Thoughts - DB Transfer and timing

[Inspectorclueso]

First point I'll make is, I'm not looking for advice on whether to to this or not i.e. DB transfer out, just views on the variables that will influence the decision. I'm in the process os taking advice on this.

Backstory
30 years paying into DB, left that business 2 years ago, I'm 47. (Yes I joined the pension scheme at 16) I am now paying into currently employer scheme on DC basis at c.£18 k per year.

Options appear to be

1 Leave in DB, I can take £22k at 50, a further £21k at 67, or a reduced element of the £21K at any point from 50, hence could take a £30k pension from 50, which isn't really enough for us. However, I am working, probably will for 6 to 8 years, so I see little point for tax reasons in taking the early £20k as I'd only get £10k net, other than, if I don't take it I'd just be giving that money back to the pension scheme as there's no reduction on the initial £22k. There are some lump sum options on the above, I think it may be split, some at 50, remainder at 67. Neither lump sum big enough to make a huge difference. If I die, wife gets half pension, if kids below 18 (they are) some further dependency pensions

2 Transfers to DC. Quote I've had which is time bound but can be repeated is £1.15m. If I do this, if I do this, obviously I become subject to investment returns, but assuming I don't suffer from disastrous returns, appears to give me more flexibility, though any drawdwon or lump sum, I gather cannot be taken before I am 57.

I'm sure others have been in similar conundrum, questions I have are

- I have been told by initial advisors that the £1.15m quote could change over time. It's based on how much it costs the scheme to pay the forward benefits at that point and there is a relationship to interest rates and long term gilt rates. Hence, I'm a little concerned that if I postpone the decision, interest rates rise as there seems only one way to go, the £1.15m may turn into £0.9m as an example.

As well as flexibility, the other obvious advantages on transfer appears to

- I have a 10 year run way for the £1.15m to be invested, hopefully positively
- The pot doesn't die or reduce when I die, hence becomes an investment for family

I'd appreciate any views on this, as I say, I recognise only I can make the decision, the question is am I considering the right points, does the risk in change of transfer out value ring true etc... Am I potentially at a highly risky point to go into an investment market (I could just hold a high proportion as cash to mitigate I guess)

Thx

[Simpo Two]

Happy to be shot down by the experts, but can you transfer (say) half of it, and thus back both horses?

[DoubleSix]

Partial DB transfers will be dependent on specific scheme rules.

[CarlosFandango11]

You haven’t mentioned the lifetime allowance of £1.07m which you’ll breach with a transfer.

Are you aware of the tax implications of this? If not, this is something you should read up on, particularly as you’re currently making contributions to a DC scheme.

[Inspectorclueso]

Thanks all.

To answer Q's..We're checking out the split option, but we're 80% certain isn't permitted, this is all or nothing

The lifetime allowance, yes I am aware it breaches but I don't really see any options. Over the allowance, I still get 75% of the gains I make is my simplified understanding and I can't see why I would not take the contributions from my current employer and salary sacrifice some more - which gives me 50% tax saving now... But if I missing something shout up ! I should have said of the £18 per year, employer is paying c£10k

[btdk5]

I am not an advisor so this may be wrong but I’m not sure why you’re paying into the DC scheme yourself.

Taxable charge when you take those funds above the LTA is either 55% if taken as a lump sum or 25% plus your marginal rate (so potentially 65%) if taken as income.

Which must be worse than taking as an income now and putting into your ISA or spending it on whatever?

[bompey]

I see you’re getting advise but this is very complicated.

Keeping the DB pension means you should avoid the LTA 25% extra tax, and you can sleep at night knowing that you are not exposed to investment returns.

Transferring to a DC means you will definitely have the extra 25% tax on any profits, and you have the investment risk. The numbers may look attractive but it’s hassle.

[Meeten-5dulx]

Good gosh you are in a similar(ish) situation to me a couple of years go.
20yrs into a DB, but could not access till 57 without actuarial reduction.
My wife has a part time job in school so brings sweet FA in and has a small pension from prev jobs.
2kids under 12.

If I turn brown bread she will get half and in 6yrs the kids will get nowt.

It was the term family investment that made me take some into a SIPP and have a Fund Manager look after.
Dumping a similar sum to what you said into the market in Dec 19 and then watching it erode was not exactly pleasant…..
Roll on nearly 2yrs and it has increased considerably and I could pretty much cap it now and line on the 4pc est returns,

I’m still at the same firm and am contributing to the a dc pot.
It gives me life cover and the firms contributions are healthy as well.

If anything happens to me, my wife is cared for.
On her passing (of course she’s gonna outlive me) the kids will have the remainder in a pension.

Sure there are LTA issues and tax, but those concerns were outweighed by the potential growth and longevity for me.
The costs that were involved in transferring and the ongoing charges are enough to make you weep, but ultimately if they are producing strong positive gains in the portfolio (up circa 40pc), then I have no qualms.

Good luck in your choices. If you need details of an IFA , I’m happy to share my chaps info.

[CAPP0]

I have recently transferred out a second DB pension. The original valuation expired before I was able to get the advisor work completed, so I got a revaluation (cost £250) and that dropped by nearly 5%. That was the middle of this year.

I did ask my advisor what his view was (granted he doesn't have a crystal ball) on whether I might be better to leave it where it was and wait for a better valuation later on but his view was that in the current climate, valuations are only likely to go one way - down. I can't remember the full details of why. Someone here will know the answer but it's all about govt bond valuations. DB transfers have been valued at very high numbers in the recent past, but if you go back some years, nobody would have ever considered it at the rates being offered back then. The implication I got was that we have peaked, so it may be worth thinking about actioning this sooner rather than later.

Clearly I'm not any level of financial expert, I'm just an early pensioner on the back of a hefty DB valuation so do seek further advice, but this is what I was told.

[Inspectorclueso]

Meeten-5dulx said:

Good gosh you are in a similar(ish) situation to me a couple of years go.
20yrs into a DB, but could not access till 57 without actuarial reduction.
My wife has a part time job in school so brings sweet FA in and has a small pension from prev jobs.
2kids under 12.

If I turn brown bread she will get half and in 6yrs the kids will get nowt.

It was the term family investment that made me take some into a SIPP and have a Fund Manager look after.
Dumping a similar sum to what you said into the market in Dec 19 and then watching it erode was not exactly pleasant…..
Roll on nearly 2yrs and it has increased considerably and I could pretty much cap it now and line on the 4pc est returns,

I’m still at the same firm and am contributing to the a dc pot.
It gives me life cover and the firms contributions are healthy as well.

If anything happens to me, my wife is cared for.
On her passing (of course she’s gonna outlive me) the kids will have the remainder in a pension.

Sure there are LTA issues and tax, but those concerns were outweighed by the potential growth and longevity for me.
The costs that were involved in transferring and the ongoing charges are enough to make you weep, but ultimately if they are producing strong positive gains in the portfolio (up circa 40pc), then I have no qualms.

Good luck in your choices. If you need details of an IFA , I’m happy to share my chaps info.

Thanks so much ! Yes, very similar situation, even down to my wifes income (or lack if it !)

Re the fees, I'm being told when it gets to specialist stage c.£10k which would come out from pot if transferred went ahead, but is payable if not anyway...

[LeoSayer]

Inspectorclueso said:

1 Leave in DB, I can take £22k at 50, a further £21k at 67, or a reduced element of the £21K at any point from 50, hence could take a £30k pension from 50, which isn't really enough for us. However, I am working, probably will for 6 to 8 years, so I see little point for tax reasons in taking the early £20k as I'd only get £10k net, other than, if I don't take it I'd just be giving that money back to the pension scheme as there's no reduction on the initial £22k. There are some lump sum options on the above, I think it may be split, some at 50, remainder at 67. Neither lump sum big enough to make a huge difference. If I die, wife gets half pension, if kids below 18 (they are) some further dependency pensions

That sounds a little confused and you say it isn't enough but you haven't included your DC pension.

I'd recommend taking the paperwork to a financial advisor who can give you a cashflow forecast to show what you could receive from the age you want to retire. It should include the DC pension, plus state pension(s) and any other assets you can draw on.

I'm sure the advisor will also tell you how unlikely it is that they will recommend you take the transfer value. Without this - it will be extremely difficult for you to make the transfer.

It's easy to be seduced by the transfer value but the guaranteed DB pension you have is very valuable and to have that alongside a DC pension is a luxury.

[DoubleSix]

Inspectorclueso said:

Thanks so much ! Yes, very similar situation, even down to my wifes income (or lack if it !)

Re the fees, I'm being told when it gets to specialist stage c.£10k which would come out from pot if transferred went ahead, but is payable if not anyway...

The amount will vary according to the adviser. But the fact that the fee is non-contingent on the transfer removes a potential conflict of interest.

Fwiw: when i advise on DB i cap my fees well below that figure!

[CAPP0]

DoubleSix said:

Inspectorclueso said:

Thanks so much ! Yes, very similar situation, even down to my wifes income (or lack if it !)

Re the fees, I'm being told when it gets to specialist stage c.£10k which would come out from pot if transferred went ahead, but is payable if not anyway...

The amount will vary according to the adviser. But the fact that the fee is non-contingent on the transfer removes a potential conflict of interest.

Fwiw: when i advise on DB i cap my fees well below that figure!

Fees have gone up. Fewer advisors in the game, and indemnities have increased significantly apparently. £10k is not out of the ballpark, and yes, once you sign you'll have to pay regardless of the outcome. I got mine done for less but only on the basis of being a returning client.

You might want to try and get some impartial advice ahead of signing up; there's a possibility that your age could play against you in terms of a transfer being agreed.

[Meeten-5dulx]

Inspectorclueso said:

Thanks so much ! Yes, very similar situation, even down to my wifes income (or lack if it !)

Re the fees, I'm being told when it gets to specialist stage c.£10k which would come out from pot if transferred went ahead, but is payable if not anyway...

The fees are about right.
I am sure that the charge was for when I signed to move out of DB.... I know there was some smaller costs involved, circa £150 which the IFA said he would cover regardless if I moved or not. Perhaps as he was advised to me by another client.

I know in another thread of similar ilk some of the posters called the guy I use. Obviously I sont know of they progressed but some of them found it useful I'm sure he will talk to you under no commitment if you want.

I have no regrets and for information, was 46 when I took it out. In 10yrs the sum could feasibly double without unrealistic growth rates.
3pc income from that will take youninto the higher income tax rate....

[djc206]

CAPP0 said:

I have recently transferred out a second DB pension. The original valuation expired before I was able to get the advisor work completed, so I got a revaluation (cost £250) and that dropped by nearly 5%. That was the middle of this year.

I did ask my advisor what his view was (granted he doesn't have a crystal ball) on whether I might be better to leave it where it was and wait for a better valuation later on but his view was that in the current climate, valuations are only likely to go one way - down. I can't remember the full details of why. Someone here will know the answer but it's all about govt bond valuations. DB transfers have been valued at very high numbers in the recent past, but if you go back some years, nobody would have ever considered it at the rates being offered back then. The implication I got was that we have peaked, so it may be worth thinking about actioning this sooner rather than later.

Clearly I'm not any level of financial expert, I'm just an early pensioner on the back of a hefty DB valuation so do seek further advice, but this is what I was told.

My CETV is 10% larger this month than last!

[Inspectorclueso]

CAPP0 said:

Fees have gone up. Fewer advisors in the game, and indemnities have increased significantly apparently. £10k is not out of the ballpark, and yes, once you sign you'll have to pay regardless of the outcome. I got mine done for less but only on the basis of being a returning client.

You might want to try and get some impartial advice ahead of signing up; there's a possibility that your age could play against you in terms of a transfer being agreed.

Not sure what you mean the transfer being agreed. As far as I understand it, if you choose the right advisor it’s your choice irrespective of the advice and the DB fund have to do it. Colleagues have already done this.

[CAPP0]

Inspectorclueso said:

CAPP0 said:

Fees have gone up. Fewer advisors in the game, and indemnities have increased significantly apparently. £10k is not out of the ballpark, and yes, once you sign you'll have to pay regardless of the outcome. I got mine done for less but only on the basis of being a returning client.

You might want to try and get some impartial advice ahead of signing up; there's a possibility that your age could play against you in terms of a transfer being agreed.

Not sure what you mean the transfer being agreed. As far as I understand it, if you choose the right advisor it’s your choice irrespective of the advice and the DB fund have to do it. Colleagues have already done this.

Again, there are people who know far more than me about it (I've done it myself but only learnt what I know from that process) but if your advisor says no, you may either have difficulty getting your DB pension scheme to release the funds and/or have trouble finding a pension provider who will take it. I'm pretty sure, for example, that IM wouldn't.

[PorkInsider]

Inspectorclueso said:

CAPP0 said:

Fees have gone up. Fewer advisors in the game, and indemnities have increased significantly apparently. £10k is not out of the ballpark, and yes, once you sign you'll have to pay regardless of the outcome. I got mine done for less but only on the basis of being a returning client.

You might want to try and get some impartial advice ahead of signing up; there's a possibility that your age could play against you in terms of a transfer being agreed.

Not sure what you mean the transfer being agreed. As far as I understand it, if you choose the right advisor it’s your choice irrespective of the advice and the DB fund have to do it. Colleagues have already done this.

The 'insistent client' route I guess, where - if the adviser allows this - you can insist upon moving the pension against the advice given?

[darreni]

PorkInsider said:

The 'insistent client' route I guess, where - if the adviser allows this - you can insist upon moving the pension against the advice given?

When I was advising on DB transfers we would make clear from the outset that a recommendation not to transfer would mean we would not proceed.

Regulators & Pi insurers don't like "insistent client" business.

[DoubleSix]

darreni said:

PorkInsider said:

The 'insistent client' route I guess, where - if the adviser allows this - you can insist upon moving the pension against the advice given?

When I was advising on DB transfers we would make clear from the outset that a recommendation not to transfer would mean we would not proceed.

Regulators & Pi insurers don't like "insistent client" business.

Add platforms to that list too. Many of the mainstream providers no longer accept insistent client business.

It can present challenges.