Author Topic: Pension Buyouts  (Read 2972 times)

Exflyboy

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Pension Buyouts
« on: June 10, 2015, 12:23:54 PM »
Hi All,

I'm a UK expat with an old pension in the UK.. it will pay out $15k next year (on my 55th Birthday).

One option is to move it to an offshore account that is legal and recognised by the IRS as a legitimate pension fund... Called a QROPS.

I have just been offered a buyout value of $404.000.. not bad, almost exactly 25 times the value of the pension... Tax free of course.

The advantages are obvious.. My money in MY accounts.. doesn't matter if the company goes bust, if I dies my Wife gets all of it, not just half, value should grow over time faster than my pension value etc etc.

Downsides... FEEES... damn its expensive!.. like 1.5% plus.. To an index investor used to 0.05% ETF's this is brutal! Also leaving money with a pension is a great hedge against market risk... i.e market tanks for several years in theory you have "guaranteed" money if you have a pension. there is also the risk of the unknown.. How legit are these companies, what if they go bust etc etc.


As for our financial situation.. we absolutely do NOT need the money.. we have $1.55M in liquid assets, paid of house, this pension, My Wife's pension in 8 years and rental business (about $15k a year).


Thoughts?


GoldenStache

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Re: Pension Buyouts
« Reply #1 on: June 10, 2015, 01:01:10 PM »
Does the pension adjust for inflation? How much?

Unless it is a really amazing pension I would take the money and run.

25 birds in the hand is much better than 1 on the bush.

UnleashHell

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Re: Pension Buyouts
« Reply #2 on: June 10, 2015, 01:12:49 PM »
its tax free now - what happens if you transfer it to the US - does it then get treated like an IRA and taxed when you take it out?

Exflyboy

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Re: Pension Buyouts
« Reply #3 on: June 10, 2015, 02:23:54 PM »
Yes the pension adjusts for inflation.

If you don't take it out they claim it will make about 9% per year (based on doing projections of benefits on their website.. Do I believe this?.. doubtful).

Yes it will be treated like a 401k.. money becomes taxable when you withdraw it as income.

FrogStash

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Re: Pension Buyouts
« Reply #4 on: June 10, 2015, 02:29:33 PM »
If you don't need the money, then take the peace of mind.  Which option helps you sleep at night?  For me, money in my control = better sleep...take the money and run...or walk...or swim, whatever you feel like.  :-)

NorCal

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Re: Pension Buyouts
« Reply #5 on: June 10, 2015, 03:05:09 PM »
I would think of it as an asset allocation problem not a valuation problem.  I assume they valued the buyout using true actuarial assumptions that are as good or better than anyone here could come up with.

So within your $1.5M+ portfolio, how valuable is a guaranteed inflation protected income stream?  Will that allow you to invest more aggressively elsewhere and reduce your withdrawal rate by a meaningful level?

My guess is that you'll be better off keeping the pension.

former player

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Re: Pension Buyouts
« Reply #6 on: June 10, 2015, 03:07:41 PM »
If you are concerned about a UK company going bust and the pension being affected you should check out the Pension Protection Fund, as this should give you 100% protection once you have started to take the pension and 90% protection before you have started to take it.  See-

http://www.pensionprotectionfund.org.uk/Pages/homepage.aspx
http://www.pensionprotectionfund.org.uk/DocumentLibrary/Documents/What_is_the_ppf.pdf

So, essentially, not much of a worry for a UK pension.  You might want to check what protections your offshore fund offers.

Exflyboy

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Re: Pension Buyouts
« Reply #7 on: June 10, 2015, 03:38:54 PM »
If you are concerned about a UK company going bust and the pension being affected you should check out the Pension Protection Fund, as this should give you 100% protection once you have started to take the pension and 90% protection before you have started to take it.  See-

http://www.pensionprotectionfund.org.uk/Pages/homepage.aspx
http://www.pensionprotectionfund.org.uk/DocumentLibrary/Documents/What_is_the_ppf.pdf

So, essentially, not much of a worry for a UK pension.  You might want to check what protections your offshore fund offers.

That's pretty interesting Former.. If the pension did get sucked up by the PPF.. it will pay 100% in 6 years time (when I'm 60).. Or 90% if it happened tomorrow.

The only downside is that there would be no increase for inflation in my case.

As I am only talking about a pension of about $15k a year and to transfer it offshore is $6500/yr in fees (the 1.5%), that would tell me the risks of leaving it where it is are acceptable.

Of course.. if the offshore fund/bank went bust the entire portfolio would presumably go up in smoke!
« Last Edit: June 10, 2015, 03:43:57 PM by Exflyboy »

Exflyboy

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Re: Pension Buyouts
« Reply #8 on: June 10, 2015, 03:42:41 PM »
I would think of it as an asset allocation problem not a valuation problem.  I assume they valued the buyout using true actuarial assumptions that are as good or better than anyone here could come up with.

So within your $1.5M+ portfolio, how valuable is a guaranteed inflation protected income stream?  Will that allow you to invest more aggressively elsewhere and reduce your withdrawal rate by a meaningful level?

My guess is that you'll be better off keeping the pension.

Correct Norcal, I think the valuation is fine.. its simply an asset allocation question.. Then balancing risks vs fees.

Hard to tell if moving the pension reduces risk.. probably increases them based on the UK Government protection mentioned above.. the offshore account could in theory do a "Lehman Brothers" and take my money with it.

It sure is more expensive!.. $6500 a year more expensive.. ack!