Author Topic: Cashing in a final salary pension. (Yes I know!)  (Read 1469 times)

Flavius

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Cashing in a final salary pension. (Yes I know!)
« on: May 09, 2018, 10:52:42 AM »
Recently I have been thinking the unthinkable!

I've got two small company pension one of which I can take from 55 if I want. They sent me an estimate of how much I would get.

£3000 per annum +£9k lump or I can transfer it into my SIPP (£136,000).

This pension will increase in line with RPI up to 5% so is fairly inflation proof. It will also pay my wife 2/3 of the value if I die.

I have calculated that if I put it under the bed (not literally) and allowing for 3% inflation the money would last for 28 years at £3000 +inflation per annum. At this point I will be 83 and there is only a 50% chance that I will even reach this age. Since the annual return is only 2.2% (though admittedly guaranteed) would it not be better to put it into my SIPP and drawdown? Am I missing something?


AnswerIs42

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Re: Cashing in a final salary pension. (Yes I know!)
« Reply #1 on: May 09, 2018, 11:00:13 AM »
A 42:1 commutation ratio? Sounds like taking the money might be the best move.

Perhaps they're applying a draconian reduction for taking it at 55. What would it pay if you left it until the normal scheme retirement age?

Flavius

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Re: Cashing in a final salary pension. (Yes I know!)
« Reply #2 on: May 09, 2018, 11:12:21 AM »
£3857 at 60 which is the latest estimate that I have got. I presume that it would be even better at 65?

frugledoc

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Re: Cashing in a final salary pension. (Yes I know!)
« Reply #3 on: May 09, 2018, 03:28:55 PM »
Also, if you have kids, the money in the SIPP can be passed free from inheritance tax, if that is something that is important to you.


Flavius

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Re: Cashing in a final salary pension. (Yes I know!)
« Reply #4 on: May 10, 2018, 05:06:21 AM »
Yes that is true as well.

PhilB

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Re: Cashing in a final salary pension. (Yes I know!)
« Reply #5 on: May 10, 2018, 08:51:43 AM »
That looks like a no-brainer  - unless you are very risk averse indeed and that £3k pa is the difference between living well and starving.  After adjusting for the lump sum the comparison is £3k pa vs £127k of capital.  That would be a 2.36% withdrawal rate.  Even if you went for a 3% withdrawal rate that would be £3,810 pa.

poppydog

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Re: Cashing in a final salary pension. (Yes I know!)
« Reply #6 on: May 12, 2018, 02:17:16 AM »
I agree, itís a no brainier on those numbers.  Take the money, put it into an income producing fun Vanguard UK Equity Income perhaps) then let it do its magic.

TartanTallulah

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Re: Cashing in a final salary pension. (Yes I know!)
« Reply #7 on: May 12, 2018, 03:08:01 PM »
I'm looking at the numbers and thinking, "I'd rarely advise switching out of a DB pension, but that looks like a tempting offer." It's a generous conversion and the inheritance aspect makes it particularly appealing.

May2030

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Re: Cashing in a final salary pension. (Yes I know!)
« Reply #8 on: May 14, 2018, 06:32:01 AM »
I was in a similar position recently with a sum of £85k. As it was over £30k in value I had to get independent financial advice. When his figures came back I would be better off to the tune of £200k  leaving it where it was until I was ready to take it. I was advised to leave it where it was , so would not of been able to move it with this advisor anyway.

Depends on your scheme but I was looking at needing a 11% annual return to match it. Very eye opening.

Flavius

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Re: Cashing in a final salary pension. (Yes I know!)
« Reply #9 on: May 14, 2018, 10:56:40 AM »
I have read somewhere about having to get a financial adviser before moving money over £30k. I wonder if it only applies when it's a DB pension as I have moved larger sums than that from different private pension providers without any advice. I'm a bit sceptical about independent financial advisers but maybe they have all moved on from the old annuity days.

highlandterrier

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Re: Cashing in a final salary pension. (Yes I know!)
« Reply #10 on: May 14, 2018, 01:55:52 PM »
Advice is required for DB transfers over £30k only. However, you can transfer even if the advice is against it, they just need to have provided advice. It's a bit of a racket really, I think that may change.

It's not a no brainer when you are in the situation, even with the good offer OP has. You would be taking the risk instead of the provider. As the rest of your stash is likely at risk from similar markets, keeping the DB and spreading the risk for a smaller, virtually guaranteed inflation proof return is attractive.

I got an offer recently of 38x salary which I did not take, but that's mainly because my employer still pays into it, so base amount still increasing. When I'm nearer the receipt date I'll think again, but offer may have changed by then as all depends on gilt yields (apparently)!

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« Last Edit: May 14, 2018, 01:57:37 PM by highlandterrier »

Flavius

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Re: Cashing in a final salary pension. (Yes I know!)
« Reply #11 on: May 15, 2018, 10:38:19 AM »
Thanks for the information HT. I've got a couple of these with roughly the same value and as you say it's a good way of de-risking my pension investments. I know that as soon as I put it into S&S the market will plummet. 38x salary is a stunning offer. I think that when I took  this pension on I was really pleased to get 48x. Unfortunately I should have taken it on 9 years earlier as I only stayed in the company for another 3 years!! And where did I invest my money previous to that. Yep, Equitable Life!!!!