DB pension transfer value
Discussion
I'm trying to make sense of my wifes pension (she has less of a clue!) which seems to be a DB scheme with her previous (20yr ago) bank employer where she earned a pretty basic salary. Alledgely her 'pot' has a transfer value of around £230000 which seems nice. However apparently she is only like to receive an income of around £2800pa which seems crap. Flinging her pot value into an annuity calc elsewhere seems to derive an income of around £5600pa which is still crap but way better than the bank. Am i missing something here - do the bank really expect her to live another 82 years before the pot is used up!?
I'm no expert but given the choice between receiving £2,800pa from a DB scheme or transfer equation of x82 for a pot of £ 230k which even assuming say 4% pa ( £ 9,200 ) would get my vote although I imagine finding said company expert to do all the work involved ( in excess of £30k I think is the tip point ) might be the challenge.
I am just starting going through the same process with my wife's DB pensions. Was talking to someone only this morning about it
The main issue with DB pensions seems to me to be the fact that they die with you (well, 50% can get rolled on to a spouse but it dies after that).
With a SIPP you can pass on whatever is left.
The fellow told me that average transfer values for DB schemes are around 37/38 times the forecast pension at the moment. Seems like they can't wait to get rid of them
However...
Transferring out of DB schemes into a SIPP is a massive hoop jumping exercise and there are only a limited number of IFAs who can or will do it.
For any scheme with a TV of over £30K they have to give you "advice" that they can stand on/justify to the FCA and in order to do that they will need to do drains-up on your combined finances.
The best outcome ie. getting the "advice" that you want ( to transfer the things) is easiest to achieve if you can basically show that these schemes are surplus to living requirements. I.e. other assets & the State Pension(s) are all in place to see you out.
....or at least that's my understanding of it!
I was advised by my own financial management people (they don;t deal with DB Xfers) to use unbiased.com to find someone that did.
That has thrown up a company called "True Potential" who have contacted me & so far seem to be making sense. I have yet to find out more about them & decide as to whether they are the right organisation to get involved with - but they seem to know a fair bit about doing this so far.
The main issue with DB pensions seems to me to be the fact that they die with you (well, 50% can get rolled on to a spouse but it dies after that).
With a SIPP you can pass on whatever is left.
The fellow told me that average transfer values for DB schemes are around 37/38 times the forecast pension at the moment. Seems like they can't wait to get rid of them
However...
Transferring out of DB schemes into a SIPP is a massive hoop jumping exercise and there are only a limited number of IFAs who can or will do it.
For any scheme with a TV of over £30K they have to give you "advice" that they can stand on/justify to the FCA and in order to do that they will need to do drains-up on your combined finances.
The best outcome ie. getting the "advice" that you want ( to transfer the things) is easiest to achieve if you can basically show that these schemes are surplus to living requirements. I.e. other assets & the State Pension(s) are all in place to see you out.
....or at least that's my understanding of it!
I was advised by my own financial management people (they don;t deal with DB Xfers) to use unbiased.com to find someone that did.
That has thrown up a company called "True Potential" who have contacted me & so far seem to be making sense. I have yet to find out more about them & decide as to whether they are the right organisation to get involved with - but they seem to know a fair bit about doing this so far.
Edited by Wombat3 on Monday 25th January 18:11
alscar said:
I'm no expert but given the choice between receiving £2,800pa from a DB scheme or transfer equation of x82 for a pot of £ 230k which even assuming say 4% pa ( £ 9,200 ) would get my vote although I imagine finding said company expert to do all the work involved ( in excess of £30k I think is the tip point ) might be the challenge.
My thoughts exactly! I'm pretty confortable with my own SIPP arrangements but DB stuff is uncharted territory for me - just seems on the face of it to be a pretty bad deal from the employerdrmotorsport said:
I'm trying to make sense of my wifes pension (she has less of a clue!) which seems to be a DB scheme with her previous (20yr ago) bank employer where she earned a pretty basic salary. Alledgely her 'pot' has a transfer value of around £230000 which seems nice. However apparently she is only like to receive an income of around £2800pa which seems crap. Flinging her pot value into an annuity calc elsewhere seems to derive an income of around £5600pa which is still crap but way better than the bank. Am i missing something here - do the bank really expect her to live another 82 years before the pot is used up!?
The transfer value compared to the income seems very high.Exactly what is the £2800pa described as? I.e. annual income at present, or at her retirement date etc
darreni said:
The annual pension shown is likely to be the amount at the date of leaving pensionable service. You will need to request the current annual amount ( inc of any increments over the last 20 years) to provide a basis to compare against the transfer value.
^^^ THIS ^^^Firstly you need to be comparing apples with apples.
Secondly you must guard against the ££££ snake.
What are the revision rate(s) associated with the scheme?
Starting point from the FCA is don’t, I whole heartedly agree with this stance.
When moving from DB to SIPP/personal you take on all the risk and costs and have no guarantees. All of which the company scheme swallow. Remember the DB pension will be revised upward each year, based on certain criteria, some safety in terms of future proofing prior the income, and pot, to retirement date as well.
Another thing to remember is that you can transfer at any stage, if your wife is relatively young it’s almost certain that decent advisers will say stay where you are. Effectively let the company take the risks until close to retirement then take the money and run, if appropriate & right to do so.
When moving from DB to SIPP/personal you take on all the risk and costs and have no guarantees. All of which the company scheme swallow. Remember the DB pension will be revised upward each year, based on certain criteria, some safety in terms of future proofing prior the income, and pot, to retirement date as well.
Another thing to remember is that you can transfer at any stage, if your wife is relatively young it’s almost certain that decent advisers will say stay where you are. Effectively let the company take the risks until close to retirement then take the money and run, if appropriate & right to do so.
I was recently made redundant after 18 years in a DB pension scheme, the transfer value is just over £1M. I went through the process of getting advice regarding transferring it out but since I have a new job and am only 48 the advice was to leave it where it is until I want to retire and then revisit the transfer option at retirement age.
paralla said:
I was recently made redundant after 18 years in a DB pension scheme, the transfer value is just over £1M. I went through the process of getting advice regarding transferring it out but since I have a new job and am only 48 the advice was to leave it where it is until I want to retire and then revisit the transfer option at retirement age.
The other benefit to you, depending on the amounts you are likely to have in DC pot(s) at retirement, is that retaining the DB pension will mean the LTA calculation will be based on the DB pension payment amount x 20 plus any PCLS. And this may help you remain below the LTA.One, or the other shouldn't be a driver in its own right but you probably need to consider these things.
I have a similarly modest DB pension from a prior employer.
My current thinking is to probably leave as is and take it from retirement age, unless the transfer value is incredible in (much) later years.
Reason being, with a few £k from it added to the projected £9.1k from State Pension (or whatever it ends up as, if they still offer it etc. etc.), it'll be a useful insurance against my savings and DC pot (which I intend to drawdown upon, rather than purchase an annuity) taking a marked turn for the worse in later life.
Effectively, it would always be there to allow a very modest, but acceptable, standard of living (with no mortgage) in case of financial mismanagement, unforeseen costs or living much longer than expected. An approach which tries to strike a blend between the security of an annuity and the greater potential/value from riskier drawdown.
My current thinking is to probably leave as is and take it from retirement age, unless the transfer value is incredible in (much) later years.
Reason being, with a few £k from it added to the projected £9.1k from State Pension (or whatever it ends up as, if they still offer it etc. etc.), it'll be a useful insurance against my savings and DC pot (which I intend to drawdown upon, rather than purchase an annuity) taking a marked turn for the worse in later life.
Effectively, it would always be there to allow a very modest, but acceptable, standard of living (with no mortgage) in case of financial mismanagement, unforeseen costs or living much longer than expected. An approach which tries to strike a blend between the security of an annuity and the greater potential/value from riskier drawdown.
cloud_dog said:
darreni said:
The annual pension shown is likely to be the amount at the date of leaving pensionable service. You will need to request the current annual amount ( inc of any increments over the last 20 years) to provide a basis to compare against the transfer value.
^^^ THIS ^^^Firstly you need to be comparing apples with apples.
Secondly you must guard against the ££££ snake.
What are the revision rate(s) associated with the scheme?
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