Final salary pension - transfer to drawdown?

[anonymous-user]

I have a historic final salary pension (acquired between 1995-2001)
@ age 55 (imminent) that pension would pay a paltry 6k PA now, that is with no cash lump sum.
Or leave as is, it will be Index linked until 60.

I have a few other pensions which I am currently transferring into deferred draw down scheme. Will take 25% tax free of those to clear all debt/pay for weddings/substantial sum left & park the rest until I either call it a day, or wangle redundancy (a years salary)

So the final salary pension of 6K, the transfer value is 260K...
I reckon 6KPA is a poor return on 260K.. If I live until 95 I could draw down & have some left (if investments/gamble keep track with inflation).
So considering transferring it to the draw down & taking 25% tax free ( will need IFA to proceed)

No need to dip into the drawdown until I give up work, to minimise tax etc.

Good move or bad?

[sidicks]

I assume the pension is inflation-linked in payment too? Don't underestimate the value of this over the long time horizon with potentially higher inflation in the future.

[Ginge R]

Agree.

Jim,

Transferring from DB to DC isn't the basket case option it once was, but with potential inflation accrual, you really need to think long and hard about what you're giving up before deciding. It's not 'just' about achieving replacement critical yield from a new pension these days, and reading this will take a few minutes, but it may be useful in putting some context into your dilemma.

http://www.behaviorlab.org/Papers/Hyperbolic.pdf

[craig1912]

I'm thinking of doing something similar- your 260k looks very generous- I understand that transfer values have shot up- 30/32x the pension value.
I'm 56 and have a deferred pension of £24k pa from 60. Just requested a transfer value and looking to see an IFA in the new year but a transfer into a SIPP and then drawdown appears to be attractive.

[JulianPH]

sidicks said:

I assume the pension is inflation-linked in payment too? Don't underestimate the value of this over the long time horizon with potentially higher inflation in the future.

My thoughts exactly. That would then be in line with a comparable annuity rate.

OP - This is the same as you would get from an index linked annuity. It appears low at the beginning because of the index linking factored in over your lifetime.

You could potentially get more from drawdown - certainly if you don't need to start drawing income yet and you can get some good growth in before you do - but as you are doing exactly this with the rest of your pensions it might be safer to keep the certainty with this one so all your eggs are not in the same basket. There are also different Lifetime Allowance calculation with final salary schemes that may/may not need to be considered if your other schemes are substantial.

This is a text book example of needing advice from a specialist.

[Yipper]

Take the 25% taxfree and get a Lambo or Ferrari

If you run out of cash, the government will pay for everything.

[superlightr]

Jimboka said:

I have a historic final salary pension (acquired between 1995-2001)
@ age 55 (imminent) that pension would pay a paltry 6k PA now, that is with no cash lump sum.
Or leave as is, it will be Index linked until 60.

I have a few other pensions which I am currently transferring into deferred draw down scheme. Will take 25% tax free of those to clear all debt/pay for weddings/substantial sum left & park the rest until I either call it a day, or wangle redundancy (a years salary)

So the final salary pension of 6K, the transfer value is 260K...
I reckon 6KPA is a poor return on 260K.. If I live until 95 I could draw down & have some left (if investments/gamble keep track with inflation).
So considering transferring it to the draw down & taking 25% tax free ( will need IFA to proceed)

No need to dip into the drawdown until I give up work, to minimise tax etc.

Good move or bad?

that's sounds great to me. So over 6 years of paying in you could now get £6k a year for life with a value of £260k -whats that £43k a year put away. Which firm was this and how much did you contribute? Hoping they have job openings!

[LeoSayer]

Recent newspaper article here:

http://www.telegraph.co.uk/pensions-retirement/fin...

[anonymous-user]

Thanks for all of the advice - IFA definately required & I'll need it anyway as a condition if I transfer it out..
I guess the pot is pretty good for around 6 years contributions, I didn't put that much into it all those years ago!
Thanks for the previous link
So now seems a good time to transfer if I were to do so it seems (the value is guaranteed for next 3 months)
I guess IFA will cost me a bit, any idea of ballpark figure for IFA please?

Edited by anonymous-user on Wednesday 14th December 15:30

[CarlosFandango11]

craig1912 said:

I'm thinking of doing something similar- your 260k looks very generous- I understand that transfer values have shot up- 30/32x the pension value.
I'm 56 and have a deferred pension of £24k pa from 60. Just requested a transfer value and looking to see an IFA in the new year but a transfer into a SIPP and then drawdown appears to be attractive.

I've just received a transfer value a few weeks ago. It's 43x the pension value, a very similar multiple to OP except that I have another 17 years to the retirement age.

I'm still thinking about what to do, but am almost certainly going to transfer to a SIPP - I understand and am comfortable with the risks that I'd be taking on. Taking the transfer seems to be the sensible choice to me.

Edited by CarlosFandango11 on Wednesday 14th December 23:58

[LeoSayer]

38x here with 13 years to go.

This is almost double the 20x multiple used for valuing DB pensions for lifetime allowance purposes. Hope the government don't think about changing that.

[craig1912]

LeoSayer said:

38x here with 13 years to go.

This is almost double the 20x multiple used for valuing DB pensions for lifetime allowance purposes. Hope the government don't think about changing that.

Does the multiple get bigger or smaller the nearer you are to retirement?

[JulianPH]

Jimboka said:

I guess IFA will cost me a bit, any idea of ballpark figure for IFA please?

Typically 3% of the total value upfront and between 0.5% to (more often now) 1% a year. Remember there are all the other SIPP/funds/platform cost to consider as well (though the adviser can be the most expensive).

You could save a considerable amount therefore if you find an adviser that simply charges for their time in the same way a solicitor or accountant does. Expect to pay £150 an hour or a quoted flat fee. These types are very difficult to find however.

Alternatively you could look a a managed service. Ginge R has a company called 'fiver a day' which you can google and The Pension Review Business (flagging a connection with me here) is launching a service called ProInvest in January that provides fully managed SIPPs and ISAs with free advice for half the cost of using a traditional face to face adviser and the same cost as doing it all yourself with someone like Hargreaves Lansdown.

Both these services are online and telephone supported (to achieve the cost savings). So if you do want an IFA to come and see you face to face you will have to pay the higher price.

[LeoSayer]

craig1912 said:

Does the multiple get bigger or smaller the nearer you are to retirement?

The lifetime allowance multiplier is always 20 regardless.

For pension transfers, I don't know.

[CarlosFandango11]

LeoSayer said:

craig1912 said:

Does the multiple get bigger or smaller the nearer you are to retirement?

The lifetime allowance multiplier is always 20 regardless.

For pension transfers, I don't know.

For my FS scheme, the multiplier reduces with age: 43 for a 38 year old and 41 for a 50 year old, implying the discount rate is less than the inflation assumption....

[sidicks]

CarlosFandango11 said:

For my FS scheme, the multiplier reduces with age: 43 for a 38 year old and 41 for a 50 year old, implying the discount rate is less than the inflation assumption....

Which is consistent with negative real yields on long-dated, inflation-linked government bonds!

[anonymous-user]

A transfer value if 40+ times the annual return appears very generous to me.
If I drop off the perch the final salary scheme widows pension would only be around 3 PA (whereas the better half would get the pot tax free until 75)
All of which leads me to the conclusion that transferring 260k to a flexible drawdown is sensible option for me (25% tax free then park the rest until I need it with something like HL flexible draw down )
Would an IFA rubber stamp this? I'm not thrilled about having to spend 2k for advice, even less so if they would say leave 'as is'. Will explore the IFA options via free advice lines I guess..

[jeff m2]

A safeish drawdown percentage is around 3.5 to 4%
So around 300/Month per 100K
It will be index protected (if you do it right) and will leave a pot of indeterminate value.

DB will pay out in the 7 - 8% range, will be inflation protected at the rate set by the Gov.
So a pot of a lesser amount can produce the same 300/Month.
It will of course leave nothing on your demise (generally)there are often provisions if you peg it early and sometimes a 50% payment for a surviving spouse.

Most grab the tax free lump.....not always a good idea.

If you do go to an IFA take the Trustees annual report.

Your arithmetic is at 55 years old.....so they are giving you a figure for your age.
Get an estimate for 60 of 65 so you can make a better comparison.
A big difference if they have to spread your pot for an extra ten years even without the extra ten years growth.
My guess is the monthly amount would double.

Edited by jeff m2 on Saturday 17th December 15:07

[sugerbear]

What the IFA may or may not tell you is that most managed funds rarely exceed what you can make in returns from a tracker, if you do dump it into drwadown then make sure it isn't one the IFA will be creaming a percentage off each year.

The 2k is worth it, what you dont pay up front you will end up paying long term.

There was a great podcast a couple of months back about trackers vs managed funds have a listen http://www.bbc.co.uk/programmes/b081qyxh

[craig1912]

Just got my transfer value- £850000 based on a current pension of £19500 payable from 60 (i'm 56), which is much higher than expected. I also have £140k in a company DC scheme.

I was thinking of retiring early and looks like I might be able to- off to see an IFA in the new year.

Can anyone give me an idea of the sort of questions I should ask? Other than getting my 15 year old through University I've no mortgage so no great expenses- other than the wife's expensive holidays!

May look at a part time job or voluntary work.

Any other considerations?

cheers