Is this an unusual/terrible company pension?

[CuriousRunner]

I have a company pension which I no longer pay into because I don't work for the company any more. It's "just" a pension pot. Nothing fancy like final salary. So if I'm correct it's DC not DB. To be clear it's a company scheme/branded, not company pushed out to a named high street provider.

This has been bugging me for a few years. The pension growth is linked to CPI. But growth is capped at 2.5%. It's been capped at that % for several years. So the fund is effectively dropping isn't it?

I asked for a transfer quote. Of course I was expecting the transfer value to be less than the current balance. But the transfer value was 47% less than the overall balance. Does that sound normal to you guys?! It seems like daylight robbery to me!

As a layperson this pension isn't growing as I would expect. But neither can I shift it elsewhere.

Is this normal to you guys?

Mu husband transferred a poorly performing pension into AJBell SIPP. They were brilliant and gave excellent advice. I am personally not an expert in pensions

The pension growth is linked to CPI. But growth is capped at 2.5%.

Do you mean that the size of the pot that you have invested is growing at a max of 2½%, or that the annual amount you finally receive when you draw the pension will increase at that rate. It sounds much more likely that it would be the second one. In which case it sounds very much like a final-salary or defined-benefit pension, which does change things a bit

Digging out the actual statement so that I don't get it wrong.

It's says "the Fund is increased annually in line with CPI over the year to the previous September, capped at 2.5%". All in all I have £x April 2023 and £x +2.5% April 2024.

Then under retirement choices. All of the keywords in my head ring bells with a standard pension pot....25% tax free, you can buy a pension through an insurance company, you can draw down ad-hoc lump sums" etc.

Ok, does sound like DC then as you first said, and a very poor deal indeed! Especially with the terrible terms to transfer out. I wonder if there is scope for some sort of misselling claim? Did you put any of your own money into it? You would probably have been better off putting just about anywhere else.

I paid in direct from salary which was matched (at least) by my employer.

The administrators are Railpen (google suggest they are a big concern). But my pension is nothing to do with railways.

Does it say what the fund is? It sounds a bit like an old with-profits pension, but it’s been quite a while since I’ve looked at one of those.

I'm chiming in like some sort of expert, but I'm absolutely not!

You need to speak to an advisor about transferring out, but I'd definitely raise the question of a misselling claim with them. I can't help wondering if your employer got some sort of kickback for locking you into such a bad scheme?

It isn't DC, it is Cash Balance. The amount on your statement that you think is tye current pot is actually the amount you will get at Normal Retirmenet Age (probably 65). The transfer value is a little lower because that is the amount you will need today, taking account of future investment returns and inflation, to achieve the same amount at NRA as you would have received from your scheme (based on your scheme Actuary's assumptions).

@CherryFlan I hear you 🤣 Nope. I'm not transferring out. Not with those terms AND my current level of understanding 🤣

Cash balance sounds sensible description. Then @Krieger2 you start to lose me 🤣 You wouldn't normally expect to lose 47% at transfer though would you?

Yes. The further away you are from age 65, the larger the reduction.

@CuriousRunner cash balance schemes are type of defined benefit but not final salary, hence what looks like a big reduction but it isn’t really because it’s not a simple pot like a DC Scheme. I suspect if you calculate what you’ve paid in you’ll be transferring out more than that. Equally, you might want to leave it where it is as it’s guaranteed.

Ok. I'm starting to see a chink of light around my misunderstanding. Thanks!

I remember way back when someone described it as "it's like a final salary pension without being a final salary pension" 🤷‍♀️

Do I go to Railpen as the administrators for advice/explanation?

Yes, embarrassingly the amount I paid in is quite a small %.

And there was me thinking I had a pretty good layman's grasp of this pension stuff 🤣