Deferred final salary / defined benefit Pensions - worth a small fortune if you 'sell it'?

soupdragon

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The missus and I both have deferred (ie, dormant/closed) final salary pensions and are now paying into defined contribution pensions at the moment.

I came across an article on BBC news about final salary/defined benefit pensions and lots of people 'cashing them in' for a more standard pension. This gives you more flexibility to manage your pension pot your own way, rather than receiving a simple payment from the pot every year until you die.

Due to the formula's used to calculate the cost of pensions, its possible your annual final salary amount could be worth around x30 in transfer value. These values are based on current market conditions and will move around all the time, but as an example, for every £1k per annum final salary pension you have, it could be worth around £19-£27k in transfer value based on a 65 retirement age (or, if your lucky enough to have a 60 years retirement age agreement, could be close to £33k for every £1k)

When I look at both me and the missus pension combined from our closed schemes, its a fairly significant amount of money that we are just letting sit there until we retire, rather than receiving proper financial advice.

The reason for this thread is two-fold. One is to let other members know that right now, the multiplier is significantly in our favour due to current market conditions right now and if you have one of these pensions, you really should be looking at what it could mean to you.
Secondly, is for me to ask more experience members if they have come across this option, and have they acted on it? Did you receive financial advice? And did you move it to a more standard pension?

I'm only 40 at the minute so retirement is a long way away, but its my legal right to ask the trustee's to give me a quote to transfer the money to a different pension.

To summarise some pro's for doing nothing and switching

Pro's for doing nothing is basically you've a guaranteed income until you die - can't get anything more secure than that! You also may have kids/partner benefits as part of the overall pension package

Pro's for switching
Miles more flexibility to manage your pension pot. For example, I can cash in my 25% tax free long before I actually retire.
I can then choose to do whatever with the rest. Investments with drawdown to suit your time in your life, rather than a set annual rate. You can be more tax efficient with how you release your money.
And probably a big one for me, anything you don't use from your pension pot gets handed over to your children, rather than being buried with you.

Overall, I'm seriously considering switching the value into a standard style pension and opening up much more flexibility in the future of our family and also what we hand down to our kids. Anyone else with this type of pension done the same?
 
iirc you need to have an IFA review and sign-off moving from a final salary pension into another vehicle to make sure that you're not doing something dumb. This is something that is chargeable but can be taken from the pension fund if they approve - if they don't approve you'll be out of pocket for the services.

Unless you're getting greater than 30x value and are single then it's unlikely to be the right thing to do (depending on individual circumstances :D - I am not an IFA).
 
iirc you need to have an IFA review and sign-off moving from a final salary pension into another vehicle to make sure that you're not doing something dumb. This is something that is chargeable but can be taken from the pension fund if they approve - if they don't approve you'll be out of pocket for the services.

Unless you're getting greater than 30x value and are single then it's unlikely to be the right thing to do (depending on individual circumstances :D - I am not an IFA).

Interesting you mention being single. Why is that a factor? Surely if you transfer to a regular pension it all goes to your spouse/kids anyway? (Or am I missing something?)
 
It's not just about the multiplier , there are so many other factors to take into account, single, married , kids, other investments, attitudes to risk etc.etc. You need to take advice from an IFA who has the relevant qualifications and that won't necessarily be low cost.
You are also giving up a guaranteed inflation linked pension.

Having said that I did do a transfer in April and converted my FS pension to a near seven figure sum (multiple was around 40 but not necessarily relevant). I'm in my mid 50's and it has given me the flexibility to retire early, vary my income as necessary and not pay tax for a fair few years.

edit- and the peak of transfer values has probably passed noe although still historically high
 
Interesting you mention being single. Why is that a factor? Surely if you transfer to a regular pension it all goes to your spouse/kids anyway? (Or am I missing something?)
generally anwidows pension is payable and possibly children's up to age 18 but if you transfer then your widow/children get to inherit the balance of fund
 
I am also considering this at the moment. I received a transfer value for an old DB pension back in April and it was quite a significant sum (in comparison to what I paid in nearly 20 years ago).

Although not 30x the yearly value it is still quite a big sum of money.

I recently read that some are getting up to 50x their value however I doubt that I would get anywhere near that amount.

To me it appeals for a few reasons.

1. I like the fact that I can access it as and when I like so if some years I want to draw a little more I can.

2. There is no guarantee that the company that provides my pension will be still around when I am in my 70s to still pay the full amount.

3. If anything does happen to me, I know my wife will get the full amount rather than a much reduced sum.

My concerns are a, can I trust an "independent financial advisor" to advise me correctly (which if the sum is more than 30k you have to involve a "IFA") and b. I am not really a big risk taker and I would rather have a very small return in the knowledge that the money is not at risk.

I have been passed an IFAs number from a colleague at work that they have dealt with for some time so hopefully quite trustworthy so I am going to book an appointment to seek a bit more advice.
 
I am also considering this at the moment. I received a transfer value for an old DB pension back in April and it was quite a significant sum (in comparison to what I paid in nearly 20 years ago).
Common misconception but what you paid in to a final salary scheme has nothing to do with the transfer value. Most of the time I was in one I paid nothing.
 
Common misconception but what you paid in to a final salary scheme has nothing to do with the transfer value. Most of the time I was in one I paid nothing.

Sorry, what's the misconception?
 
It's not just about the multiplier , there are so many other factors to take into account, single, married , kids, other investments, attitudes to risk etc.etc. You need to take advice from an IFA who has the relevant qualifications and that won't necessarily be low cost.
You are also giving up a guaranteed inflation linked pension.

Having said that I did do a transfer in April and converted my FS pension to a near seven figure sum (multiple was around 40 but not necessarily relevant). I'm in my mid 50's and it has given me the flexibility to retire early, vary my income as necessary and not pay tax for a fair few years.

edit- and the peak of transfer values has probably passed noe although still historically high
7 figures including two decimal places?? ;)
 
Common misconception but what you paid in to a final salary scheme has nothing to do with the transfer value. Most of the time I was in one I paid nothing.

It was a final salary pension so I knew it had nothing to do with what was paid in however it's still a shock when the transfer value is over 44 times what I paid in (bearing in mind I left the company 18 years ago!)
 
That a transfer value has anything to do with what you paid in or should be compare to what you or your employer paid
Ah ok, I thought you meant something else. I don't think anyone was saying that anyway though?
 
7 figures including two decimal places?? ;)
Lol :)

Mines is 8 figures ....Turkish lira though :(

I think for the benefit of the thread, best leave values out of it unless it has relevance. I purposely didn't put any figures in the OP as people can end up with willy waving which detracts from the point of the thread. The key point being, no matter what the value of the pension, it's good to know the ins and outs and options.
 
If the pension pot is worth more than £30k, then it is compulsory to get financial advice apparently
 
Don't think you can compare a DB scheme with a DC, with DC yes you have the option of where to invest you money but the returns are not guaranteed.

With DB your pension is guaranteed unless the employer goes bust and if accrued post 1985 should increase in deferment.

Lots of schemes around where they get you to transfer your DB pension overseas to cash in early, you need to be very careful about theses.

And finally as mentioned above before you transfer speak to a good IFA.
 
Looking at this another way.

Say for example you were about to retire and you had £100k in the bank. Would you spend that £100k on an annuity (payment for life pension) which pays out only £3.3k per annum, which is £64 a week? (100k divided by a 30 multiplier)

Or multiply that by 10. For a pension of £640 a week, would you pay a million £ for that? Crazy numbers when you think about it.

For me, I'm thinking the answer is 'surely not'. I would rather be in control of my pension pot, rather than just letting it sit there, paying me just 3.3% of its full value every year until I die.

Thoughts?
 
I cant answer the above directly other than the logic is strong.

I have 27 years in on a DB Scheme that closed 3 months ago. I'm now on DC.

I have not given more than 2 seconds thought to a transfer because the way my mind works is - If someone is prepared to give me £x for my DB scheme then any amount they are going to pay must be less than the average true value, hence after 1 second I dismiss it.

I absolutely get that there will always be unique situations where individuals circumstances dictate the above is flawed.

Given that in reality I have no idea what individual circumstances and preferences would dictate a keep or sell outcome I'll watch this thread with interest.

My scheme letters only tell me what my annual pension would be if I retired today (even though I can't retire today as I'm not old enough), although is does tell me how much it increases % wise per annum between now and retirement so I can work out exactly what the final pension will be. However, there is no mention of what the actual pot amount is

Mark
 
Timely post. I've just been outsourced so my 25 year final salary scheme is immediately deferred. I can actually start taking my pension at 55, in 3 years time but am awaiting a yearly statement as all my previous ones have assumed I'll stay with the company until either 55, 60 or 65. And all projections were based on that.
I had a 650k value in a divorce related CETV 2 years ago so I've just requested a new CETV so I know there I stand.

I've a meeting with a recommended IFA in two weeks time. It's a free first hours consultation so will give me an idea if I want to take things further.

I've done some research and some personal circumstances tip the balance in favour of a transfer. I.e shorter life expectancy due to ill health, debt, mortgage payoff.
I lost the house in the divorce (but kept my pension in the split) and am in debt due to the divorce costs so it may well be advisable for me to go the transfer route.
Then I could possibly cash out up to 25% tax free to clear the debts and buy a small property. Then invest the rest for a monthly return that would (hopefully) cover my much reduced outgoings.
 
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That's a really good point mentioned above re debt - I always got the point about being single & life expectancy being a influence to transfer but, the bit about debt never crossed my mind. Obviously if you have large loans, high mortgage etc then there is a benefit to being able to immediately reduce these and, what you lose by transfer (if anything) you make back by reducing the amount you pay interest.

Like it and makes more sense as to why more and more people would transfer. I guess that's where an ifs comes in.

More a question rather than a statement, I'm leaning towards

If you are are married, with children, no debt at all (mortgage, loans, car you name it) and with no know illness or family history of illness etc then a transfer, subject to,you living to say 75 would not be the recommended financial choice

Cheers
Mark
 
I am in the same dilemma as the OP.

Just been quoted a factor of 32x as a buy out value.

If left as a straight annual pension there is a 50% widows pension built in. This is what makes the calculation and decision difficult.

If it didn't have the widows pension the decision would be easy.
 
Like @soupdragon I like the flexibility to be able to control exactly how much I take and when and the fact that should anything happen (longevity in my family is not great) my dependants will have the full amount sat in the bank (or something similar).

Unfortunately I am not in the same financial position as others I have seen on this and other forums (no round the world cruises for me unfortunately :)) but am still lucky enough to hopefully have the choice to retire a bit earlier (from full time employment anyway).

As I said on my first post I am not a huge risk taker and if I am honest I have never been that lucky when it comes to financial decision making (I suspect that if I go down the route of transferring out I will either a) discover that if I had waited another year I would have got another 100k added to the pot or b) find that my value has dropped since getting my first transfer value :D).

I am hoping that after a chat with a IFA it all stacks up.
 
If you are are married, with children, no debt at all (mortgage, loans, car you name it) and with no know illness or family history of illness etc then a transfer, subject to,you living to say 75 would not be the recommended financial choice

Cheers
Mark
I'm married with children, no debt at all and no family history of illness and banking on living a lot longer than 75. In the words of my IFA taking the transfer was a "no brainer "

It gives me the opportunity to retire early, to be able to take nearly twice what my FS pension was, without depleting capital, gift some to children, have flexibility to vary the income over the years, pay no or very little tax and if I do die provide a significant sum for wife and children.
It is down to individual circumstances but in most cases a transfer wouldn't be the recommended choice but for some it can be life changing
 
I'm married with children, no debt at all and no family history of illness and banking on living a lot longer than 75. In the words of my IFA taking the transfer was a "no brainer "

It gives me the opportunity to retire early, to be able to take nearly twice what my FS pension was, without depleting capital, gift some to children, have flexibility to vary the income over the years, pay no or very little tax and if I do die provide a significant sum for wife and children.
It is down to individual circumstances but in most cases a transfer wouldn't be the recommended choice but for some it can be life changing

Thanks and very useful, it's non of my business but, might help add value to the points in question - how old are you or, put it another way, were you near retirement age - I'm 46 years old, I guess I am trying to determine if current age is a strong factor to influence the decision.
 

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