Pension scheme transfer values

[Flick of the Elbow]

In April last year I got a transfer value out of my so called defined benefit scheme. I've built up something like 26 years of pensionable service, the transfer value provided was ok but not cause for wild celebration. Last week I got an updated value - in the intervening 9 months it has gone up by £150k ! What is going on here ? This sounds like one of those 'too good to be true' scams that you read about. I'd heard that it was something to do with the price of gilts. Are these really so volatile - and presumably high risk - to produce such a massive increase in so short a time ? If I stay in the scheme and ask for another transfer value in another 9 months, is there a risk that it could have swung back the opposite way ?
I'm currently engaging with an IFA but I'd be interested to hear the thoughts and experiences of the panel also.

 

[PaulB]

In April last year I got a transfer value out of my so called defined benefit scheme. I've built up something like 26 years of pensionable service, the transfer value provided was ok but not cause for wild celebration. Last week I got an updated value - in the intervening 9 months it has gone up by £150k ! What is going on here ? This sounds like one of those 'too good to be true' scams that you read about. I'd heard that it was something to do with the price of gilts. Are these really so volatile - and presumably high risk - to produce such a massive increase in so short a time ? If I stay in the scheme and ask for another transfer value in another 9 months, is there a risk that it could have swung back the opposite way ?
I'm currently engaging with an IFA but I'd be interested to hear the thoughts and experiences of the panel also.

It's all legit and above board. You money is clearly being invested wisely in the current volatile market that was too stagnant for years to show any growth but now they're making hay while the sun shines so enjoy it. My IFA has given me some equally good news so I'm very happy about this currently. Of course, that very volatility may mean things swing the other way but right now, it's a time of happy hunting!

 

[alicat]

If I were so lucky as to have a defined benefit pension scheme, I wouldn't be looking to transfer out of it. Speaking entirely personally of course.

 

[twentysix by twentyfive]

Does the Brexit 20% currency drop have anything to do with it I wonder?

I'd be with @alicat on retaining my DB pension tho'.

 

[Paulus]

The pound has dropped by 20%, but the stock market has risen by nearly 15% over the last year.

 

[GrumpyGregry]

Why would you transfer out of a presumably sound DB scheme?

 

[TheDoctor]

That would be my thought too. DB schemes are well worth having.

 

[Brains]

The pound has dropped by 20%, but the stock market has risen by nearly 15% over the last year.

The main reason is the drop in the pound value against the Dollar and Euro.

Companies such as the one I work for, where the majority of our income is derived in Dollars and the majority of our expenses are in Pounds have seen the value of our shares increase impressively since Brexit.

If you convert the Pound value per share into Dollars they have not gone up that much

 

[Flick of the Elbow]

Why would you transfer out of a presumably sound DB scheme?

Because the scheme's benefits are now so eroded that I don't know what I'm going to get or when I'm going to be able to get it. In recent years they've eroded twice, there's another expected this year, and every likelihood of further erosions to come. If I transfer out and give it to an IFA to look after I can take back control of it, drawing as much or as little as I like each year. And when I die all of the remaining pot goes to my wife, not just some paltry pension per year. I understand that up until a few years ago IFA's would usually have advised against leaving a so called DB scheme, now an increasing number are recognising the benefits of doing so. But it all depends on specific circumstances which is why I'm having to shell out £8k for an IFA.

 

[cisamcgu]

The reason the transfer value is so high is because the pension scheme, due to the very low gilt returns, has calculated that to give you the promised (and guaranteed) pension is going to cost them a lot of money, so they are offering you a lot of money to basically "go away". The reason that not many IFA's will even consider doing this is not because it is a bad idea (although it very likely is), but rather that if they give bad advice, you can sue them - so their indenity insurance is immense.

The reason that it would be a good idea is if you have a low life expectancy. If you are planning on living more than, about, 20 years, then it is almost certainly a bad idea. Basically multiply your annual pension by 20, taking into account that the pension will most likely rise with CPI. .. if you see what I mean

moneysavingexpert.com has a whole board dedicated to pensions [ http://forums.moneysavingexpert.com/forumdisplay.php?f=19 ], very very enlightening.

Andrew

 

[Salad Dodger]

Exactly what cisamcgu said in post 10.

 

[Flick of the Elbow]

Ah - the Brexit approach to pensions....

And I hope that Retirement will mean Retirement

 

[400bhp]

If only all you lot knew

 

[400bhp]

Knew what? That you're called Felicity at the weekend? We all know that....

There's so much misunderstanding of pensions and how things are worked out. I really can't be arsed to articulate more on a cycling website to be honest but would be happy to chat over a pint. More likely a pint of diet coke these days.

It's a shame my profession and the general industry have made pensions fairly undecipherable.

 

[Flick of the Elbow]

moneysavingexpert.com has a whole board dedicated to pensions [ http://forums.moneysavingexpert.com/forumdisplay.php?f=19 ], very very enlightening.

Andrew

Thank you Andrew, that looks a most informative forum. I will give it a go.