Ask Money: how do I resolve my pension quandary?

Nick Onslow answers a readers question about a pension transfer.

May 31, 2019

I recently took up a job where I have become a member of the Local Government Pension Scheme. I’m trying to work out if it would be beneficial for me to transfer into the scheme two private pensions I hold, which have transfer values of £95,435 (Aegon) and £13,514 (Aviva).

Regarding the latter, I’ve been told by the LGPS that this amount “would enable [me] to count an amount of CARE pension of £1,117 per annum”. I’m awaiting a quote for the former. My normal pension age is 67 (I’m approaching 50), at which point the above would be payable.

I’m finding it very difficult to get advice from independent financial advisers as to whether this is a good option, as they all want me to transfer management of my private pensions to them.
Jamie Wallace, by email

Nick Onslow at the RU Group replies: I think the most important factor to consider is the differences between the Sipps schemes and the LGPS. The Aegon and Aviva pensions are money purchase schemes, where the policyholder takes all the investment risk, and the sum the policyholder gets when they retire is based on the performance of the funds they have invested in. It isn’t based on the sums you mention: these are for guidance and are not in any way guaranteed. The LGPS is a career-average pension scheme that will provide a guaranteed index-linked (CPI) pension income for life, and all the risk is with the employer

The Aviva (£13,514) scheme paying £1,117 a year is offering a rate of 8.27%. You would be hard-pushed to get that rate from an annuity, based on the current levels being offered by providers. If the Aegon (£95,435) scheme offers the same return, you might receive an additional £7,892, bringing your future guaranteed income to £9,009 in total.

If you are looking for a guaranteed income for life, in principle this looks to be a good option. You just need to be mindful that there are more restrictions on when money can be paid with the LGPS.

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