Why are people considering transferring old Final Salary benefits?

THIS IS NOT ADVICE.

THIS IS FOR DISCUSSION AND INFORMATION ONLY. DO NOT TAKE ANY ACTION WITHOUT SEEKING PROFESSIONAL ADVICE.
If you take an interest in financial matters, you may have seen reports that people are moving their old Final Salary / Defined benefits (DB) schemes to personal pension. By "old" I mean benefits with previous employers, or in schemes that are closed to future service accrual.

I've been involved in financial services for years and the mantra has always been DON'T TOUCH THEM.

So what has changed, and why are people moving old DB benefits?

The first is the large increase in transfer values. (TVs).

A TV is the amount of money the scheme reckon needs to be paid out to broadly match the benefits promised by a scheme, if various assumptions are made - such as the investment return, expenses, and expected interest rates. The latter has a major impact, as will be demonstrated...

Lets say - for the sake of argument (and to make the maths simpler) that current interest rates are 5%, and the scheme Actuary ( an uber clever, uber dull bloke that works this shit out) reckons that to pay a pension / annuity of £5000, the fund behind it needs to be £100,000.

This means the transfer value will be about £100,000.

If interest rates halve, the pension that needs to be paid out is still £5000, but the amount of money required to buy that pension is now £200,000 - so the TV has doubled. This of itself is reason for some to revisit previous plans and have another look.

The second reason concerns death benefits.

Many old DB schemes give a poor return on death for people who are no longer active members of the scheme - aka "deferred members". It may well be a fraction of the pension at date of leaving service, revalued by some factor capped at maybe 5% PA. This is especially true for those who have children, but are single for some reason. The pension paid to those children will usually stop once they've ceased being dependents. This is usually taken to mean, when they cease full time education.


If the old DB benefit has been transferred to a personal pension, on death before age 75 the whole value of that personal pension can be paid as a lump sum or as a drawdown pension to any beneficiary tax-free. On death after age 75 the benefits can be drawn down or paid as a lump sum taxed at the beneficiary's marginal rate.

The third reason is "pension freedoms"

This is the relatively recent introduction of an ability to draw personal pension benefits from age 55. If you *really* want to, you can take the whole lot as cash in one go, but you'll get taxed at 40% initially on the amount in excess of the tax-free pensions commencement lump sum. This can be reclaimed for poor people who pay basic rate tax.

You can't usually do this with DB benefits, except in very, very limited circumstances.

And remember:
THIS IS NOT ADVICE.

THIS IS FOR DISCUSSION AND INFORMATION ONLY. DO NOT TAKE ANY ACTION WITHOUT SEEKING PROFESSIONAL ADVICE.

 

The_Snail

ADC
RIP
@BiscuitsAB What is this shit and piss he's copy and pasted?
 

The_Snail

ADC
RIP
@Peli23 - you raised this issue a little while ago; here is some more background.

BB
 

BiscuitsAB

LE
Moderator
@BiscuitsAB What is this shit and piss he's copy and pasted?
He's basically saying that, (are you sitting comfortably?. Then I'll begin)

Once apon a time a long long time ago rich philanthropic Industrialists got together and had a chat and they decided that they would create a big pot of money so that their impoverished wretched employees could have some money in their old age once they had spent their working lives down pit or in t' mill.

This was seen as a good idea, because well it was a good idea at the time. As time went by and the years flew past the good idea turned into "The sacred cow" which is something humans have thousands of years of form for doing, just look at religion, any religion for a start. In the beginning a collective bunch of stories and parables with hidden wisdom, such as thou shalt not eat shellfish (when thou doesn't have a f*cking refrigerator to keep it safe in) or a bunch of rules such as "Thou shall not Kill thy neighbour, shag his wife nor steal his cow" these sensible things are warped into monstrous ideas and monolithic organisations such as Oh every single governing/organising body of every single religion on the planet.

Anyhoo, These sacred cows were protected at all costs by "The Regulator" who told the peasants that "You will not move your pension" and " Do not listen to the silver tongued devil that preached moving your pension" culminating with the great "You are not clever enough to know what to do with your pension so We The Regulator and the Nanny State will tell you what's best for you.

However history has shown that "Wise faries" and "dumb trolls" move umongst us and way back in the days, of Culture Club and Adam and the Ant's a wise fairy called "Norman Lamont" got the "Government" ( a bunch of not so wise and often foolish goblins ) to pass a law that allowed "Pension Scheme Members to move their pension rights to somewhere else. Many, Many, Many years later a troll from the dark satanic part of the country called "Gordon Brown" also got the Goblins to pass a law that forced every pension scheme to provide a "Cash Equivalent Value" for all of their scheme members. Gordon did this as a part of a scheme to be able to tax pension benefits because he was a bad troll, however he was either the dumbest troll in the history of all the trolls that live at Number 10/11 Downing street or was possibly distracted by the gurning face of his neighbours wife ( Remember children there's a reason you should not covert your neighbours wife, especially when she is a wide mouth frog) BUT for what ever reason Gordon got the his Act of Parliament enacted and All pension schemes had to provide him with "Cash Equivalent Transfer Values"

And it wasn't too long before some financial legal alchemist realised that by combining the Act of the wise fairy Norman and the Dumb Troll Gordon then Pension schemes could be forced to provide transfers for scheme members... And that's when things turned into the Wild West for a few years.. with all sorts of shenanigans going on, some of which were perfectly legal and some of which were most certainly not. But that soon settled down and things returned to normal in "Regulation World"

HOWEVER,
all the time that these thing were happening a huge and terrible beast was growing in the swampy land to the west ( No not Wales, it's just a metaphor OK) and the name of that terrible beast is "Pension Scheme Deficit" This terrible beast gobbles up all the money that should have been paid into pension schemes but wasn't ( See BHS) and creates Nightmares for Boards of Directors and Pension Scheme administrators, who are very powerful people and can apply strong magic to the "Goblins" that live in government, and they have done so, because they have a problem... the "pension scheme deficit" monster is growing bigger and bigger and the Pension Scheme Trustees have an on going "legal Responsibility" to all their members to provide them with a pension in their old age, just like in the olde worlde times of the Victorian era, but they can't do it because, they're broke all the money has been gobbled up...

So what do they do? Well they get the "Government" and "The Regulator" to say, maybe transferring your pension rights from your company defined benefit scheme to your own arrangement isn't such a bad idea after all and maybe you might want to consider it, and maybe, just maybe you are intelligent enough to make your own decision ( Whilst all the while bending to the will of the Giant Pension Schemes who are being gobbled up by the pension deficit monster)

In plain speak @The_Snail what it means is:

If you have pension rights with an employers scheme it maybe of benefit to review what you have to see if you would be better off moving them somewhere else. For example, someone who is single and has retained rights ( deferred benefits is another way of calling them) may not be happy with the fact that most Large Employer schemes force them to provide a spouses benefit on death at the cost of their own income for a spouse that they don't have.

I hope this has made sense, if not then at least mildly entertaining.
 
Last edited:

The_Snail

ADC
RIP
He's basically saying that, (are you sitting comfortably?. Then I'll begin)

Once apon a time a long long time ago rich philanthropic Industrialists got together and had a chat and they decided that they would create a big pot of money so that their impoverished wretched employees could have some money in their old age once they had spent their working lives down pit or in t' mill.

This was seen as a good idea, because well it was a good idea at the time. As time went by and the years flew past the good idea turned into "The sacred cow" which is something humans have thousands of years of form for doing, just look at religion, any religion for a start. In the beginning a collective bunch of stories and parables with hidden wisdom, such as though shalt not eat shellfish (when thou doesn't have a f*cking refrigerator to keep it safe in) or a bunch of rules such as "Thou shall not Kill thy neighbour, shag his wife nor steal his cow" these sensible things are warped into monstrous ideas and monolithic organisations such as Oh every single governing/organising body of every single religion on the planet.

Anyhoo, These sacred cows were protected at all costs by "The Regulator" who told the peasants that "You will not move your pension" and " Do not listen to the silver tongued devil that preached moving your pension" culminating with the great "You are not clever enough to know what to do with your pension so We The Regulator and the Nanny State will tell you what's best for you.

However history has shown that "Wise faries" and "dumb trolls" move umongst us and way back in the days, of Culture Club and Adam and the Ant's a wise fairy called "Norman Lamont" got the "Government" ( a bunch of not so wise and often foolish goblins ) to pass a law that allowed "Pension Scheme Members to move their pension rights to somewhere else. Many, Many, Many years later a troll from the dark satanic part of the country called "Gordon Brown" also got the Goblins to pass a law that forced every pension scheme to provide a "Cash Equivalent Value" for all of their scheme members. Gordon did this as a part of a scheme to be able to tax pension benefits because he was a bad troll, however he was either the dumbest troll in the history of all the trolls that live at Number 10/11 Downing street or was possibly distracted by the gurning face of his neighbours wife ( Remember children there's a reason you should not covert your neighbours wife, especially when she is a wide mouth frog) BUT for what ever reason Gordon got the his Act of Parliament enacted and All pension schemes had to provide him with "Cash Equivalent Transfer Values"

And it wasn't too long before some financial legal alchemist realised that by combining the Act of the wise fairy Norman and the Dumb Troll Gordon then Pension schemes could be forced to provide transfers for scheme members... And that's when things turned into the Wild West for a few years.. with all sorts of shenanigans going on, some of which were perfectly legal and some of which were most certainly not. But that soon settled down and things returned to normal in "Regulation World"

HOWEVER,
all the time that these thing were happening a huge and terrible beast was growing in the swampy land to the west ( No not Wales, it's just a metaphor OK) and the name of that terrible beast is "Pension Scheme Deficit" This terrible beast gobbles up all the money that should have been paid into pension schemes but wasn't ( See BHS) and creates Nightmares for Boards of Directors and Pension Scheme administrators, who are very powerful people and can apply strong magic to the "Goblins" that live in government, and they have done so, because they have a problem... the "pension scheme deficit" monster is growing bigger and bigger and the Pension Scheme Trustees have an on going "legal Responsibility" to all their members to provide them with a pension in their old age, just like in the olde worlde times of the Victorian era, but they can't do it because, they're broke all the money has been gobbled up...

So what do they do? Well they get the "Government" and "The Regulator" to say, maybe transferring your pension rights from your company defined benefit scheme to your own arrangement isn't such a bad idea after all and maybe you might want to consider it, and maybe, just maybe you are intelligent enough to make your own decision ( Whilst all the while bending to the will of the Giant Pension Schemes who are being gobbled up by the pension deficit monster)

In plain speak @The_Snail what it means is:

If you have pension rights with an employers scheme it maybe of benefit to review what you have to see if you would be better off moving them somewhere else. For example, someone who is single and has retained rights ( deferred benefits is another way of calling them) may not be happy with the fact that most Large Employer schemes force them to provide a spouses benefit on death at the cost of their own income for a spouse that they don't have.

I hope this has made sense, if not then at least mildly entertaining.
I didn't even read it. I nearly fell asleep after "basically", but it was kind of you to throw some words together.
 

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