Pension estimates binding?

[conny]

As I'm approaching retirement 'age' my pension companies have been contacting me regarding what I want to do, (they have kept in touch annually with how the pension is doing etc), and I was surprised, (pleasantly surprised ), how much was in one of them so asked them to confirm if it was correct. Happy to say it was and I will shortly be taking a nice lump sum out of it.
Regarding annuities, apparently if you are in poor health or a smoker etc they actually pay more per annum than if you are healthy, (because you are not expected to live as long obviously).

 

[EddieM]

The average UK pension pot is about £65k. Which is woefully inadequate.

Maybe NI should be raised dramatically so that workers automatically get a decent pension. All this freedom to do what you like is very noble, but folk are folk and usually live for the moment.

 

[Diver Fred]

With a final salary scheme it shouldn't be touched under any circumstances unless he'd 55 or older. Any money taken out will be subject to a big tax bill and the remainder is likely to be converted to a 'Money Purchase' insurance based scheme. Most companies final salary schemes pay either 1 fortieth per year or 1 sixtieth per year paid in with the aim of paying 50% of the leaving salary but if he's left earlier than that amount is increased by inflation (RPI or CPI).
Once the pension has gone it cannot be replaced.

Any advisor recommending he takes money from his pension pot is not a 'friend' they are 'thieving b******s' and must be ignored!

He also needs to make sure he hasn't been or is still 'Contracted Out' of the state pension.

 

[ETAF]

+1

Any advisor recommending he takes money from his pension pot is not a 'friend' they are 'thieving b******s' and must be ignored!

I know people who did take a FA advice many years ago, There was a lot of talk going around the company in the 90's during takeover etc , and they are now in a very poor place compared to similar salary people who stayed in the final salary plan and now retired.
This was before allowed to take money out of the scheme.

I did 23 years on a final salary scheme (following voluntary redundancy) and I froze it when i was 49 , I had the option to take out and transfer , BUT the transfer value was quite low at the time. The pot when i was 60 had increased x6 fold and done very well, now paying around 57% of my then final pension salary amount, with a very large POT ,which I did not take money from (25%) from as the reduction was down to 30% and would make things tough for day-day living. it also provides a spouse pension of 60% with a condition, that should i die before state retirement age, a huge payout would be made to spouse - cant remember the exact details now.

I have other pensions but they are all pretty worthless , and my FA advised to leave those alone until I'm 70

Be very careful what he does , and a lot of the figures given are just that estimates and usually on a paperwork supplied by the company that is spelled out.

Find a good FA , someone who is recommended and has a good known track record of high performance/low risk, from friends who use them.

 

[motorbiking]

Aren't this final salary schemes index linked? I think you can value at 20 times the annual amount for flat, but for index linked you compound the index over 20 years.

 

[JohnD]

some are, some aren't

I used to be in a scheme that offered indexing but capped at 2 1/2%

When I left, I transferred it out.

MP's and directors of large companies have the most generous schemes

Almost as if the people who make the rules, make them for their own benefit.

 

[ETAF]

No only a small part of mine is index linked , because of takeovers and changes over the years , I actually had 5 pots 3 are subject to increase based on trustees decision and not increased since 2008 - the other 2 very small parts (4% of pension) are linked to RPI/CPI multiplied by a factor , and went up this year by just about 0.04% on only 4% of the total , 96% is at trustee discretion, and since Council tax went up by 5% and we have a garden bin that went up by 7%, its soon gobbled up.
The Pension fund used to be oversubscribed, just before the last takeover a pension fund holiday was taken for some years and now its what ever the UK rules are.

My Recently deceased F-I-L was a director and he's pension was I understood increased by inflation calculation or a minimum of 5% per annum.

 

[ajohn]

There used to be a problem with transferring company schemes to another company. Some one may say have 10 years in one and find that is reduced when they transfer it. Pretty dramatically some times.

There was a rule change on on company pensions some years ago now as some companies were taking advantage. The problem they had was the pot exceeding what an actuary stated was needed. I'm not totally clear on the change but seems that the excess was liable to taxation. It resulted in some being closed to new members. It also probably relates to companies transferring people out and taking any excess that is left behind out or some of it. Again it depends on what an actuary says they need in it.

Salary based schemes were also based on the salary at the point where people left. The general rules associated with them have changed at times as well. Pension pot schemes are different. Usually the people forming the pot take a hefty amount out of the payments. A typical salaried based scheme would take a payment from the holder and the company would also contribute. As more money was put into property the returns increased along came company holidays. Once started they obviously don't want to start again - hence many deficits. In my case initially it was 7.5% from me and 7.5% off them salary based. The fund was so over subscribed that there wasn't really any need for anybody to contribute. People were moved out of it into insurance based schemes and eventually the company took several £100m out. They did this by selling off their various businesses - rules meant that people sold couldn't remain in it.

No one knows how long they will live and i have known a number of people who have messed up their pensions especially company type ones usually by doing some sums and think taking money out is the best option. Pension pots schemes depend on what some one actually gets when they buy an annuity. It varies. One company promised more years ago and got away with not meeting it. They would have gone broke if they did, can't have that can we.

 

[motorbiking]

Yep I think the CETVs might look pretty good until you look at a life on pension of 25-30 years rather than 20. I know plenty of pensioners with pots valued at £1M who've already had a £1M out and are likely to get a second million before they are done. Not easy when you try to factor in ill health later in life too.

Back to the OP, if under 55, I'd be advising taking a lodger or even downsizing his home before touching his pension.