Pension - ridiculously large - how to access

[tinyidiot]

I worked for a bank for about 6 years when they still had a non-contributory final salary pension. I stopped working there more than 10 years ago.

Today I received my annual statement which - quite ridiculously - says that I have built up c. £250,000 into my pension pot.

It also says that when I retire I will receive £4000 a year. This doesn't seem to make sense, as to reach £250000 on payments of £4000 a year I would have to live for 60 years after retirement which seems optimistic to say the least!

I am not particularly bothered about having pension income when I retire (I have other investment sources of income), but releasing £250000 right now would pay off mortgages and make more than £4000 difference a year to our lives.

I know it's not this simple and there would be tax implications of taking a lump sum. Is it even possible to release this money as cash, or can I only transfer it to another pension provider?

And why is the annual payment so low, if the total pot is so large?

Thanks in advance for any useful advice!

it will depend on the scheme conditions. Final salary schemes want to get rid of you by bribing you to transfer to a defined contribution (i.e. investment) scheme. BUT if it gives a pot value it sounds like that has already happened, or that's the offer.

the 4k may be the possible annuity figure - very low return and not a wise option for anyone.

if it is in an investment scheme you can't get at it until you are 55. Then you could indeed take it all as cash - massive tax payment.

BTW 250k is not, I'm afraid, that large. I hope your other investments pay off.

too many unknowns. Best bet is to contact pensionwise, no axe to grind and will be able to help you work out what is going on. If you are near 55 you would have been deluged with their leaflets.

That sounds about right to me OP. Does it mention a tax free lump sum then £4K pa?

You will not be able to access this money until age 55.

The estimated £4000 pension you will receive would probably factor in annual increases - so your calculations of 60 years are not correct.

The £4000 income could also be after the pension company has paid you a tax free lump sum at the point of taking the pension - again not taken into account in your calculations. The tax free lump sum is generally 25% of the pot.

Thanks for this - really helpful. I'm still in my early 40s, so not very close to retirement yet. I put in a retirement date of 60, and it calculated an annual payment of £9k which seems more reasonable. By changing it to 70, that jumped to £17k.

I know it's not a vast amount in terms of money coming in from pensions, but my main investment is property and rental income - hence it would be useful to pay off mortgages, to negate expenses.

I definitely haven't converted to a defined contribution scheme (though even when I worked there, they were trying to convince people to). Could this have happened without my permission - e.g. converting all of them themselves?

Thanks for the Pensionwise tip - I will definitely look into this.

If its a final salary scheme the £250k is a transfer value not a fund value. They are not the same thing. The transfer value is based on the pension you have accrued and takes into account your age, estimated revaluation till retirement date, increases that would be paid after retirement etc. It is baaed on what it willcost to provide you with your estimated pension at retirement if you were to transfer to another arrangement.

I think you can take 25% as a lump sum once you reach 55 if I recall. I'm not sure if that applies to all pensions, it was the case with my husbands.

I don't think you are able to access any pension pot funds until you reach either 55 years or the government 67 years, depending on they type of pension.

definitely one for pensionwise - you can book a phone appointment. They aren't trying to sell you anything so are reliable.

they should not have converted to a DC scheme without your permission, unless there was a hidden 'if we don't hear from you we will do it'. Hope not!

state pension age varies with your current age. And yes, you can't get at any private pension fund until you are 55.

bear in mind that real inflation is much higher than the official figure, and it is likely to rocket with the financial chaos caused by the pandemic.

Apparently I have to be 50 or over to speak to Pension Wise, which is a shame.

Lots of useful info here though, thank you. How would I go about double checking if the scheme is still a final salary one?

It will still be final salary. They cant change them. All they could do is close the final salary one to future accrual at some point and from then on all your contributions go to a new money putchase arrnagement. Your previously paid final salary benefits are unaffected tho. To transfer from a final salary scheme to a money purchase one you need to have taken financial advice and have written proof of this

I'm a DB pension adviser. Some general observations from what you've said @tinyidiot....

The £4000pa sounds like it may be the entitlement that you had accrued as at the date of leaving. Typically this figure will increase every year while in deferment (i.e. until you start to take benefits), probably in line with inflation but you'd need to check the scheme rules for the details. This is why the projections you did to age 60 and 70 gave estimates of £9k and £17k.

You wouldn't be able to access any money until at least age 55, and again the devil is in the detail of the scheme rules as to what your options would be. Typically you would be able to either take the full annual pension, or you could take an upfront tax free cash lump sum and a smaller annual pension. Your third option might be to transfer your pension away to another scheme altogether but you would need to take specialist advice on this to understand the pros and cons and whether it would be appropriate or not for your specific circumstances and needs.

The tax free lump sum may be up to 25% of the value of the pension. The annual pension will be taxable income. Once it is in payment the annuity will probably increase in line with inflation each year. There may be spouse/dependants' death benefits available too.

The short answer to your query is you can't touch it till at least 55 so no, you can't get a chunk out now to pay off a mortgage.

To add to what Sunseed has said, if anyone contacts you saying that they can get the cash for you before 55 it is very, very likely to be a scam that could land you in significant difficulty. Sadly, there are a lot of these about so please be careful.

If you want more detail on how your amount is calculated, what your options are etc, then do contact the scheme’s administrators (contact details will be on the statement) or visit the scheme’s website which usually has a lot of useful information.

@Sunseed Thank you, that makes perfect sense. So the £4000 is basically meaningless, it's just what it's worth in today's money which I can't get at anyway!

Thank you to all for invaluable advice. Seems like sit tight is the only option at the moment.