Yea, same here…my mind is exploding on how on earth they’d calculate this based on average earnings.
any additional money you put into defined benefits is always as an AVC in my experience. So when I was paid my bonus and “salary sacrificed “ it to my pension it went into my AVC pot (additional voluntary contribution). That did not increase my pension payment as part of my final salary pension calculation.
I could have converted that AVC into a pension at retirement- but even my company wouldn’t administer this …I’d have needed to go to an external pension provider to buy my annuity or draw down product.
what I did, and most people do IMHE, is to use the AVC as all or part of my tax free lump sum at retirement. So my AVC pot was worth about 15% of my equivlent valuation of my final salary scheme pension “pot” ( this does get a valuation for tax purposes each year but it’s a theoretical amount as you can’t take all that money out of scheme, it’s used for tax or a transfer value if you were idiotic enough to transfer it out)
I took all my AVC amount tax free, and did not take any lump sum from my defined benefit scheme so I have maxed out my monthly pension payments to the full amount. That is normally the best way as the income paid by final salary schemes is higher than I could get form taking tax free lump sum and sticking that into a bank etc and it is guaranteed and protected.
becuase I could take my AVC tax free, and pay into it tax free ( I was higher rate tax payer) it made sense to salary sacrifice as much as possible into it, in the last few years before retirement. I knew I didn’t need all my salary (kids left home by then), and it was a much better deal than saving income into a bank or even stocks and shares after tax deducted through PAYE. In effect the government was giving me 40% extra. My company also incentivised us by matching AVC Payments up to a certain level at a given % ( so they paid like 10p for every £1i saved).
so, I assume your transferred pension sum will go into an AVC (may be called something different). The only advantage to doing that would be if management costs were covered entirely by your company so that every £ you transfer and then grow is not be siphoned off with annual management fees. And if the company your new employers use has a better track record of returns than your existing pension investment company.and if the transfer value you are offered is fair and reasonable
some companies like mine, had a great pension modeller that looked at both final salary pension and AVC . That was really useful to help me make decisions in last 10 working years …so if your new company has one that may be another benefit to transfer, so that you can get continuous online access in one place to see the whole picture. It was very easy for me to change the amount of AVC I paid per month, or to switch my investment profile annually or for life events.
you need to get confirmation from new company of where your transfer will be invested- is it really into your average salary pension or is it a type of AVC. If they say it will go into AVC, ask them for detials of scheme and why it might be better for you. It nice you know that you can discuss with financial advisor . Make sure advisor is not paid any commission though (even some IFA do get fees paid). They’re not going to get any money form you transferring to company so if they make their money by recommending products they’ll not exactly be neutral. In truth it’s better to pay a fee upfront and know you are getting independent advice.