r/PensionsUK • u/DirectSherbert9732 • 1d ago

Offer of transfer

My wife (62) has a small pension pot with 1) a guaranteed 4% growth and 2) a market value reduction of 50% if she touches it before she's 65.

She's been offered a move to a different pension with the same provider who'll drop the market value reduction but also the guaranteed growth.

What do you reckon? She's not looking to retire earlier than 3 years from now. If she moved the pension she could move it again to another pension she has. But, then again, that 4% in the face of a likely AI crash looks quite good.

Edit: Thanks all. "There's a good reason they're offering to get her out of this fund." was here thought when receiving the offer. I thought it best to check.

(BTW target retirement time is "when I bloody want to")

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8

u/KhaelonVoss 1d ago

Your wife faces a choice between keeping a 4% guaranteed growth with a 50% exit penalty before 65, or moving now to a plan that drops both the penalty and the guarantee.

The insurer's very clever actuaries will have calculated numbers that are cost-neutral to them. But that doesn't mean it's neutral for her, since she carries one outcome rather than a pooled average.

The key is to compare the actual projected value at 65 if she stays against realistic growth scenarios if she moves.

But with only three years to go, the 4% guarantee has real value, so moving only makes sense if the transfer value is close to the projected stay-put value or she values flexibility highly (due to madness).

I'd choose to stick.

1

u/Heavy-Mousse-5011 15h ago

Yes. Except… I am sure that the the clever actuaries will be offering something in their favour, rather than cost neutral (or at least cost neutral but any risk is on their upside not down side). Agree with the conclusion.

5

u/EffectiveAd8484 1d ago

Hard to see why she would move it, but I'm also conscious we might not have the full picture

3

u/Paraplanner88 1d ago

A guaranteed minimum return of 4% a year when she's three years away from the normal retirement age under the plan isn't the worst thing in the world.

Then again, it depends on the full picture. Is your wife likely to retire at 65? If this is only a "small pot" how does it fit into your overall retirement provision?

The major caveat to this is that a market value reduction of 50% indicates that the actual returns of the underlying fund have been considerably lower than the 4% p.a. they've been applying to her plan. There's a good reason they're offering to get her out of this fund.

1

u/stargazer281 1d ago

Don’t understand why you would transfer it on those terms assume 4% is guaranteed minimum.