Im 55 in 6 months & wondering what to do with an old final salary pension. Transfer out value is £400,000 but all the time it’s sitting where it is it’s increasing roughly 4.8% annually I believe.
Anyone got any idea what I would receive yearly after taking the 25% lump sum? Also does the transfer out value increase each year by the same rate as the pension does or at all.
Probably the biggest investment we make & struggling to understand it!
Firstly the annual rises. These will be set down by the trustees & I'm sure will be documented somewhere. Do you get annual statements ? I know many schemes don't send out annual statements to deferred members (even though they should at least every couple of years) but if you get one have a look at what the annual increases are. Usually it will be in 2 parts - the GMP is statutory I believe & then the rest will usually increase in line with RPI or CPi.
Secondly the annual pension. This should be pretty easy to calculate as it's final salary scheme so you know from the outset ( assuming it's a 1/80th or 1/60th type scheme). Again, this will all be on an annual statement or paperwork you had when you left. If there is no immediate tax free lump sum then you will have to give up pension to get this. Again, quite easy to calculate once you know what the percentage give up is (NHS is 1 for 12).
Thirdly the transfer value. This generally doesnt have any direct relation to the annual pension & will depend on whether the scheme wants to get rid of the liability. Factors of 40 or 50 times the annual pension are now the norm and so the transfer value could change from year to year.
Lastly.....what should you do. The first thing is to get up to date figures. Second is to then get advice from an iFA if you are thinking about transferring. Then again, if it's a public sector scheme then it's not now possible to transfer into your own personal scheme.
And finally finally......any transfer is likely to cost you thousands. Any pension transfer specialist has many hoops to go through to satisfy the FCA & the personal liability insurance is costly. A TV of £400k could cost you in the region of £10k......and this has to be paid even if the advice is to stay put. And the FCA's stance is that the starting point should be not to transfer & you would need a very good reason to transfer. If you have spouse & dependants then its even harder.
There’s definitely lots to think about @dajavouslagan. @golfaddick has most of it in his note above. A couple of other things that might help and give you something to think about as I did this last year.
The regulator has clamped down on this in recent years (a reason for the increased fees, as well as a number of advisors no longer offering this service) and you’ll be told that the default position is that you should not transfer out. However, your individual circumstances may allow the IFA to recommend that you could/should transfer out, as mine did.
For me, single and with no dependents, it was a bit of a no-brainer but I still had to go through a lot of hoops with the IFA. Additionally, I wanted the flexibility to finish at 55 and whilst the work DB scheme would have allowed this, I would have lost 20% of my final salary number (4% per year before I reached 60). So you should also check what your scheme’s “retirement age” is. Had I stayed in the scheme, or been told I had to by the IFA, it wouldn’t have worked financially for me to take the early retirement.
Just finished my first 6 months of retirement today and certainly don’t regret it. Best of luck to you.
EDIT: just re charges for the advice. I think this is the standard, but my review was done in two parts. The initial chat was free and then this led into the first part of the information gathering. This allows the IFA to say either a flat no (stay in your DB scheme) or that further investigation is needed. The second part gathers a lot more information and they talk to you about what you’re looking to achieve, your attitude to risk, whether you want/need you tax free element etc. They then provide a full report with their recommendations, taking you through the details of the SIPP that they recommend for you.
The first part cost me £1,500 and the second, which it was obvious I was going to move to, was £6,000. The full fee was paid on conclusion and taken from my transferred funds. I would had to have paid the £1,500 myself had the answer been no.
I get full access to my pension via the firm’s platform and can check it daily if I like (not recommended at the moment 😱, although picking up again now 😮💨)
It’s the GMP piece that can get complicated. A friend had a deferred DB pension of roughly £3000, of which the GMP element was about £380.
The GMP element was being increased every year by 8.5% from when he left in 91 until age 65 in 2027. That GMP portion of his pension will go from £380 in 91 to £7200 in 2027.
The other part of the pension £2620 is only increasing by “Consumer Price Index” and is only likely to go from £2620 to a guesstimate of about £5300. In 2027.
A large part of your Transfer value could be related to the GMP element.
That 8.5% is variable from pension to pension, and also on how long ago you left. But, does show it is not as simple as it looks. Hence why as Golfie says, a IFA charges a lump to investigate it all.
I was able to buy out at no cost as the final salary scheme that I was part of was in deficit and they were looking to reduce the burden of some of the larger pots. The advice I received was to stay in , but I made the case to leave it for a number of reasons. It was a bit of work but I was able to achieve it at no cost in the end
Just doing some client reviews as we are coming to the end of the tax year & doing some performance charts. No looking first but what do you think these indices have returned over the past 5 years.
FTSE100 Euro Stoxx50 Nikkei Dow S&P500
answers below........
in reverse order
S&P +94.1% Dow +69.7% Nikkei +49.6% Euro +11.73% and finally the good old FTSE100.............
+2.25%
2.25%. That is almost less than Cash over the period & certainly less than CPI/RPI.
Good job we all rely on our Financial Advisers to recommend our UK funds and don't rely on trackers..........
Just doing some client reviews as we are coming to the end of the tax year & doing some performance charts. No looking first but what do you think these indices have returned over the past 5 years.
FTSE100 Euro Stoxx50 Nikkei Dow S&P500
answers below........
in reverse order
S&P +94.1% Dow +69.7% Nikkei +49.6% Euro +11.73% and finally the good old FTSE100.............
+2.25%
2.25%. That is almost less than Cash over the period & certainly less than CPI/RPI.
Good job we all rely on our Financial Advisers to recommend our UK funds and don't rely on trackers..........
Interesting but in the last year only how does it look? I get that 5 years is a good period / average and there will always be exceptional events but given Brexit & Covid related sentiments in the recent past does it make better reading for the FTSE?
Im 55 in 6 months & wondering what to do with an old final salary pension. Transfer out value is £400,000 but all the time it’s sitting where it is it’s increasing roughly 4.8% annually I believe.
Anyone got any idea what I would receive yearly after taking the 25% lump sum? Also does the transfer out value increase each year by the same rate as the pension does or at all.
Probably the biggest investment we make & struggling to understand it!
I made a big mistake in transferring out my final salary scheme, even though I transferred it overseas for tax reasons (QROPS).
I had every intention of keeping the final salary scheme in place, however was sweet-talked out of it by a less than scrupulous financial advisor (English but based in Bangkok).
His so-called advice cost me dearly and my pension pot, although making a small recovery up to the end of last year, is much lower than it would have been.
Provided your pension is in a financially sound scheme, I'd really recommend playing it safe and taking your guaranteed pension and yearly increases. I'm not a financial expert, just someone that's experienced the downside of what you're considering.
Starting to get royally cheesed off with Interactive Investor. I guess you sometimes get what you pay for! Shame as for my SIPP they are by far the cheapest provider. Declined a payment from me as I moved……. Despite telling them my new address they don’t bother informing their payment merchant WorldPay……
Really can’t be ar$ed to start shopping around again…… but may have to.
I heard on 'Wake up to Money' this morning that student loans are set to soar to 12%. Might be worth paying up if possible.
Probably the worse thing to do. Admittedly I dont know too much about SL as I never had one, but of what I do know & read about, the increase to 12% is only very temporary as its linked to inflation & so will fall again next year, where the interest rate charged is predicted to be close to 0%.
I believe you also still pay the same every month & the extra interest is simply added on by increasing the term you pay it over. Seeing as a lot of people with SL never fully pay it back then its makes no sense to pay it off now.
Comments
Secondly the annual pension. This should be pretty easy to calculate as it's final salary scheme so you know from the outset ( assuming it's a 1/80th or 1/60th type scheme). Again, this will all be on an annual statement or paperwork you had when you left. If there is no immediate tax free lump sum then you will have to give up pension to get this. Again, quite easy to calculate once you know what the percentage give up is (NHS is 1 for 12).
Thirdly the transfer value. This generally doesnt have any direct relation to the annual pension & will depend on whether the scheme wants to get rid of the liability. Factors of 40 or 50 times the annual pension are now the norm and so the transfer value could change from year to year.
Lastly.....what should you do. The first thing is to get up to date figures. Second is to then get advice from an iFA if you are thinking about transferring. Then again, if it's a public sector scheme then it's not now possible to transfer into your own personal scheme.
And finally finally......any transfer is likely to cost you thousands. Any pension transfer specialist has many hoops to go through to satisfy the FCA & the personal liability insurance is costly. A TV of £400k could cost you in the region of £10k......and this has to be paid even if the advice is to stay put. And the FCA's stance is that the starting point should be not to transfer & you would need a very good reason to transfer. If you have spouse & dependants then its even harder.
Good luck.
The regulator has clamped down on this in recent years (a reason for the increased fees, as well as a number of advisors no longer offering this service) and you’ll be told that the default position is that you should not transfer out. However, your individual circumstances may allow the IFA to recommend that you could/should transfer out, as mine did.
The first part cost me £1,500 and the second, which it was obvious I was going to move to, was £6,000. The full fee was paid on conclusion and taken from my transferred funds. I would had to have paid the £1,500 myself had the answer been no.
I get full access to my pension via the firm’s platform and can check it daily if I like (not recommended at the moment 😱, although picking up again now 😮💨)
The other part of the pension £2620 is only increasing by “Consumer Price Index” and is only likely to go from £2620 to a guesstimate of about £5300. In 2027.
A large part of your Transfer value could be related to the GMP element.
That 8.5% is variable from pension to pension, and also on how long ago you left. But, does show it is not as simple as it looks. Hence why as Golfie says, a IFA charges a lump to investigate it all.
FTSE100
Euro Stoxx50
Nikkei
Dow
S&P500
answers below........
in reverse order
S&P +94.1%
Dow +69.7%
Nikkei +49.6%
Euro +11.73%
and finally the good old FTSE100.............
+2.25%
2.25%. That is almost less than Cash over the period & certainly less than CPI/RPI.
Good job we all rely on our Financial Advisers to recommend our UK funds and don't rely on trackers..........
I had every intention of keeping the final salary scheme in place, however was sweet-talked out of it by a less than scrupulous financial advisor (English but based in Bangkok).
His so-called advice cost me dearly and my pension pot, although making a small recovery up to the end of last year, is much lower than it would have been.
Provided your pension is in a financially sound scheme, I'd really recommend playing it safe and taking your guaranteed pension and yearly increases. I'm not a financial expert, just someone that's experienced the downside of what you're considering.
PS zilch on the premium bonds this month.
( Cheap at the price....)
Really can’t be ar$ed to start shopping around again…… but may have to.
I'll leave anyone interested to look it up.
& read about, the increase to 12% is only very temporary as its linked to inflation & so will fall again next year, where the interest rate charged is predicted to be close to 0%.
I believe you also still pay the same every month & the extra interest is simply added on by increasing the term you pay it over. Seeing as a lot of people with SL never fully pay it back then its makes no sense to pay it off now.