Pension estimates binding?

[Tigercubrider]

Obviously i'm not stupid enough to ask for pension advice an DIY forum but....

Chatting to a mate he has a conundrum.
He left his old employer (redundancy ) and has 22 years pension contributions to a final salary scheme. He decided to check it's value as he is skint

So he contacted the employer, who referred him to a company who now manage the system. He got a couple of IFAs to check the value

The result was a surprising amount, which I don't think can possibly be correct, neither did he. So he asked for confirmation. -It was confirmed in writing

So the question is, - If the amount quoted in writing (twice) is paid out, how liable is he for the amount of it later transpires that they miscalculated? I know that if a bank accidentally makes you a millionaire you have to give it back but if two IFAs query the amount and the pension people say "it's correct" how liable is my mate? Is an IFA insured against this sort of thing or does it come back to my mate?

Just to be clear not "asking for a friend" - he asked me if I had looked into it as I still work for the company but I haven't. I am worried that he might get stung when he's spent it!

Ta

 

[JohnD]

I don't know.

But

If it is a final salary scheme, the transfer value is likely to be extraordinarily high at the moment, because it is determined mostly by the interest rate on long-dated government bonds. As you will have noticed, interest rates are now extremely low. Therefore you need a lot of money invested in them to pay a good income. You can look up annuity rates, if you know his age.

If the pension is index linked, and/or has widows or other benefits, the value will also be increased. I knew someone who died and the scheme paid a thousand towards the funeral, and would have given the widow a 50% pension for life.

If his health is below average, transferring it might be a good move.

However, cashing it in will expose him to a large tax deduction.

Be aware that IFAs encouraging people to move out of Final Salary Schemes are often crooks and/or not offering best advice. Some of them are scooping a share for themselves.

Google British Steel Pension Transfers for examples.

On the other hand

You say it is a final-salary scheme. If it had been a money-purchase scheme, it might have increased a lot in the last year. Mine went up by a third, which I found remarkable.

 

[JohnD]

P.s.

If you, or he, uses a "get an annuity quotation" website, it will, IME every time, be a trick. It will ask for your name, address, age, email, phone number, and fund value.... and then, instead of giving you a quote, it will sell your details to a salesman, for a handsome commission.

A level annuity, single life, male, at age 65, is currently around 5%

So a flat pension of £5,000 a year would need a fund of £100,000

But index linking, escalation, widows pension etc will push the percentage down, and the fund value up. Maybe double. Poor health will push the income up, and the value down.
https://www.ft.com/content/fc330138-fac7-45ef-91d3-ea82acc8dff6


Cashing it in, in one lump, might cost 40% tax or even more, and is a terrible idea.

If he is aged 55 if more, he can take an annual income from it, possibly paying nil or low tax.

22 years service might typically pay **% of final salary (see below) in a final-salary scheme, but you can have more if you shift to partial encashment. People offered redundancy or early retirement are sometimes offered pension enhancement to encourage them to go, so the fund would be bigger. The more you take, the more likely it is to run out before you do. The way I look at it, which might be wrong but suits me, is to consider when I plan to die, and divide the fund value by that number of years. I intend to leave mine invested, and continuing to grow, until either I peg out, or it is all spent. Last year's growth figure encourages me. A few bad years might have the opposite effect.



** edited to remove error

 

[JohnD]

Interesting articles

https://www.bbc.co.uk/news/business-43060272

https://www.moneyandme.co.uk/clients-anger-as-ifa-who-lost-290k-pension-pot-appears-at-new-firm/

 

[JohnD]

Relevant stories

https://www.pensionstalk.co.uk/incorrect-pension-benefit-statements-let-the-buyer-beware-or-not/

https://www.pensionsadvisoryservice.org.uk/pension-problems/making-a-complaint/common-concerns/mistakes-and-overpayments#:~:text=If a pension scheme makes,to figures quoted by mistake.

https://www.hewitsons.com/latest/news/the-dangers-of-incorrect-pension-quotations

Looks like he might have to pay it back. Or not. Since it was not the IFAs fault, I don't see they have liability.

 

[sxturbo]

I know a guy who worked for EDF in Hartlepool for his whole life, had a final salary scheme,

Retired at 55 as a millionaire, walked out with 1.5 million ish. He was just the pump and engine engineer, never moved up in the company or anything.

When EDF realised this was happening they quickly made changes to contracts and adjusted

 

[Tigercubrider]

Thanks
Comments welcome

 

[JohnD]

Retired at 55 as a millionaire, walked out with 1.5 million ish.

Had he earned a pension of around £35,000 a year?

Did he work much overtime?

 

[sxturbo]

Had he earned a pension of around £35,000 a year?

Did he work much overtime?

No idea, I worked with on a project for around 6 months when we were overhauling a range of engines for them.

Was a lovely bloke, though his pension and what he was going to do when he retired was pretty much all he talked about (but then why not he's earnt it)

 

[big-all]

dont know iff my experience will help or hinder here
in 1994 i "parted company " with the railway
i had been doing all the overtime i could get my hand on and finnished up earning the equivilent off 22k a year i was nearing 41 year old
my lump sum on the final salary would have been around 25k 20 years later as 25% was the maximum that put my pot at around the 100k mark
i chose to take a half pension at a level option 1 year earlier than the compulsory 60 age for for ex employees the fact i took it 1year earlier reduced my lump sum to about 22.5k meaning the extra year off £72 a week in perpetuity with inflation added reduced my pot by around 10% [give or take perhaps 2-5% on all figures]
as i say may add nothing just confuse or help i dont know but worth a mention ??

 

[securespark]

I know that final salary schemes were extraordinarily generous and were long ago abandoned as companies realised how generous they were.

 

[JohnD]

I know that final salary schemes were extraordinarily generous and were long ago abandoned as companies realised how generous they were.

Guess what sort of pensions the directors of large companies get.

 

[securespark]

Yes, when I say abandoned, I meant for the minions......

 

[Captain Nemesis]

22 years service might typically pay 15% of final salary in a final-salary scheme,

That implies accruing only about 1/150th pa. Bit low?

 

[JohnD]

I intended to calculate 22 years at 1/60th

Which is about 37% of final salary

Must be a mistake somewhere.