Pension advice, frozen DB (final salary) scheme move
Discussion
Looking for some advice please, hopefully posting this in the right place.
I have an old DB pension scheme that I’d like to get a value and then transfer to my active defined contribution pension pot. My understanding is this is unusual as DB schemes are normally preferred, and lower risk, but the company I work for has an aged population and the business is being sold so I worry about the long term viability of the old/ DB scheme as I was one of the last to join before it closed. My intent would be to get a value on the pot whilst it’s doing well and move it to my active defined contribution scheme in order to build that pot more quickly, have greater control and better growth based on the bigger pot etc etc.
Please advise any thoughts/ opinions, I’d want to sanity check my logic and then how I can go about it, I believe a financial advisor is needed to sign off on this as I need to acknowledge and understand the risks involved.
Bit of back ground:
- worked for the same employer for circa 20 years (still there)
- mid 30s, so circa 30 years in front still to go
- 14 years in a final salary scheme that is now ‘frozen’
- have a new defined contribution scheme running since and still active paying in 12k per year.
- early part of my career was an apprentice, so wages/ pension were low
- DB scheme worth 7k per annum, no pot value known
As always any opinions appreciated.
I have an old DB pension scheme that I’d like to get a value and then transfer to my active defined contribution pension pot. My understanding is this is unusual as DB schemes are normally preferred, and lower risk, but the company I work for has an aged population and the business is being sold so I worry about the long term viability of the old/ DB scheme as I was one of the last to join before it closed. My intent would be to get a value on the pot whilst it’s doing well and move it to my active defined contribution scheme in order to build that pot more quickly, have greater control and better growth based on the bigger pot etc etc.
Please advise any thoughts/ opinions, I’d want to sanity check my logic and then how I can go about it, I believe a financial advisor is needed to sign off on this as I need to acknowledge and understand the risks involved.
Bit of back ground:
- worked for the same employer for circa 20 years (still there)
- mid 30s, so circa 30 years in front still to go
- 14 years in a final salary scheme that is now ‘frozen’
- have a new defined contribution scheme running since and still active paying in 12k per year.
- early part of my career was an apprentice, so wages/ pension were low
- DB scheme worth 7k per annum, no pot value known
As always any opinions appreciated.
DB schemes don't have a pot, but they will give you a transfer value. The pension will rise with inflation even though its frozen, so its a valuable asset. First thing is look at the last annual pension statement and see what the funding % is. If it's near 100 you don't need to worry about not getting it.
You'll struggle to find an IFA willing to sign this off - there's a lot of potential professional identity risk for them for not a lot of revenue.
I'm in a similar position with a frozen DB pension and I view it as a hedge against the markets and living a long life as it'll provide a guaranteed inflation-proof income later in life regardless of what happens economically. You can't buy that at reasonable cost elsewhere. Wider benefits like death benefit and spouse/children's pension may add significant value too - and that makes it difficult to put an accurate cash value on a DB membership - you might not be married with kids today when looking to transfer but 5 years down the line you could be married with 2 kids.
You've got plenty of time to build your DC pot and other investments. I like investing and so the DB stuff is a bit boring to hold in many respects - but it makes a lot of sense from a diversification perspective.
I'm in a similar position with a frozen DB pension and I view it as a hedge against the markets and living a long life as it'll provide a guaranteed inflation-proof income later in life regardless of what happens economically. You can't buy that at reasonable cost elsewhere. Wider benefits like death benefit and spouse/children's pension may add significant value too - and that makes it difficult to put an accurate cash value on a DB membership - you might not be married with kids today when looking to transfer but 5 years down the line you could be married with 2 kids.
You've got plenty of time to build your DC pot and other investments. I like investing and so the DB stuff is a bit boring to hold in many respects - but it makes a lot of sense from a diversification perspective.
quinny100 said:
as it'll provide a guaranteed inflation-proof income later in life regardless of what happens economically. You can't buy that at reasonable cost elsewhere.
It's not always inflation-proofed, with many schemes having a cap. It might be that the DC pot has to pick up the strain should we have periods of lumpy inflation. https://www.pensionsage.com/pa/majority-of-db-sche...
Derek Chevalier said:
quinny100 said:
as it'll provide a guaranteed inflation-proof income later in life regardless of what happens economically. You can't buy that at reasonable cost elsewhere.
It's not always inflation-proofed, with many schemes having a cap. It might be that the DC pot has to pick up the strain should we have periods of lumpy inflation. https://www.pensionsage.com/pa/majority-of-db-sche...
Idiot88 said:
Looking for some advice please, hopefully posting this in the right place.
I have an old DB pension scheme that I’d like to get a value and then transfer to my active defined contribution pension pot. My understanding is this is unusual as DB schemes are normally preferred, and lower risk, but the company I work for has an aged population and the business is being sold so I worry about the long term viability of the old/ DB scheme as I was one of the last to join before it closed. My intent would be to get a value on the pot whilst it’s doing well and move it to my active defined contribution scheme in order to build that pot more quickly, have greater control and better growth based on the bigger pot etc etc.
Please advise any thoughts/ opinions, I’d want to sanity check my logic and then how I can go about it, I believe a financial advisor is needed to sign off on this as I need to acknowledge and understand the risks involved.
Bit of back ground:
- worked for the same employer for circa 20 years (still there)
- mid 30s, so circa 30 years in front still to go
- 14 years in a final salary scheme that is now ‘frozen’
- have a new defined contribution scheme running since and still active paying in 12k per year.
- early part of my career was an apprentice, so wages/ pension were low
- DB scheme worth 7k per annum, no pot value known
As always any opinions appreciated.
You are possibly young enough for it to be beneficial to transfer, but if the TV is over £30,000 (and I suspect it will) you must seek regulated financial advice before transferring. That transfer advice is now few and far between I'm afraid thanks to the FCA, the Government and PI insurers.I have an old DB pension scheme that I’d like to get a value and then transfer to my active defined contribution pension pot. My understanding is this is unusual as DB schemes are normally preferred, and lower risk, but the company I work for has an aged population and the business is being sold so I worry about the long term viability of the old/ DB scheme as I was one of the last to join before it closed. My intent would be to get a value on the pot whilst it’s doing well and move it to my active defined contribution scheme in order to build that pot more quickly, have greater control and better growth based on the bigger pot etc etc.
Please advise any thoughts/ opinions, I’d want to sanity check my logic and then how I can go about it, I believe a financial advisor is needed to sign off on this as I need to acknowledge and understand the risks involved.
Bit of back ground:
- worked for the same employer for circa 20 years (still there)
- mid 30s, so circa 30 years in front still to go
- 14 years in a final salary scheme that is now ‘frozen’
- have a new defined contribution scheme running since and still active paying in 12k per year.
- early part of my career was an apprentice, so wages/ pension were low
- DB scheme worth 7k per annum, no pot value known
As always any opinions appreciated.
Idiot88 said:
Looking for some advice please, hopefully posting this in the right place.
I have an old DB pension scheme that I’d like to get a value and then transfer to my active defined contribution pension pot. My understanding is this is unusual as DB schemes are normally preferred, and lower risk, but the company I work for has an aged population and the business is being sold so I worry about the long term viability of the old/ DB scheme as I was one of the last to join before it closed. My intent would be to get a value on the pot whilst it’s doing well and move it to my active defined contribution scheme in order to build that pot more quickly, have greater control and better growth based on the bigger pot etc etc.
Please advise any thoughts/ opinions, I’d want to sanity check my logic and then how I can go about it, I believe a financial advisor is needed to sign off on this as I need to acknowledge and understand the risks involved.
Bit of back ground:
- worked for the same employer for circa 20 years (still there)
- mid 30s, so circa 30 years in front still to go
- 14 years in a final salary scheme that is now ‘frozen’
- have a new defined contribution scheme running since and still active paying in 12k per year.
- early part of my career was an apprentice, so wages/ pension were low
- DB scheme worth 7k per annum, no pot value known
As always any opinions appreciated.
You'll really struggle to find an IFA to look at it and if you do and their advice is that its not in your best interest to transfer, you won't be able to, regardless of your wishes.I have an old DB pension scheme that I’d like to get a value and then transfer to my active defined contribution pension pot. My understanding is this is unusual as DB schemes are normally preferred, and lower risk, but the company I work for has an aged population and the business is being sold so I worry about the long term viability of the old/ DB scheme as I was one of the last to join before it closed. My intent would be to get a value on the pot whilst it’s doing well and move it to my active defined contribution scheme in order to build that pot more quickly, have greater control and better growth based on the bigger pot etc etc.
Please advise any thoughts/ opinions, I’d want to sanity check my logic and then how I can go about it, I believe a financial advisor is needed to sign off on this as I need to acknowledge and understand the risks involved.
Bit of back ground:
- worked for the same employer for circa 20 years (still there)
- mid 30s, so circa 30 years in front still to go
- 14 years in a final salary scheme that is now ‘frozen’
- have a new defined contribution scheme running since and still active paying in 12k per year.
- early part of my career was an apprentice, so wages/ pension were low
- DB scheme worth 7k per annum, no pot value known
As always any opinions appreciated.
Do not transfer. That is highly likely to be the outcome of advice but you'll still have to pay for it.
Although you're not an active member, whilst you're a deferred member the annual pension is revalued each year. This is usually something like RPI capped at 5%pa or similar, sometimes there's more than one slice to the total pension and they increase at different rates.
Transfer values are way down compared to a few years ago when gilt yields were negligible. Your annual pension has continued to rise but you'll be offered a lot less money for it now.
It's a good idea to have a mixed approach to funding retirement, this secure income helps pay for the essentials alongside the state pension. You'll spend the rest of your working life building up DC investment based pension with all the flexibility/potential growth/risk that brings, so let this be to diversify as mentioned above.
You retain the right to transfer until you're within a year of your normal retirement age, so there's plenty of time to reconsider in future. Right now there's far too many unknowns to demonstrate that a transfer is suitable. You haven't amassed enough other wealth for this not to matter and you cannot access the pension for ages so there will be no justification for taking on the extra risks now.
The pension is likely to be covered by the Pension Protection Fund so if it becomes insolvent you won't lose it all. Should it go bust before the normal retirement age you'll get 90% of it, or after NRA it's 100%. Escalation is limited in the PPF, level on pre 1997 accrual and CPI capped at 2.5%pa on post 1997.
The pension scheme assets are separate to the company and it's managed as its own thing by the trustees. If it's underfunded and the employer still exists often they'll pump money in to help close the deficit. If not the trustees will take other steps like increasing or decreasing the investment risk on the scheme assets or if it's really bad limit the benefits in some way like reducing the annual increases to stop it falling into the PPF.
In short, let it run in the background. There's nothing for you to manage, just focus on your other pension pot.
Although you're not an active member, whilst you're a deferred member the annual pension is revalued each year. This is usually something like RPI capped at 5%pa or similar, sometimes there's more than one slice to the total pension and they increase at different rates.
Transfer values are way down compared to a few years ago when gilt yields were negligible. Your annual pension has continued to rise but you'll be offered a lot less money for it now.
It's a good idea to have a mixed approach to funding retirement, this secure income helps pay for the essentials alongside the state pension. You'll spend the rest of your working life building up DC investment based pension with all the flexibility/potential growth/risk that brings, so let this be to diversify as mentioned above.
You retain the right to transfer until you're within a year of your normal retirement age, so there's plenty of time to reconsider in future. Right now there's far too many unknowns to demonstrate that a transfer is suitable. You haven't amassed enough other wealth for this not to matter and you cannot access the pension for ages so there will be no justification for taking on the extra risks now.
The pension is likely to be covered by the Pension Protection Fund so if it becomes insolvent you won't lose it all. Should it go bust before the normal retirement age you'll get 90% of it, or after NRA it's 100%. Escalation is limited in the PPF, level on pre 1997 accrual and CPI capped at 2.5%pa on post 1997.
The pension scheme assets are separate to the company and it's managed as its own thing by the trustees. If it's underfunded and the employer still exists often they'll pump money in to help close the deficit. If not the trustees will take other steps like increasing or decreasing the investment risk on the scheme assets or if it's really bad limit the benefits in some way like reducing the annual increases to stop it falling into the PPF.
In short, let it run in the background. There's nothing for you to manage, just focus on your other pension pot.
Two points,
1. The inflation indexation that others have mentioned. You need to understand whether your increases are 0%, capped at 2.5%, capped at 5% or fully indexed. This may depend on which years you worked there and there may be more than one rate.
2. You should look at the "funding" of that DB scheme and see whether if it is well funded, i.e. can afford to pay the pensions now and in the future. Without getting into detail there probably isn't anything to worry about.
1. The inflation indexation that others have mentioned. You need to understand whether your increases are 0%, capped at 2.5%, capped at 5% or fully indexed. This may depend on which years you worked there and there may be more than one rate.
2. You should look at the "funding" of that DB scheme and see whether if it is well funded, i.e. can afford to pay the pensions now and in the future. Without getting into detail there probably isn't anything to worry about.
b
hstewie said:
hstewie said: Can anyone realistically see any advisor approving this?
There's not enough information to say one way or the other. First steps would be to ask for a transfer value, see how it looks and then find out where/how much to go and get the appropriate advice. Post the TV figure on here together with your exact accrued benefits figure and you'll probably get a broad brush feel of "not a prayer", "you'd have to be nuts" or "worth further investigation" for nothing.
It's worth mentioning that it's become highly fashionable for old DB arrangements to be parcelled up by the scheme trustees and handed over to an insurance company. Conventional wisdom is, of course, that this offers security for scheme members because insurance companies are too big to fail. Believe that if you wish.
It's pointless posting up the CETV because general circumstances are already a no and you can bet it won't be a generous offer anyway.
Annuity bulk buyouts are as much for the scheme/employer's benefit as the members. It passes the open ended liability onto someone else, it's not a cheap thing to do. If the insurer goes bust then the FSCS pays 100% of the annuity.
Annuity bulk buyouts are as much for the scheme/employer's benefit as the members. It passes the open ended liability onto someone else, it's not a cheap thing to do. If the insurer goes bust then the FSCS pays 100% of the annuity.
Have a look at the FCA DB advice checker. This will give you a flavour of how hard it is to recommend a transfer...
https://www.fca.org.uk/consumers/pensions-transfer...
https://www.fca.org.uk/consumers/pensions-transfer...
thekingisdead said:
My DB is 10k PA with a transfer value of £280k ish.
Take another look. That figure of £10k sounds like what it was at the date of leaving, presumably quite some years in the past now. What it's worth now and what it'll be at the normal retirement age will be notably more than £10k.If you've got that £10k figure from the transfer information then 99% it'll be the date of leaving. Misleading in my opinion and so many people just see this thinking it's a big valuation.
PH007 - you seem very negative in this thread and I don't understand why. Without facts it's all guesswork.
There's no point guessing or pre-judging the answers, the detail deserves close examination. If someone has 30 years to retirement with 2.5% capped indexation they'll be absolutely nailed if CPI keeps ticking along at 5%. Some think "higher for longer" is the magic answer to interest rates whereas others might suggest "higher is the new normal".
Definitely no easy answers but IMO don't give up before you've even got to the starting line.
There's no point guessing or pre-judging the answers, the detail deserves close examination. If someone has 30 years to retirement with 2.5% capped indexation they'll be absolutely nailed if CPI keeps ticking along at 5%. Some think "higher for longer" is the magic answer to interest rates whereas others might suggest "higher is the new normal".
Definitely no easy answers but IMO don't give up before you've even got to the starting line.
Gassing Station | Finance | Top of Page | What's New | My Stuff