[Closed] Pensions Cash Equiv Trans Value

Final Salary. Index Linked.

to

Low Risk. Same level of income.

No chance

It depends what the transfer value is.  Mine was 35 times the predicted annual pension......

I took a fairly small pension paying about £100 per month, but index linked as above, and transferred it to my SIPP.  It's currently earning about 6%, which is a little bit less.  It's not index linked, but the benefit is that the capital will still be there when I die, and form part of my estate.  The old pension would have finished on my death with nothing going to my estate.

The short and easy answer is that, in reality, a CETV *should* not provide the same level of income and security - that’s not what it’s meant for.

You don’t have a “pot” in a final salary (defined benefit) scheme - you have a defined benefit and the scheme is responsible for providing that, so there’s not really a case that it will “pay 5% per annum” - it will pay the promised benefit.  The CETV is the scheme’s assessment of the money they need now to pay your benefit in the future.  It’s generally lower than the cost of an annuity because the scheme has economies of scale, it’s own mortality and longevity assumptions, different investment strategies etc.  Transfer and you’re in the world of you taking the investment/inflation risk

Why do you need a quicker answer than waiting for your IFA to get a Statement of Entitlement from the Scheme?  If you’re looking at low risk investments, I take it you don’t need the money out immediately?  Have you been promised something in exchange for a quick transfer?  If so, I would suggest you look at the Pensions Regulator’s “scam” leaflet before doing anything, although most decent scheme administrators will also send you a copy.

Without wishing to appear condescending, the phrasing of your question implies that you don’t understand what you have so it is probably sensible to wait until your IFA (who has studied and passed exams to allow him/her to give that advice) has looked at your options.

There’s a reason why the government has mandated that transfers over £30k need advice and no, I’m not an IFA, nor do I work for one.

I heard the db scheme i am in is paying out 35 x multiples to buy members out.  It's index linked and guaranteed, I still would not sell.  To me its the guaranteed income in an uncertain world that is the attraction, it basically pays out in stock market crashes, property crashes.

Maybe I can beat the returns, maybe not, I don't have to think about it.

"Why do you need a quicker answer"

I'm aiming to take my pension early in order to use part of the tax  free lump sum to fund my son's deposit for his first house. Things are progressing better than expected with that so we need to get money in place. When telling my IFA this he wanted to know the CETV of my pension to see if we have any alternatives and take the deposit from other existing investments instead. My wife deciding to jack her job in at the end of the year has added impetus rather. :0.

If the benefit is big enough that the PCLS is sufficient for a house deposit in today’s market, I guess you’re expecting the CETV to exceed £30k, in which case advice is mandatory and you need to wait for each process in turn - CETV quote, advice, CETV paid -  if you want to transfer (note that the transferring scheme only needs confirmation you have had advice - what that advice said is none of their business).

Thinking quick, is there any way you could remortgage your own house for a short period e.g. five more years?

Yes i would borrow the money, last time I bought a property i was a bit short so rather than cashing in isas, or pensions in your case, I borrowed the money.  The problem with cashing this sort of investment in is that once its done its done, so you cannot go back.  In my case I repaid the loan in a year so did not have to touch the isa money.

The only case where I would cash in a pension, and I know people who have, is if they have life changing illnesses.  Those db schemes really are the gold standard.

poolman sums it up nicely, essentially it all comes down to your attitude to risk.  If I was offered 35x I would be very tempted, but only if that was part of my overall pension provision.

I cashed out a final salary pension but only because it had fallen into the PPF and lost it's index linking, so there was a fair inflation based risk in keeping it. Had it not done so I'd have not touched it as I'm unlikely to do better than the guaranteed payout unless (in my case) inflation rises. The death in service benefit is also much better with a SIPP than a DB pension, which was another consideration. It was also less than 20% of my total pot, so I'm not dependant upon it, so can afford to take a chance on the stock market.

Interestingly the lump sum I got, compared to that when I left the employer in 99, had increased at just over 11% pa since and that's after taking a 10% hit from the PPF and losing all index linking. So it had done very well as an investment in the nearly 20 years since I left.

NB For good reason it is getting harder and harder to transfer out of DB pensions, I had no end of trouble with IFAs and also SIPP funds who wouldn't accept a transfer as they were worried about being held liable for subsequent losses.

Quick question, say you sell your 10k db at 35 x multiple.  You get 350k, so you can access 25% at age 55 tax free, so 88k cash now.  The remaining 262k pot you have to invest to live off the returns.  How is the 262k taxed as you withdraw your capital?  Is it at the marginal tax rate?

Slight thread creep sorry op....

How is the 262k taxed as you withdraw your capital?  Is it at the marginal tax rate?

Yes, added to all your other income (inc state pension) and treated as if it were a salary.