Offer to pay-out final salary pension
Discussion
I have recently received an offer from the trustees of the final salary pension scheme from my previous employer, offering to buy me out of the scheme.
The offer applies a 75% uplift on my current pot value.
FS scheme is based on my final salary at point of redundancy and a 1/60th accrual - I did 5 years of service.
The security of this element of my pension is obviously attractive (although it is only as safe as the scheme) however also conscious that at 34 I still have a vast window of opportunity to grow a pension pot - although I have little to no investment experience or know-how.
Just wanted to get thoughts from the PH finance crew on what you would do faced with a similar offer.
The offer applies a 75% uplift on my current pot value.
FS scheme is based on my final salary at point of redundancy and a 1/60th accrual - I did 5 years of service.
The security of this element of my pension is obviously attractive (although it is only as safe as the scheme) however also conscious that at 34 I still have a vast window of opportunity to grow a pension pot - although I have little to no investment experience or know-how.
Just wanted to get thoughts from the PH finance crew on what you would do faced with a similar offer.
How much is the offer as a multiple of the guaranteed yearly pension?
If the value is above £30k you'll need to seek financial advice. Otherwise you can go ahead and make your decision yourself, but it's still worth getting some advice.
You've identified the importance of guaranteed benefits though and there there is a degree of protection should a company become insolvent and unable to fulfil their pension commitments.
If the value is above £30k you'll need to seek financial advice. Otherwise you can go ahead and make your decision yourself, but it's still worth getting some advice.
You've identified the importance of guaranteed benefits though and there there is a degree of protection should a company become insolvent and unable to fulfil their pension commitments.
crouchingpigeon said:
How much is the offer as a multiple of the guaranteed yearly pension?
If the value is above £30k you'll need to seek financial advice. Otherwise you can go ahead and make your decision yourself, but it's still worth getting some advice.
You've identified the importance of guaranteed benefits though and there there is a degree of protection should a company become insolvent and unable to fulfil their pension commitments.
Not coy about numbers so:If the value is above £30k you'll need to seek financial advice. Otherwise you can go ahead and make your decision yourself, but it's still worth getting some advice.
You've identified the importance of guaranteed benefits though and there there is a degree of protection should a company become insolvent and unable to fulfil their pension commitments.
Current annual payout on retirement: £4,900 (CPI index-linked at 2.5%)
Buy-out top up: £47,500
So basically 10x.
Edited by Legend83 on Tuesday 5th September 12:57
10 x pension is not really a favourable multiplier given current gilt yields/annuity rates (which is what they use to work out the cost of providing you with that benefit at retirement). I'm guessing the scheme is underfunded and they want to offload members but don't have the cash to make serious offers to buy people out.
In lots of circumstances a transfer away from a final salary scheme is justified, but it's not just the guaranteed and index linked income that is being given up. The main issue is the transference of investment risk from the scheme to the individual. At the moment all of the investment risk is taken on by the scheme, and regardless of what decisions they make, you will get your index-linked pension at the end of it (or 90% thereof if they go under and have to get bailed out by the Pension Protection Fund). If you transfer it away, all of the investment risk is now on you, and the decisions you make will dictate what you have in the future.
Either way, if you're serious about transferring it away you will need to get advice as it's a regulatory requirement. Do some research before you appoint a financial planner to make sure they've done plenty of this sort of work and there will be a fee for their services to factor in. Whether the advice is to transfer away or not, it's advice worth paying for.
In lots of circumstances a transfer away from a final salary scheme is justified, but it's not just the guaranteed and index linked income that is being given up. The main issue is the transference of investment risk from the scheme to the individual. At the moment all of the investment risk is taken on by the scheme, and regardless of what decisions they make, you will get your index-linked pension at the end of it (or 90% thereof if they go under and have to get bailed out by the Pension Protection Fund). If you transfer it away, all of the investment risk is now on you, and the decisions you make will dictate what you have in the future.
Either way, if you're serious about transferring it away you will need to get advice as it's a regulatory requirement. Do some research before you appoint a financial planner to make sure they've done plenty of this sort of work and there will be a fee for their services to factor in. Whether the advice is to transfer away or not, it's advice worth paying for.
Legend83 said:
Not coy about numbers so:
Current annual payout on retirement: £4,900 (CPI index-linked at 2.5%)
Buy-out top up: £47,500
So basically 10x.
Is the £4,900 index linked from now until the retirement date (as well as thereafter), or does the index linking of the £4,900 only start at the retirement date?Current annual payout on retirement: £4,900 (CPI index-linked at 2.5%)
Buy-out top up: £47,500
So basically 10x.
Edited by Legend83 on Tuesday 5th September 12:57
If it is the former then don't even consider it unless there is a very strong reason to question whether the scheme is in financial difficulty. If it is the latter then this might make sense.
This is one where you would seriously benefit from a specialist adviser running the numbers for you so you can compare like for like.
JulianPH said:
Is the £4,900 index linked from now until the retirement date (as well as thereafter), or does the index linking of the £4,900 only start at the retirement date?
If it is the former then don't even consider it unless there is a very strong reason to question whether the scheme is in financial difficulty. If it is the latter then this might make sense.
This is one where you would seriously benefit from a specialist adviser running the numbers for you so you can compare like for like.
I believe it is index-linked as of now until retirement and thereafter. If it is the former then don't even consider it unless there is a very strong reason to question whether the scheme is in financial difficulty. If it is the latter then this might make sense.
This is one where you would seriously benefit from a specialist adviser running the numbers for you so you can compare like for like.
The pension trustees have nominated an IFA, the fees for which the company will pay for...
My gut instinct is to leave it as is, as the poster above says, I don't want to spend the next 30 years hoping my investment choices leave me in the green or red come retirement time.
Legend83 said:
I believe it is index-linked as of now until retirement and thereafter.
The pension trustees have nominated an IFA, the fees for which the company will pay for...
My gut instinct is to leave it as is, as the poster above says, I don't want to spend the next 30 years hoping my investment choices leave me in the green or red come retirement time.
In that case walk away. You would need a 20x multiplier to begin to consider taking on the risk and costs and removing these from them.The pension trustees have nominated an IFA, the fees for which the company will pay for...
My gut instinct is to leave it as is, as the poster above says, I don't want to spend the next 30 years hoping my investment choices leave me in the green or red come retirement time.
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