Pensions

theone8181 · 27 Oct 2023 at 10:54

Hi guys, I'm looking for a but of advise (I suspect all responses will be see an advisor). I am currently 37, aiming to retire at 55. I have an old final salary pension from my first job which has a transfer value of about 50k (was at the job around a decade). My current workplace pension is not final salary, but it's worth around 100k. Am I stupid for even considering transferring my final salary into my current scheme? My assumption is that the compound interest will benefit me more.

CapitalOne · 27 Oct 2023 at 10:56

theone8181 said:
Hi guys, I'm looking for a but of advise (I suspect all responses will be see an advisor). I am currently 37, aiming to retire at 55. I have an old final salary pension from my first job which has a transfer value of about 50k (was at the job around a decade). My current workplace pension is not final salary, but it's worth around 100k. Am I stupid for even considering transferring my final salary into my current scheme? My assumption is that the compound interest will benefit me more.

£50k transfer value for DB scheme? What's that supposed to pay out? £1.5k per year or something? Sounds very low!

EddScott · 27 Oct 2023 at 11:16

theone8181 said:
(I suspect all responses will be see an advisor)

You already know the answer to your question.

As you're asking for advice in relation to a final salary pension, you'll need to find an adviser that has the relevant qualifications (Pension Transfer Specialist) and is part of a firm that still has its FCA permission to give advice related to this type of pension (many don't these days)

theone8181 · 27 Oct 2023 at 11:17

CapitalOne said:
£50k transfer value for DB scheme? What's that supposed to pay out? £1.5k per year or something? Sounds very low!

It will pay out 4k a year.

^tbh I posted just incase someone came out with a "don't bother changing".

CapitalOne · 27 Oct 2023 at 11:20

theone8181 said:
It will pay out 4k a year.

^tbh I posted just incase someone came out with a "don't bother changing".

Do you know if it's inflation linked? At your age it may be worth keeping it especially bearing in mind your age. Certainly worth some formal advice though.

Not advice, rough guidance is that you'll get 4% of your total pot per year as income, so 4k on 50k is excellent value (8%)!

theone8181 · 27 Oct 2023 at 11:22

CapitalOne said:
Do you know if it's inflation linked? At your age it may be worth keeping it especially bearing in mind your age. Certainly worth some formal advice though.

Not advice, rough guidance is that you'll get 4% of your total pot per year as income, so 4k on 50k is excellent value (8%)!

It is, but iirc its limited to 3% which is a shame as inflation has been mental for the last year or 2.
Just for reference it's an aerospace scheme so possibly why it's pretty good. I'm tempted to leave it as is really.

EvilRob · 27 Oct 2023 at 11:26

theone8181 said:
It will pay out 4k a year.

^tbh I posted just incase someone came out with a "don't bother changing".

Not from 55 though, right?
Have you used any of the pension calculators to determine if you are on track for retiring at 55 based in the income you'd need and your current pot and expected future payments?

theone8181 · 27 Oct 2023 at 11:28

EvilRob said:
Not from 55 though, right?
Have you used any of the pension calculators to determine if you are on track for retiring at 55 based in the income you'd need and your current pot and expected future payments?

Sorry no, that was from 66ish (the company managing it changed recently, and I'm still getting to grips with their website). I couldn't find an option to change when I want to retire, but it isn't going to be 66. I have, and I've got an excel spreadsheet. With my current aviva, it's going to be worth about 400k at 55 (not including that bae part).

Selekt0r · 27 Oct 2023 at 11:29

"don't bother changing" - there you go...

Transfer rates for defined benefit pensions have dropped massively over the last year or so as interest rates have started to rise. The transfer value for my old DB scheme pension dropped by around 45% between June 2022 and September 2023. So, now is probably not the best time to transfer out of DB (if there is ever a good time...).

But as stated - you will have to receive suitable independent/accredited financial advice to go down that route anyway.

Slam62 · 27 Oct 2023 at 11:30

4k a year from 50k is amazing although transfer values must have dropped due to higher interest rates.
I had one that would pay 6.5k and transfer value of 200k, needless to say I am now collecting said pension, although I did take a small lump sum.
So yeah don’t transfer it out.

Slam62 · 27 Oct 2023 at 11:31

I don’t believe you can transfer it now without an expensive financial advisor and I believe most won’t do it.

theone8181 · 27 Oct 2023 at 11:31

Just found it on the site, £3300 at 55 so might just leave it at that. What I couldn't work out was why my current pension is worth double (compared to the transfer value), despite me having worked a similar length of time. The poster above has answered that though.

^ interesting that you need to pay somebody. Didn't know that (assumed places would give out free advice).

200sols · 27 Oct 2023 at 11:34

The pension age is increasing to 57 in 2028 and it may well go higher before you are 55.

How much income do you think you will need at 57? Because say your pot is worth 450k on a DC scheme, the per annum return will be lower than you think. Especially as in 18 years time the value of 450k in real terms will be significantly less than it is today.

Selekt0r · 27 Oct 2023 at 11:35

theone8181 said:
Sorry no, that was from 66ish (the company managing it changed recently, and I'm still getting to grips with their website). I couldn't find an option to change when I want to retire, but it isn't going to be 66. I have, and I've got an excel spreadsheet. With my current aviva, it's going to be worth about 400k at 55 (not including that bae part).

Taking a DB pension early can substantially reduce the payout. I have one DB scheme with normal retirement age of 65 and the annual payout drops to around 65% of the quoted age-65 figure if taken at age 55. My other DB scheme with normal retirement age of 60 drops to around 75% of the quoted age-60 figure if taken at age 55

Hagar · 27 Oct 2023 at 11:35

theone8181 said:
It is, but iirc its limited to 3% which is a shame as inflation has been mental for the last year or 2.
Just for reference it's an aerospace scheme so possibly why it's pretty good. I'm tempted to leave it as is really.

I too would leave it as it is. I have a final salary scheme in payment amounting to about 14kpa. It too is limited inflation wise to 5%. It is a case of not putting all your eggs in one basket. I also have a small annuity of about 4kpa which was bought from an 80k DC pension pot.
A final salary scheme is usually worth keeping particularly if you wish to be retired for so long. I am not a financial advisor purely a pensioner.

Slam62 · 27 Oct 2023 at 11:35

If your current pension is defined contribution, any payments at retirement are just a guess unless it’s in risk free investments, ie cash. If that were to be the case you can calculate roughly how much you will have at what age nd how long it will last at a given draw down.

theone8181 · 27 Oct 2023 at 11:45

200sols said:
The pension age is increasing to 57 in 2028 and it may well go higher before you are 55.

How much income do you think you will need at 57? Because say your pot is worth 450k on a DC scheme, the per annum return will be lower than you think. Especially as in 18 years time the value of 450k in real terms will be significantly less than it is today.

I had heard the same. Imo it shouldn't be changing for people and it should be an individuals choice, but it is what it is. I had factored in either a salary of 15k or 25k for my spreadsheet, but it's a tricky question really. An extra 2 years would also increase my contributions/ reduce penalties for the FS bit. I realise the 'how much its worth bit is tricky, even over 29 years as essentially its going to be a guess.

200sols · 27 Oct 2023 at 11:49

theone8181 said:
I had heard the same. Imo it shouldn't be changing for people and it should be an individuals choice, but it is what it is. I had factored in either a salary of 15k or 25k for my spreadsheet, but it's a tricky question really. An extra 2 years would also increase my contributions/ reduce penalties for the FS bit. I realise the 'how much its worth bit is tricky, even over 29 years as essentially its going to be a guess.

£15-25k. Its not going to be much money in 20 years time. I would try and increase pension contributions now as much as you can.

theone8181 · 27 Oct 2023 at 12:10

200sols said:
£15-25k. Its not going to be much money in 20 years time. I would try and increase pension contributions now as much as you can.

That's the dilemma. I'm not single though, so there'll be some contribution from the wife (nhs pension so even more of a rabbit hole). I guess ultimately its a case of deciding closer to the time how much to draw out. I'm assuming the amount withdrawn can be changed throughout the retirement but that's just a guess.

Hagar · 27 Oct 2023 at 12:56

theone8181 said:
That's the dilemma. I'm not single though, so there'll be some contribution from the wife (nhs pension so even more of a rabbit hole). I guess ultimately its a case of deciding closer to the time how much to draw out. I'm assuming the amount withdrawn can be changed throughout the retirement but that's just a guess.

I have a bit over 25k now and it is comfortable, my wife has just begun drawing her state pension now as well. It depends what you really want but yes 25k in twenty years will be halved in value at least. Will you have paid your mortgage off by then.