09 Mar 2015

A question about : Basic Pension Info

Hi, I need a little help- I am just about to retire early (59) and I currently have a Final Salary Pension ( 29 years service) that I can cash in early but looking at the figures I believe I can get better value by transferring, I have had the transfer value figure and need to move forward and be in a position whereby all is in place for start of April.
I do intend to proceed with a Registered IFA who has permission to advise on final salary pensions but I would like to know a bit more before I get to that stage. I am also aware that the pension needs to be transferred to a personal pension provider. Who else needs to be involved ? How do I keep the money safe ? who controls it along the way ? what are the pitfalls ? I am keen that the money is not put at risk and even more keen that it is safe from grubby paws. It seems to me that it is a bit of a free for all out there with the wolves lining up.

Any help would be much appreciated.

Best answers:

  • with a final salary scheme, you will have built up a guaranteed benefit and have a guaranteed income for life. most of the time, you would be better off with the final salary scheme rather than transferring it (i think 9/10 times is usually quoted on here).
    The things that you need to consider are quite complicated and will depend on the scheme, your family situation, your health, your other assets and income, your income needs in retirement, the type of scheme that you had, the transfer value being offered by your scheme, any penalties that there might be for taking your pension early to name but a few.
    If you were full time, 29 years of service is going to have built up a really good pension (say around half of your income depending on the scheme). An escalating pension of Ј3K a year can cost upwards of Ј100K for a 60 yr old, so your fund might be considerable.
    Personally, I would suggest as you have said going to a good IFA and being willing to pay a fee for an unbiased report of all of your options. It might cost a bit, but it might also stop you from making an expensive mistake.
  • As the OP is seeing an IFA qualified in Pension Transfers, presumably he will be advised as to the wisdom (or not), of transferring out?
  • You don't need to do anything special to protect the money. It'll be transferred between the two pension schemes, quite possibly by a cheque in the normal post.
    One thing to consider when it comes to guaranteed income is deferring the state pension when you get to that age. The 5.8% increase in state pension per year of deferral is quite interesting given that it's both index-lined and higher than the long term UK stock market performance.
    Beyond that, around 4% of the capital value is often given as the sort of safe withdrawing rate from a pension pot. Later in life, perhaps in your early to mid 80s, you might find that spending some money on annuities becomes a better deal than investing, providing desired income with less drain on capital than just using drawdown itself with the same amount of money.
  • With regard to transferring the pension, I hope that the IFA will cover the longevity question - someone known to me has been drawing his FSP for over thirty four years...