My pension transfer value has plunged from £740k to £340k: What’s happened, and is my early retirement dream over? Steve Webb replies
I’ve been paying into my company’s pension scheme for nearly 28 years.
Our pension scheme has recently been taken over by a new external administration firm and since January, my pension transfer value has dropped by more than 50 per cent from £740,000 to £340,000.
I’ve asked the pension administrator for an explanation and they replied: ‘Your pension’s fine nothing to worry about’.
Retirement question: Why has my pension transfer value has plunged from £740k to £340k
I have also asked my union for advice but have had no response at all. After 28 years of service paying in and making plans my early retirement dream is now over.
Could you explain in layman’s terms what has happened and what I could do to help boost my pension.
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Steve Webb replies: I hope that I can assure you that your years of saving into a pension have not been wasted, and that your pension has not collapsed.
But I can entirely see why the figures you have been given may have led you to that conclusion.
The key point to hold on to is that the sort of pension scheme you belong to – a salary-related or ‘defined benefit’ arrangement – is designed to give you a regular income in retirement from a set date.
Your scheme will still do this, exactly as was always planned.
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Whatever you may have seen in the news recently and whatever is going on ‘under the bonnet’ at the scheme (in terms of juggling its investments), as long as your employer is still in business, they stand behind the pension scheme and are the guarantor that your pension will be paid in line with the rules of the scheme.
You mentioned that you had dreams of early retirement, and in most company pension schemes this will be an option.
You can take your full pension at the scheme’s normal pension age, or you can take a lower pension at an earlier age.
If you have 28 years in the scheme this is still likely to be a substantial pension and presumably enough to enable you to retire a few years before the scheme pension age.
Turning now to the big change in the transfer value you have been quoted, this is the amount of money that you would get if you decided to transfer *out* of your salary-related pension and into a pot of money or ‘defined contribution’ arrangement.
If you were not actually planning to do this then the fall in the transfer value makes absolutely no difference to you – you will still simply get the pension you expected from your current scheme and in line with the rules.
Just to explain what is going on, the reason that the transfer value has fallen is that it is a measure of how much it costs the scheme to provide for your pension.
At a time when interest rates are rising, pension schemes get improved returns on their assets and so they need less money today to finance the pension they have promised.
This means that the amount of money they would save if you transferred out has gone down, and so your transfer value goes down.
If you had always planned to transfer out (and regulators would generally recommend against this), then it is true that you would now have a lot less to put in a new pension arrangement.
But if you then used some or all of that new pension pot to buy an income for life (an ‘annuity’) then the rise in interest rates means you would get a lot more pension for any given pot than would have been the case a few months ago.
But the key point is that, as long as what you want in retirement is a regular pension from the scheme you are already in, then nothing has changed.
Ask Steve Webb a pension question
Former Pensions Minister Steve Webb is This Is Money’s Agony Uncle.
He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.
Steve left the Department of Work and Pensions after the May 2015 election. He is now a partner at actuary and consulting firm Lane Clark & Peacock.
If you would like to ask Steve a question about pensions, please email him at email@example.com.
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Steve receives many questions about state pension forecasts and COPE – the Contracted Out Pension Equivalent. If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve’s several earlier columns about state pension forecasts and contracting out, which might be helpful.