Barclays pension fund options - what am I missing?

[zico]

I've just received a letter from Barclays telling me about my Defined Benefit pension options with them from age 60, and am confused, because it seems like the transfer value is far more than the pension options - I must be missing something, can someone tell me what I'm missing?

Option 1 - £2,500 per year

Option 2 - Tax-free lump sum of £12,395 then pension of £1,859 per year

Option 3 - Transfer £100k to another pension provider.

This means I'll have to live to be 100 before it's better to take Option 1 rather than Option 3.

I don't think I've missed the effect of inflation, because if I put the £100k in a share-based pension, that should take care of that.
Possible that part of the difference could be about my spouse's pension after I die, probably 50% of the value (and women generally live a few years longer than men), but even that doesn't seem to account for the difference.

It just seems odd, because historically, it's normally a bad idea to convert a DB into a DC scheme, but in this case, the numbers don't seem to stack up.

(Comparing Options 1 and 2 show that the cross-over point at which Option 1 becomes better is around age 82, which is roughly what I'd expect, but the other figure seems out of line.

Obviously important I make the right decision, as there's a fair bit of money here, and I want to pick the best option.
Thanks in advance for any help and advice you can provide.

[Alaric]

- I must be missing something, can someone tell me what I'm missing?

Option 1 - £2,500 per year.

That's likely to be indexed. What's happening in effect that they are offering you a decent price to take the liability off their hands. They are probably compelled to buy indexed Gilts to match the liability to pay you an indexed pension income and these come expensive.

If you think you can squeeze out more than 2.5% increasing with inflation, or have a use for £ 100,000 over a shorter period, taxation permitting, then consider their transfer offer. You may have to pay to be given advice not to do it. (I'm assuming that the transfer option is valid for a SIPP and not just to buy an annuity)

If on the other hand, a guaranteed income of £2,500 is useful, then take the benefit. If you would like around £12,000 now, free of tax, take the lump sum. It's not good value in comparison to the transfer value and you could also transfer to flexible drawdown and then withdraw.

[swill453]

A "commutation rate" of 40 is on the reasonably generous side, 25 being I think more typical. It reflects how much the pension scheme wants to get rid of your pension as a liability.

Bear in mind that if you want to actually take the £100K and transfer elsewhere, you'll have to pay for a financial advisor before any scheme is allowed to accept it.

This financial advisor may in fact advise against the transfer, in which case if you want to go ahead despite this you'll have an even harder job finding a recipient scheme.

Also bear in mind that to "buy" an index-linked annuity of £2500 per year at age 60 would likely cost more than £100K anyway, so you'd have to be able to do something smarter with the money.

Scott.

[zico]

Thanks for the replies. I was planning to move the £100k into an AVC scheme that I set up and have been drawing down from.