For the fortunate in deferred company schemes and who have the option to transfer, values are obscene at the moment. We are just reviewing one for a lady who is entitled to draw her benefits in 2032. These ‘indexed’ benefits amount to a pension of just over £600 per annum presently. So, bearing in mind that upon her death the payments would be just half to a surviving widower (if she has one) but otherwise will cease altogether and anything/everything ‘left’ benefits the scheme, as a financial adviser of thirty-five years’ standing I would need my head tested if say I had the same capital sum available today for her to buy such a ‘wonderful promise’. The High Street bank’s pension trustees would instead let her have a transfer value of £94,000 to relieve it of the liability – no wonder so many businesses with these sorts of legacies have been struggling or indeed closing-down.
So, in a nutshell, she can walk away with a cheque for £94,000 and draw a quarter (£23,500) tax-free today or if she left the whole pot and even ‘threw it’ at say the FTSE All share index, the dividends are likely to start at about £2,700 (even after allowing for the Pandemic’s impact on companies’ dividend distributions and anyway, no-one would just put all their pot in equities like that in all likelihood). The Regulator now drives the industry to recognise that transferring out is first and foremost ‘bad’. Yes, you may be giving up a future assured income but at what price? Superannuation schemes stopped ‘investing’ money a long time ago and became simple ‘future liability pots’. The only unknown is that at some point inflation and interest rates will rise and transfer values will plummet – who will keep the surpluses in the schemes then? It won’t be the members of the scheme…
