The dilemma: how to do the retirement fund transfer sums

PENSION FUND MEMBER: Manchesterbased Richard Smith (not his real name), 62, is married to Susan, 50, and has three children – aged 27, 25 and 19.

CURRENT ARRANGEMENT: He was in line for a £24,000 defined benefit pension from age 65, with annual increases of 2.5 per cent; a widow’s pension worth £16,000; and a dependant’s pension until the youngest turns age 23.

OFFER: A pension transfer value of £849,000 (35 times £24,000).

ANALYSIS: To help him make the right decision, Richard was provided with a ‘transfer value analysis report’ – a compulsory analysis for all those switching a fund worth £30,000 or more. It calculated that after charges, his pension investments would have to grow 4.2 per cent a year until age 65 to match the guaranteed pension from his employer.

DECISION: Being an ‘adventurous’ investor, he accepted the transfer value and switched to a personal pension.

REASON: Richard calculated he would have a guaranteed annual income of £14,000 through a combination of his state pension at 66, a personal pension and a small income from a separate final salary scheme that has been paying out since he was age 60. Richard says: ‘This £14,000 is enough to meet my basic requirements. I now have £849,000 that I can start drawing money from at any time. As much as £212,000 can be in tax free cash, which was an important consideration as we hope to buy a small apartment abroad. With the final salary scheme I would have only been able to take £100,000 in tax-free cash and wait until 65 to access it.

‘My wife has her own pension so the need for a widow’s benefit was not important. And our youngest child is already 19 so the dependant’s benefit was losing appeal.’