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Why has my pension transfer value plunged from £740k to £340k?

Pension question: Why has my pension transfer value gone from £740,000 to £340,000

The value of my pension transfer plunged from £740,000 to £340,000: what happened, and is my dream of early retirement over? Steve Webb responds

I have been contributing to my company’s pension plan for almost 28 years.

Our pension scheme was recently taken over by a new external administration company and since January the value of my pension transfer has dropped by more than 50% from £740,000 to £340,000.

I asked the administrator of the pension for an explanation and he replied: “Your pension is good, no worries”.

Pension question: Why has my pension transfer value gone from £740,000 to £340,000

Pension question: Why has my pension transfer value gone from £740,000 to £340,000

I also asked my union for advice but got no response. After 28 years of contributing and planning, my dream of early retirement is now over.

Could you explain in simple terms what happened and what I could do to help increase my pension.

SCROLL DOWN TO FIND OUT HOW TO ASK STEVE YOUR QUESTION ON RETIREMENT

Steve Webb responds: I hope I can assure you that your years of saving in a pension have not been wasted and your pension has not collapsed.

But I can see why the figures you were given led you to that conclusion.

The key point to remember is that the type of pension plan you belong to – a salary-related or “defined benefit” plan – is designed to give you a regular income in retirement from a set date.

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Your plan will always do it, just as it was always intended.

Steve Webb: Find out how to ask the former Pensions Minister about your retirement savings in the box below

Steve Webb: Find out how to ask the former Pensions Minister about your retirement savings in the box below

Whatever you may have seen in the news lately and whatever is going on “under the hood” of the plan (in terms of juggling its investments), as long as your employer is still in business, they support the pension plan and is the guarantor that your pension will be paid in accordance with the rules of the scheme.

You mentioned that you dream of early retirement, and in most company pension plans that will be an option.

You can retire full at the plan’s normal retirement age, or you can retire less at an earlier age.

If you have 28 years of membership in the scheme, this is probably a substantial pension and likely enough to allow you to retire a few years before the retirement age of the scheme.

Turning now to the big change in transfer value that you were quoted about, this is the amount of money you would get if you decided to transfer *out* of your earnings-related pension and into a pot of money. money or a “defined contribution” arrangement.

If you weren’t planning on doing this, the drop in transfer value makes absolutely no difference to you – you will still simply receive the pension you expected from your current scheme and according to the rules.

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Just to explain what’s happening, the reason the transfer value has gone down is that it’s a measure of what it costs the plan to provide for your retirement.

In an age of rising interest rates, pension plans are getting better returns on their assets and therefore need less money today to fund the retirement they promised.

This means that the amount of money they would save if you transferred has gone down, and therefore your transfer value goes down.

If you had always planned to transfer (and regulators would generally advise against this), then it’s true that you would now have a lot less to put into a new pension plan.

But if you then used some or all of that new pension pot to buy income for life (an “annuity”), rising interest rates mean you’d get a lot more pension for a given pot than what wouldn’t 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 question about retirement

Former Pensions Minister Steve Webb is This Is Money’s Agony’s uncle.

He’s ready to answer your questions, whether you’re still saving, quitting work, or juggling your finances in retirement.

Steve left the Department for Work and Pensions after the May 2015 election. He is now a partner in actuary and consultancy firm Lane Clark & ​​Peacock.

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If you would like to ask Steve a question about pensions, please email him at pensionquestions@thisismoney.co.uk.

Steve will do his best to respond to your message in an upcoming column, but he won’t be able to respond to everyone or correspond privately with readers. Nothing in his answers constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.

Please include a daytime contact number with your message – this will remain confidential and will not be used for marketing purposes.

If Steve is unable to answer your question, you can also contact MoneyHelper, a government-backed organization that offers free pension assistance to the public. He can be found here and his number is 0800 011 3797.

SteveWe get a lot of questions about state pension forecasts and about COPE – contracted pension equivalent. If you write to Steve on this subject, he answers a typical question from a reader here. It includes links to several of Steve’s previous columns on state pension forecasts and contracting out, which might be helpful.

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