a bigger risk)
in your final salary scheme, all of these are carried by the employer. So tread very carefully.
For that value you will need to take professional advice, which will cost. They will likely say as per above post. If you dont need the money now, why take the risk ? let the employer scheme manage it until you need it. Then at 55 or when you are retiring, look at it again, might be the time to transfer it across to a SIPP then and start to draw on it.
...thats what im doing with my DB pension...
...thats what im doing with my DB pension...
Check if your DB benefits include the following:
- spouse pension (generally 50% of your annual pension)
- children pension (generally pay up to 18 years old, but my pay to 21 if in HE, and they may consider longer if the child is disabled)
Imo, these are invaluable benefits for your loved ones if you pass away.
- spouse pension (generally 50% of your annual pension)
- children pension (generally pay up to 18 years old, but my pay to 21 if in HE, and they may consider longer if the child is disabled)
Imo, these are invaluable benefits for your loved ones if you pass away.
Also looks at this last year, and I was told many advisers won’t offer this type of service until you are fifty due to the cost of their indemnity insurance.
I am in a similar position as regards the salary cap.
Thinking about stopping paying in to the final salary, but putting the contributions in to my employers ‘standard’ pension scheme which gets me around the cap.
I am in a similar position as regards the salary cap.
Thinking about stopping paying in to the final salary, but putting the contributions in to my employers ‘standard’ pension scheme which gets me around the cap.
CAH706 said:
I've requested a revised settlement value to actually do something and it's £100k up from last year.
Not an expert but you're allowed 40k growth in pension tax free so you look top be 60k in the hole unless you have major allowance in the bagYou need a serious pro dont you?
Cheers
Yes, I need a serious pro hence the ask
Total pension 'pot' is close to £1m. Not massive granted but big enough to consider carefully.
I can move to the works other pension scheme and the death benefit is better. It pays 4xspouse and 4xchild versus 4xspouse in the current one. Plus if I did die (not planning that) the money I've transferred would be available.
It just seems there is a better way to manage things given the pension cap but I'm not an expert in this field.
The current pension rules also keeps changing for the worse which is playing on my mind.
Thanks all very much for the comments. All really helpful.
Total pension 'pot' is close to £1m. Not massive granted but big enough to consider carefully.
I can move to the works other pension scheme and the death benefit is better. It pays 4xspouse and 4xchild versus 4xspouse in the current one. Plus if I did die (not planning that
) the money I've transferred would be available.It just seems there is a better way to manage things given the pension cap but I'm not an expert in this field.
The current pension rules also keeps changing for the worse which is playing on my mind.
Thanks all very much for the comments. All really helpful.
numtumfutunch said:
Not an expert but you're allowed 40k growth in pension tax free so you look top be 60k in the hole unless you have major allowance in the bag
You need a serious pro dont you?
Cheers
You're allowed £40k of new pension accrual value each year. This would be if current service in the final salary plan still counts.You need a serious pro dont you?
Cheers
From the description, I'm guessing it is a "frozen" plan where there is no accrual, and the increase in value over the year reflects changes in the various factors which go towards placing a lump sum value ("transfer value") on the annual pension, plus a bit of increase as the pension scheme member gets closer to retirement. Neither of these counts towards the £40k Annual Allowance.
To the OP - i'm in a very similar position to you (and given your location possibly the same company!). I'm 53 and took some professional advice last year who advised me to stay put until i decide i want to retire and consider then. I have to say the flexibility of drawdown looks enticing but as others have aid it does mean taking on all the associated risks. I will be looking at my position again in a couple of years.
Obviously everyone is different, but I think the rule of thumb here is that a DB/Final Salary scheme is likely to be the better pension for the scheme member.
A personal pension offers greater flexibility (though you accept the investment risk - as has been said) and certainly enables far greater potential for spouse benefits and children's benefits.
Finding a good financial adviser who is qualified in this area is, of course, vital.
A personal pension offers greater flexibility (though you accept the investment risk - as has been said) and certainly enables far greater potential for spouse benefits and children's benefits.
Finding a good financial adviser who is qualified in this area is, of course, vital.
JulianPH said:
Obviously everyone is different, but I think the rule of thumb here is that a DB/Final Salary scheme is likely to be the better pension for the scheme member.
A personal pension offers greater flexibility (though you accept the investment risk - as has been said) and certainly enables far greater potential for spouse benefits and children's benefits.
Finding a good financial adviser who is qualified in this area is, of course, vital.
One area i struggle with is the lifetime allowance - does this impact DB schemes as well or does it only come into effect if you transfer out? A personal pension offers greater flexibility (though you accept the investment risk - as has been said) and certainly enables far greater potential for spouse benefits and children's benefits.
Finding a good financial adviser who is qualified in this area is, of course, vital.
s111dpc said:
One area i struggle with is the lifetime allowance - does this impact DB schemes as well or does it only come into effect if you transfer out?
Good question! - & yes, DB schemes do add up towards the LTA. See https://www.moneyadviceservice.org.uk/en/articles/... which tells us:"It applies to the total of all the pensions you have, including the value of pensions promised through any defined benefit schemes you belong to, but excluding your State Pension."
s111dpc said:
One area i struggle with is the lifetime allowance - does this impact DB schemes as well or does it only come into effect if you transfer out?
I believe a conversion factor of 20 is applied.So if you had a final salary of say £25k per annum HMRC would assume it is "worth" £25,000 x 20 = £500,000 which is taken against your lifetime allowance.
In reality, a £25k annual pension benefit is probably worth more than £500k, particularly if it index linked etc.
From my (layman's) viewpoint, it means there is a bit of a loophole where the x 20 factor probably underestimates the real value, and so has the effect of giving the beneficiary the equivalent of a higher lifetime allowance.
EddieSteadyGo said:
I believe a conversion factor of 20 is applied.
So if you had a final salary of say £25k per annum HMRC would assume it is "worth" £25,000 x 20 = £500,000 which is taken against your lifetime allowance.
In reality, a £25k annual pension benefit is probably worth more than £500k, particularly if it index linked etc.
From my (layman's) viewpoint, it means there is a bit of a loophole where the x 20 factor probably underestimates the real value, and so has the effect of giving the beneficiary the equivalent of a higher lifetime allowance.
I would agree. Given most people would accept 3.5-4% as a SWR (safe withdrawal rate), to get £25k, one would need a lump sum of £625-715k.....so definitely a nice win for the DB scheme against the LTA!So if you had a final salary of say £25k per annum HMRC would assume it is "worth" £25,000 x 20 = £500,000 which is taken against your lifetime allowance.
In reality, a £25k annual pension benefit is probably worth more than £500k, particularly if it index linked etc.
From my (layman's) viewpoint, it means there is a bit of a loophole where the x 20 factor probably underestimates the real value, and so has the effect of giving the beneficiary the equivalent of a higher lifetime allowance.
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