Cashing In Final Salary Pensions
Discussion
I've got a couple of final salary pensions that I'm thinking of cashing in and investing. As I see it the the pros and cons are as follows:
Cons
- only 50% of pension for Mrs Spydaman when I die
- nothing left for the kids when both of us die
- can't take it until 65 or reduced pension if I take before
- takes 32 years to break even
Pros
- not effected by stock market
- don't need to manage it
- guaranteed income for life
- 50% income for Mrs Spydaman when I die
Seems like a no brainer to cash it in unless I've missed something. What have I missed?
Cons
- only 50% of pension for Mrs Spydaman when I die
- nothing left for the kids when both of us die
- can't take it until 65 or reduced pension if I take before
- takes 32 years to break even
Pros
- not effected by stock market
- don't need to manage it
- guaranteed income for life
- 50% income for Mrs Spydaman when I die
Seems like a no brainer to cash it in unless I've missed something. What have I missed?
Edited by Spydaman on Friday 27th August 12:04
Further pros:
- Your wife won't won't need to manage it after you die
- Guaranteed income may make you feel able to take more risk with other savings and allow you to borrow if required
- Guaranteed inflation protection (assuming your final salary scheme has this)
Realistically, there's no going back eg. via an annuity due.
How do you calculate 32 years break even?
However much of a no-brainer you might think it is, the chances of getting a positive recommendation to transfer are slim. Without this, you'll find it difficult to find a provider who will accept the transfer.
- Your wife won't won't need to manage it after you die
- Guaranteed income may make you feel able to take more risk with other savings and allow you to borrow if required
- Guaranteed inflation protection (assuming your final salary scheme has this)
Realistically, there's no going back eg. via an annuity due.
How do you calculate 32 years break even?
However much of a no-brainer you might think it is, the chances of getting a positive recommendation to transfer are slim. Without this, you'll find it difficult to find a provider who will accept the transfer.
Spydaman said:
I've got a couple of final salary that I'm thinking of cashing in and investing. As I see it the the pros and cons are as follows:
Cons
- only 50% of pension for Mrs Spydaman when I die
- nothing left for the kids when both of us die'
- can't take it until 65 or reduced pension if I take before
- takes 32 years to break even
Pros
- not effected by stock market
- don't need to manage it
- guaranteed income for life
- 50% income for Mrs Spydaman when I die
Seems like a no brainer to cash it in unless I've missed something. What have I missed?
You can add to that the cost of taking it out as an IFA will charge you for going through all the hoops that you need to go through.Cons
- only 50% of pension for Mrs Spydaman when I die
- nothing left for the kids when both of us die'
- can't take it until 65 or reduced pension if I take before
- takes 32 years to break even
Pros
- not effected by stock market
- don't need to manage it
- guaranteed income for life
- 50% income for Mrs Spydaman when I die
Seems like a no brainer to cash it in unless I've missed something. What have I missed?
IIRC my IFA mentioned that there would be a minimum cost of £7500
OP - genuinely unlikely to be worth it. I have a similar pension. Its off of the back of my first 8 months as a grad in 1999 in a company before i stupidly converted to a DC scheme. It tracked me down as the employer went out of business but effectively the value was a smidge (couple of hundred quid) over the £30K. I have talked to some advisors and consultants and they want to charge some big fees (10%+) to even touch it. They also want confirmation that you have other sources of pension income.
It galls me as i am convinced i could do more with the £30K in a SIPP and some stock market plays but as it is i am stuck with it. Will secure £700/yr when i hit 65 or whatever but i'm reconciled it aint changing.
If your pot is significantly larger portion of your forecast retirement income the story could be different but my understanding is IFAs are terrified of being accused of miss-selling on these that most will do their damdest to avoid engaging
It galls me as i am convinced i could do more with the £30K in a SIPP and some stock market plays but as it is i am stuck with it. Will secure £700/yr when i hit 65 or whatever but i'm reconciled it aint changing.
If your pot is significantly larger portion of your forecast retirement income the story could be different but my understanding is IFAs are terrified of being accused of miss-selling on these that most will do their damdest to avoid engaging
I had a similar experience when chatting to IFAs about a couple of smaller sums on DB schemes.
Basically you needed at least a good year to offset the initial fees. Then once you took into account the fact that it increased by inflation each year etc the perceived gains eroded.
It galls me a bit as its locked away until 65+ but with fees being so high to transfer and finding someone to do it being so hard, I gave up.
Basically you needed at least a good year to offset the initial fees. Then once you took into account the fact that it increased by inflation each year etc the perceived gains eroded.
It galls me a bit as its locked away until 65+ but with fees being so high to transfer and finding someone to do it being so hard, I gave up.
There are a lot less people providing BD transfer advice than their used to be.
https://www.ftadviser.com/pensions/2021/08/25/687-...
https://www.ftadviser.com/pensions/2021/08/25/687-...
Depends on so many things that there is no right/wrong, yes/no answer.
In my case, when I asked about one of my DB pensions, the CETV was 44x pension. I was 59 at the time and not really anticipating living to 103. Of course there are all the risk/growth/cost considerations to take into account, but at those rates it was a bit of a no brainer.
The injection of that sum put me in a very good place and I retired a couple of months after it landed, and I'm now almost a year in. I'm drawing down the same monthly nett as I was when I was working, and my overall pot has reduced by all of £1500 in that time
99.7% of the FIRE-related projections which have been run against my profile are that at current levels of drawdown, when I shuffle off, I'll leave behind more than I started with last year.
In my case, when I asked about one of my DB pensions, the CETV was 44x pension. I was 59 at the time and not really anticipating living to 103. Of course there are all the risk/growth/cost considerations to take into account, but at those rates it was a bit of a no brainer.
The injection of that sum put me in a very good place and I retired a couple of months after it landed, and I'm now almost a year in. I'm drawing down the same monthly nett as I was when I was working, and my overall pot has reduced by all of £1500 in that time
99.7% of the FIRE-related projections which have been run against my profile are that at current levels of drawdown, when I shuffle off, I'll leave behind more than I started with last year.Spydaman said:
Break even = transfer value/annual income.
That's a multiple and not a great one based on others I've heard. Break even will be fewer years depending on where inflation goes.The message I got from a friend who recently got a 'No' was that the only way you'll get a 'Yes' these days is if you're not dependent on the income.
LeoSayer said:
Spydaman said:
Break even = transfer value/annual income.
That's a multiple and not a great one based on others I've heard. Break even will be fewer years depending on where inflation goes.The message I got from a friend who recently got a 'No' was that the only way you'll get a 'Yes' these days is if you're not dependent on the income.
Not really interested unless more than £100,000 value!
Spydaman said:
I've got a couple of final salary that I'm thinking of cashing in and investing. As I see it the the pros and cons are as follows:
Cons
- only 50% of pension for Mrs Spydaman when I die
- nothing left for the kids when both of us die
- can't take it until 65 or reduced pension if I take before
- takes 32 years to break even
Pros
- not effected by stock market
- don't need to manage it
- guaranteed income for life
- 50% income for Mrs Spydaman when I die
Seems like a no brainer to cash it in unless I've missed something. What have I missed?
I am thinking along the same lines. I've just run my figures through a spreadsheet using the following assumptionsCons
- only 50% of pension for Mrs Spydaman when I die
- nothing left for the kids when both of us die
- can't take it until 65 or reduced pension if I take before
- takes 32 years to break even
Pros
- not effected by stock market
- don't need to manage it
- guaranteed income for life
- 50% income for Mrs Spydaman when I die
Seems like a no brainer to cash it in unless I've missed something. What have I missed?
(i) My DB scheme increases by 2%pa
(ii) CETV is 20x pension
The breakeven point (assuming there is zero growth in investing the CETV) is at 82 years. Assuming 1% growth the breakeven point becomes 86 years. It seems a no-brainer. the slight complication is that my wife is 10 years younger than me and her pension is a lot less than mine.
I'm going through the transfer process at present. It is a cumbersome process. The fees can be high particularly on smaller pots.
If it's your only future source of income or it represents a substantial part of that income the answer is likely to be no.
If you have multiple income streams of which it is only one & you could survive without it you are more likely to get a yes.
If it's your only future source of income or it represents a substantial part of that income the answer is likely to be no.
If you have multiple income streams of which it is only one & you could survive without it you are more likely to get a yes.
If an employer, or the pension fund management company, offers a transfer out value for a defined benefit pension, surely they must think it will end up saving them some money, or, at least, not costing them money?
I've got 2 DB pensions, 28 years combined. I started taking the pensions aged 52. 12 years later, I've already had more than double out than I put in (not allowing for inflation).
Both employers are still in business, and the annual reports show that the pension funds don't have much of a shortfall, so there's unlikely to be a problem with future payments. Worst case, the government protection should kick in - 85% I think?
I suppose it's possible that I could take the money and get a better return. It's also possible that I could lose out big time.
I'd rather take the guaranteed, index linked, monthly pension. It's what I was happy with when I signed up to the schemes.
I've got 2 DB pensions, 28 years combined. I started taking the pensions aged 52. 12 years later, I've already had more than double out than I put in (not allowing for inflation).
Both employers are still in business, and the annual reports show that the pension funds don't have much of a shortfall, so there's unlikely to be a problem with future payments. Worst case, the government protection should kick in - 85% I think?
I suppose it's possible that I could take the money and get a better return. It's also possible that I could lose out big time.
I'd rather take the guaranteed, index linked, monthly pension. It's what I was happy with when I signed up to the schemes.
Boringvolvodriver said:
LeoSayer said:
Spydaman said:
Break even = transfer value/annual income.
That's a multiple and not a great one based on others I've heard. Break even will be fewer years depending on where inflation goes.The message I got from a friend who recently got a 'No' was that the only way you'll get a 'Yes' these days is if you're not dependent on the income.
Not really interested unless more than £100,000 value!
R.
Further to my initial post:
- I'm 60 and have already stopped work
- I had a cancer scare earlier this year which turned out not to be but I did have a section of my colon removed.
- the transfer value of the DBs is just under £600k
- I do have a couple of smaller SIPPs ISAs and some cash so would not be my only income
- my Wife has her own SIPP but cant get to it until later this year.
- I'm 60 and have already stopped work
- I had a cancer scare earlier this year which turned out not to be but I did have a section of my colon removed.
- the transfer value of the DBs is just under £600k
- I do have a couple of smaller SIPPs ISAs and some cash so would not be my only income
- my Wife has her own SIPP but cant get to it until later this year.
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