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ChewingGrass

Is now the time to get out of a defined benefit scheme

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According to the insurer Royal London, the cash values being offered are "eye-watering" sums, often tens of thousands of pounds more than a year ago.

For someone with a pension income worth £20,000, it is not uncommon to be offered 30 times that amount - in other words, £600,000 in cash.

With over 6 million people having been members of these schemes it must be looking increasingly likely that those leaving first will take the cream from the funds leaving no fat left for those who remain.

I would be very concerned about the ability or willingness of a large number of companies to fund these funds as they collapse.

Is the general opinion that it would be wise to get out now and move into a money purchase scheme?

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I think those numbers are in the right region. Going to pensionwise.gov.uk and putting in the assumptions to assess the likely annuity income with a pension pot of £600k it comes up with £150k tax free lump sum and an annuity of £19.3k per annum starting at age 60.  That's for a straight single annuity without index linking and no guarantee period.

 Mind you I can't see why anyone would buy an annuity at the moment, for me each £100k would give me just under £5k. So I wouldn't start getting a return until 20 years had passed. On actuarial basis the pension provider gets better odds than me as an annuitant. If I buy a joint life annuity with my wife we have to survive until we are over 100 years old to get our capital sum back, let alone any yield. 

 

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