Pension Advice- Fund in Deficit

[cleanpairofheels]

Assistance appreciated on decision of taking one of my DB pensions in a fund which is in deficit. Do I sit tight or transfer?
First some background. I’ve just turned 65, married, no mortgage with 3 children in their twenties. I have crystallised 4 DB schemes to date. With the state pension I shall get £35k before tax, with the outstanding DB pension raising this to £39k. This is more than ample as I have a healthy capital to fall back on. LTA is not an issue as this brings to 65% LTA. As I see it I have the following options:
- Annuity of £4,100 (LTA 8.2%)
- Reduced annuity of £2,478 plus cash £16,525 (LTA 6.6%)
- Transfer of £57,920 to another provider
Under normal circumstances I would go for 1st or 2nd option. However, the pension scheme is in deficit and I’m worried it might be wound up.
Re: the third option of transfer; the ratio of transfer value to annuity is 14.1 which I understand is low, and confirms the needs of the company to prevent excessive withdrawal of funds.
The company is mid-size UK company owned by an Abu Dhabi parent company. Annual turnover £60mm with a loss before taxation last year of £9mm. As business is linked to oil price I can’t see things improving short term. Last year the pension fund had £25mm assets with £33mm liabilities with £8mm deficit so the funding level was 75%. Company appears to be supportive by recent contributions and it intends to contribute £360k until 2020 and £1mm per year until 2026.
Last year’s annual report states the holding company has confirmed its financial support for another 18 months, but nothing mentioned for after that. It states they might not have enough funds to pay for insurance should the scheme be wound up. I understand that the Pension Protection Fund might be take over the plan, which would give me a good guarantee. I’m unsure though what requirements need to be met for the PPF to do this.
So, do I sit tight and crystallise the funds, hoping that the pension fund stays solvent or take a low transfer value elsewhere with lower risk.
I understand that as the fund value is above £30k I would need to discuss with a financial advisor, though obviously any advice from yourselves would be very much appreciated.

[Alaric]

So, do I sit tight and crystallise the funds, hoping that the pension fund stays solvent or take a low transfer value elsewhere with lower risk.

Once you start receiving benefits you move to the top of the Pension fund creditors. I forget just how much is "guaranteed" by the Pension Protection Fund, but I would suspect your losses would be capped at 10% of the annuity and loss of future indexation.

I doubt a "transfer analysis" would pay much attention to default risks, so an adviser would likely to be forced to advise against it.

[ursaminortaur]

So, do I sit tight and crystallise the funds, hoping that the pension fund stays solvent or take a low transfer value elsewhere with lower risk.

Once you start receiving benefits you move to the top of the Pension fund creditors. I forget just how much is "guaranteed" by the Pension Protection Fund, but I would suspect your losses would be capped at 10% of the annuity and loss of future indexation.

I doubt a "transfer analysis" would pay much attention to default risks, so an adviser would likely to be forced to advise against it.

If you have retired at the normal retirement age for the scheme before it falls into the PPF then you would generally receive 100% of the benefits and any pension arising from service after 5th April 1997 would rise with inflation up to a limit of 2.5%.

http://www.pensionprotectionfund.org.uk/Pages/Compensation.aspx

If You Have Retired
You will have been receiving a pension from your scheme before your former employer went bust.
If you were beyond the scheme’s normal retirement age when your employer went bust, the Pension Protection Fund will generally pay 100 per cent level of compensation, which means we will generally pay you the same amount in compensation when your scheme enters the PPF.
Your payments relating to pensionable service from 5 April 1997 will then rise in line with inflation each year, subject to a maximum of 2.5 per cent a year. Payments relating to service before that date will not increase.
This information may also apply if you retired through ill-health or if you are receiving a pension in relation to someone who has died.

If You Retired Early
If you retired early and had not reached your scheme’s normal pension age when your employer went bust, then you will generally receive 90 per cent level of compensation based on what your pension was worth at the time. The annual compensation you will receive is capped at a certain level.
The cap at age 65 is, from 1 April 2017, £38,505.61 (this equates to £34,655.05 when the 90 per cent level is applied) per year. This is set by DWP.
From 6 April 2017, the Long Service Cap came into effect for members who have 21 or more years' service in their scheme. For these members the cap is increased by three per cent for each full year of pensionable service above 20 years, up to a maximum of double the standard cap.

The earlier you retired, the lower the annual cap is set, to compensate for the longer time you will be receiving payments.
You can view a full list of the compensation caps for 2017/18 at each age here.
Once compensation is being paid, then payments relating to pensionable service from 5 April 1997 will rise in line with inflation each year, subject to a maximum of 2.5 per cent. Payments relating to service before that date will not increase.