Very Small Final Salary Pension - Options
Discussion
Looking for options and opinions with regards to a small final salary pension.
Current estimates are that in 2040 (Aged 65) I will get a monthly pension of £300, or if I die my Mrs will get £150, both for life.
The scheme is now closed to new members and from what I can tell the scheme have partnered with an IFA that will provide you with the approved guidance to transfer out subject to a fee of around £900.
Transfer out is currently valued at 90k
I currently managed my own SIPP which contains the usual low cost trackers so would look to transfer out into this.
Does this seem sensible?
Current estimates are that in 2040 (Aged 65) I will get a monthly pension of £300, or if I die my Mrs will get £150, both for life.
The scheme is now closed to new members and from what I can tell the scheme have partnered with an IFA that will provide you with the approved guidance to transfer out subject to a fee of around £900.
Transfer out is currently valued at 90k
I currently managed my own SIPP which contains the usual low cost trackers so would look to transfer out into this.
Does this seem sensible?
There are two parts to the question imo.
The first is whether the CETV you have been offered is good value. To understand that, calculate the pension value at todays date; take the retained benefit at the date you left the scheme and apply an escalation for inflation in accordance with the terms of the pension policy. Next, see what it would cost to buy an annuity on exactly the same terms (50% joint life plus identical inflation escalation going forwards). Then discount that cost back from age 65 to todays date and compare with the £900k.
That’s the easy bit. The difficulty is in part two: deciding whether the transfer or the pension best suits your financial goals in retirement. This only you can answer; it depends on a host of variables particular to your circumstances….. what are your other sources of income, tax situation, investment horizon, liabilities, estate planning etc etc.
You’ll find that the IFA will spend a lot of time helping you to figure out the second bit but you’d be better having a firm idea in your own head before starting the process.
As an aside, it is unlikely that the IFA will allow you to move the money to a SIPP of your choosing. You’d almost certainly have to make that move as a second transaction.
The first is whether the CETV you have been offered is good value. To understand that, calculate the pension value at todays date; take the retained benefit at the date you left the scheme and apply an escalation for inflation in accordance with the terms of the pension policy. Next, see what it would cost to buy an annuity on exactly the same terms (50% joint life plus identical inflation escalation going forwards). Then discount that cost back from age 65 to todays date and compare with the £900k.
That’s the easy bit. The difficulty is in part two: deciding whether the transfer or the pension best suits your financial goals in retirement. This only you can answer; it depends on a host of variables particular to your circumstances….. what are your other sources of income, tax situation, investment horizon, liabilities, estate planning etc etc.
You’ll find that the IFA will spend a lot of time helping you to figure out the second bit but you’d be better having a firm idea in your own head before starting the process.
As an aside, it is unlikely that the IFA will allow you to move the money to a SIPP of your choosing. You’d almost certainly have to make that move as a second transaction.
I did it for a £120k pot which was worth about £300 a month. The question we sat down and worked out was if we would need £300 a month in my case at aged 60. Because my other DB pension is 10x that the answer was obviously no and it was approved for transfer.
It was invested by my IFA in Royal London 5, I now manage it, saving his fees. It's worked for us as its enabled my wife to retire 6 years earlier than planned, we're simply drawing down my pension until she gets both hers aged 60. I also took a chunk of the tax free amount and we had a couple of nice holidays.
It was invested by my IFA in Royal London 5, I now manage it, saving his fees. It's worked for us as its enabled my wife to retire 6 years earlier than planned, we're simply drawing down my pension until she gets both hers aged 60. I also took a chunk of the tax free amount and we had a couple of nice holidays.
Edited by DT1975 on Monday 16th May 19:49
Many Thanks Folks,
I have a pension with my current employer and whilst the contributions are generous I've only been here a year. Other than that I have a small SIPP so not sure if the IFA would authorise the transfer.
Just got my official quote and it comes with a recommended IFA and a fee of £875 plus VAT. So looks like I will need to pay that to find out.
I have a pension with my current employer and whilst the contributions are generous I've only been here a year. Other than that I have a small SIPP so not sure if the IFA would authorise the transfer.
Just got my official quote and it comes with a recommended IFA and a fee of £875 plus VAT. So looks like I will need to pay that to find out.
My knee jerk from your original post was that all things being equal £90k sounds light - crudely £140k sounds more realistic.
Would be interested in what the expert says and indeed I suspect you are correct in that whether they advise transfer or not could be interesting.
I think ( and I’m not an expert so e and o applied ) you maybe too young to allow transfer anyway.
I guess also depends on what other funds /money you have and what your demands will be at that point in terms of what you need to then retire on !
Good luck in your conversations.
Would be interested in what the expert says and indeed I suspect you are correct in that whether they advise transfer or not could be interesting.
I think ( and I’m not an expert so e and o applied ) you maybe too young to allow transfer anyway.
I guess also depends on what other funds /money you have and what your demands will be at that point in terms of what you need to then retire on !
Good luck in your conversations.
rustyuk said:
Many Thanks Folks,
I have a pension with my current employer and whilst the contributions are generous I've only been here a year. Other than that I have a small SIPP so not sure if the IFA would authorise the transfer.
Just got my official quote and it comes with a recommended IFA and a fee of £875 plus VAT. So looks like I will need to pay that to find out.
If your IFA will not give a positive recommendation it is still quite likely that your employer pension will take the transfer anyway. It is worth checking with them in advance because you could run out of time otherwise.I have a pension with my current employer and whilst the contributions are generous I've only been here a year. Other than that I have a small SIPP so not sure if the IFA would authorise the transfer.
Just got my official quote and it comes with a recommended IFA and a fee of £875 plus VAT. So looks like I will need to pay that to find out.
Being in a similar situation, my current personal preference is to leave it be.
As things stand presently, I figure that whilst small, adding the DB income to the State Pension should produce a guaranteed £1k-ish monthly income, which would be the very minimum I need to live in retirement.
In effect, I'm treating them both as 'Insurance' in case my modest DC pot & other savings take a wrong turn or I decide to heavily draw-down so as to eat into the capital, or I live way longer than I expect. My wife is also a bit younger than me, so the continuing spouse benefit is not to be sniffed at.
As noted, really depends upon individual circumstances, though.
As things stand presently, I figure that whilst small, adding the DB income to the State Pension should produce a guaranteed £1k-ish monthly income, which would be the very minimum I need to live in retirement.
In effect, I'm treating them both as 'Insurance' in case my modest DC pot & other savings take a wrong turn or I decide to heavily draw-down so as to eat into the capital, or I live way longer than I expect. My wife is also a bit younger than me, so the continuing spouse benefit is not to be sniffed at.
As noted, really depends upon individual circumstances, though.
I've done similar - having sufficient DB + State pension to cover what I think my needs will be from say 80 onwards means I remove longevity risk - I won't run out of money. So I can spend more in early retirement without fear of running out completely.bothered
Also at that age will I want to be managing investments vs just cash in the bank every month.
Also at that age will I want to be managing investments vs just cash in the bank every month.
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