Leave pension with Nat West or transfer out to another scheme?

[pensionconfusion1]

I do not have much knowledge about pensions. I've seen a financial advisor and feel somewhat still confused! I have a pension with Nat West, that I can access now (I'm 55). I have no need to take it now, as I'm still working.

But my dilemma is, whether I should keep it with Nat West, or transfer the funds out to another scheme/vehicle. As I understand it, if I transfer it out, there could be some risk to the Capital? Is this true? But on the plus side, I would have more control over the funds, and also if I died, my DH/kids would get the money that's left, whereas if left in Nat West, my DH would only get half.

Can anyone with any experience help me here, to understand what I ought to do?

TIA

Your first step is to be clear on exactly what type of pension you currently have with Natwest.

From what you say it sounds as if what you now have may be a Defined Benefit pension (also sometimes called a final salary pension). With these types of pensions there is no 'pot' of money, but instead a promise to pay you a given sum every month from when you retire for life and often (as in your case) a smaller pension to any spouse after you die if you die first.

If is it a DB pension of any size then it's not usually recommended that you try to transfer it out. You'd need to first ask the pension provider for a 'Cash Equivalent Transfer Value' (CETV) and if this is over £30k then you need to find and pay for advice from a Financial Advisor before hand - this will cost several thousand pounds and in nine out of ten cases the advice will be that you are better off where you are. If it is, then you will struggle to find pension companies that will accept the transfer.

You would be transferring your CETV money into a pension where it is simply a pot on money invested in the financial markets - you'd have a say in what funds you'd be invested in depending on your attitude to risk, and ethical considerations etc....

Not many Financial Advisors do these sorts of consultations any more as their insurance costs are so high to cover the risk of you regretting your decision to transfer later on and coming back and demanding compensation from them for being badly advised. And as far as I'm aware if the advice given is not to transfer then if you still wanted to do so anyway you would be classed as an 'insistent client' and the only way to get the money moved is to open a stakeholder pension which has to accept you - pension companies with other types of pension won't want your business.

If the pension you have with the Natwest is a Defined Contribution (DC) pension then you DO have a pot of money which will already be invested in stocks & shares and the value of which will already be going up and down depending on how the financial markets are doing at the time, although over the long term the pot is likely to increase by more than if the money were just in a savings account.

Try to find out a bit more about how the money is invested and what, if any say you have in it and whether it reflects your current attitude to risk .Bear in mind that as well as risk from highly volatile shares that can bring big rewards but also see share prices plummet, there is also a ris kthat 'safe' options such as government bonds wil lnot keep up with inflation over the long term.

I agree the first step is to find out if it’s a Defined Benefit of Defined Contribution Scheme.

The first reply has nailed it. If you have zero knowledge of pensions, do you really think that you being in control of the funds will generate a better outcome than remaining in your current (I assume) defined benefit scheme, which will have a guaranteed income for you/your spouse if you die first, plus some inflation protection?...

It sounds like you could be in a defined benefit scheme. If would be very unlikely that you would be in a better position moving to a defined contribution scheme. The first thing you need to do is find out what type of pension it is. You should have statements giving you all the information.

Fantastic reply to original post….i wish all replies to other subjects were as accurate!

What did the financial adviser you saw suggest that you should do?

I posted on another thread about how I had transferred a bank staff pension into a managed SIPP(self invested personal pension but I pay them to manage it for me).
It was a number of years ago and it was an opportune time with high bond prices and low interest rates which meant that the very high value of the pot was not reflected in the guaranteed level of pension paid.
It wasn't easy and it was expensive, although it was a fixed price so didn't have such a big impact on the value.
The risk of course is that in a SIPP the funds are invested in the stock market and you could in theory, lose it all. Mine has more than held its own and it's allowed me to retire at 59 and buy another house that my DC lives in.
I get the state pension next year so won't need to draw on it anything like as much and will still have enough left to buy an annuity that will give me a guaranteed income to match what I was originally forecast, if I choose to go down that route.
It was the right thing for me to do at the time but I wouldn't consider it now even if I could find an FA willing to propose it.

I am just about to read the replies, thank you!!

It is a Defined Benefit pension. I'm embarrassed to say that I do not even know the difference between Defined Benefit and Defined Contribution!

Reading......

This is VERY interesting reading and I can't thank you all enough for taking the time to write such detailed responses.

So, the advisor said that I could transfer it out, and that is what she would do in my shoes, however, she did also indicate that the fees would be high, and that I would have to prove I had the money to pay the fee. Hard for me to know if that's really in my best interests, given that there is commission in it for her (I assume).

I am very risk averse, having lost a huge chunk of money on shares that nose dived.

I want to play it safe, but didn't want to feel like I was missing out on some opportunity to do better things with my pension, simply because I don't know what I'm doing (if that makes sense).

I want to play it safe, but didn't want to feel like I was missing out on some opportunity to do better things with my pension, simply because I don't know what I'm doing (if that makes sense).

Only you know your personal circumstances, but unless you are able to pinpoint exactly why you want to transfer out other than a vague sense of potential FOMO, you are much better off staying put IMO. It may be that transferring out is the right option for you, but it usually isn't, especially if you are married (and assuming you aren't in ill health). Try not to let your judgement be clouded by what looks like a big 6-figure transfer sum, either, as it costs a LOT more to replicate the pension income you'd get fron the NatWest scheme by staying put. And if you're not planning on actually retiring any time soon, you don't need to do anything just yet if you're still not sure - your right to request a transfer value continues until you reach one year before normal retirement age unless you start taking the pension sooner.

Edited for typos.

Thank you. I definitely don't need to draw on it now, as I am still working full time.

Yes, I am married and we are both in good health.

How much will the DB pension pay per year. Is there a lump sum, if so how much?
How much did the adviser suggest you may get by transferring it?
Are you planning drawdown or buying an annuity. Will it be managed or self managed?
Itvis very unusual for a IFA to suggest this unless a very specific set of circumstances you are almost always better off with the DB pension.
Have you checked your online state pension forecast? If so are you in track for the full new state pension.ie have you got enough NI contributions or will you have enough years of paying to ensure you get it.
All of these will be relevant.

Depends on when I take it. At age 55, the lump sum is £70k with a monthly sum of £880, if I waited till age 65, the lump sum would be £122k, with a monthly sum of £1400.

Yes, I am fully paid up for the state pension already (have paid in for 39 years at this point).

But how much did the financial advisor suggest you would get by transferring it out of DB scheme? It would need to be in the region of £450,000 in order to give you £17,000 a year. What figures did they base their advice to move it from DB on?
Also you say financial advisor. I take it they weren't an Independent Financial advisor?

They didn't really say. It was more general info not crunching any actual numbers. No they were not independent, also water muddied as they are a relative of mine.

I strongly suspect that your DB pension will also be index linked. Potentially it might increase in April each year based on the previous September’s CPI.

This is not a take it now or wait till 65 scenario.

If you take £880 a month at 55 by 80 (25 years) you will have received £264,000 compared to £1400 at age 65 to 80 (15 years) = £252,000.

If you perhaps retire at 60 you would get a pension of c£1140 x 20 years £273,00 (rough figure).

My advice is to:

• check if your pension is index linked I.e. goes up each year.
• ask your FA to write down all the fees you will incur both upfront and then every year.
• ask your FA they can 100% guarantee in writing that they can generate, after fees, more than your index linked pension. If not how will they compensate you for the loss?

DB pensions tend to be called gold plated for a reason. I would be getting a second opinion from an independent FA, not a relative.

As a pp said it is rare for any investment pension scheme to beat a guaranteed DB pension.

I follow your figures, but they don't include the lump sums, or the compounded interest over time.

I did up to age 75 :

So, age 55 lump sum £70k plus 20 years of £880pm, plus compound interest = £478,342

Age 60 lump sum £122k, plus 15 years of £1393pm, plus compound interest = £387,079

It must be index linked, as every year when I look at the projections, the figures look better.

If you are risk averse, you should absolutely not transfer out of a defined benefit scheme. If an IFA is recommending you transfer, please check they are a genuine IFA as there are very, very few that will take on DB transfers. Make sure you won't be charged if the ultimate advice is not to transfer.

Thank you, this thread has been so helpful. I will not be transferring out. Now the question is just when to take it.

I would step away from their advice to be honest. If you really want to explore the possibility of transferring out then you need to go with an independent Financial advisor. Also be prepared for a 4 figure fee for them to give you proper advice. It is very, very unlikely that it would be in your best interest to transfer out of the DB though.

@pensionconfusion1 mine was a quick calculation.

You've had great advice. I wouldn't be transferring out either.

Thanks everyone I feel very reassured!!