Transfering DB to SIPP
Comments
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If interest rates stayed the same, your CETV would continue to rise simply because you are getting older and it is getting closer to being paid. Other things that might make it rise are increases in inflation.
Just wondering, why would the CETV go up as the time to retirement reduces?
Wouldn't inflation make their liability lower and so reduce the CETV even if it didn't come with a rise in interest rates??0 -
Just wondering, why would the CETV go up as the time to retirement reduces?
Wouldn't inflation make their liability lower and so reduce the CETV even if it didn't come with a rise in interest rates??
The calculation of CETV will assume an investment return above inflation so as retirement approaches there is less time for the investments to increase in real value. Therefore the scheme must allocate more capital to provide the pension.0 -
The calculation of CETV will assume an investment return above inflation so as retirement approaches there is less time for the investments to increase in real value. Therefore the scheme must allocate more capital to provide the pension.“So we beat on, boats against the current, borne back ceaselessly into the past.”0
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Out of interest is your DB pension index linked? If mine was then I would be keeping it but its not, so that aspect is not covered. I did notice that people who joined my scheme a few years after me have their pensions index linked but only up to a maximum of 5% - I don't know how common that sort of stipulation is - I am much luckier with my straight 5%.
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My DB pension is index linked, but there is a cap of 3%.
Looking at your numbers the CETV of 483k and the pension of 11k at age 55 seem very strange to me.....they are using a negative discount rate or assuming modern medicine will allow you to live of another 100 years rather than 40 or 50.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
The 11k is the value they quoted in the statement at the beginning of this year. When I start getting the pension at age 65 this figure will have increased to 18k and it keeps going up at 5% per anum. Survivor benefit is 2/3 but I'm not sure if that also goes up or if its frozen - as OH is >10years older its hopefully academic.0
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bostonerimus wrote: »My DB pension is index linked, but there is a cap of 3%.
Looking at your numbers the CETV of 483k and the pension of 11k at age 55 seem very strange to me.....they are using a negative discount rate or assuming modern medicine will allow you to live of another 100 years rather than 40 or 50.
The discount rate may be negative using government bonds, however the OP has clarified this, in terms of time for access and guaranteed pension increases, which means the discount rate isn't negative but is very low.
There's been a recent change in the law in the uk, primarily if not wholly applied to accident compensation claims and the lumps sums involved, for example after a serious car crash. This has reduced the assumed rate of return from the lump sum from something like, 2% to -0.5%, the consequences of which are being argued about, and will lead to very much increased premiums if not changed.0 -
£11k to £18k implies 5% pa revaluation in deferment which is high for the whole amount.
Are you sure pension increases are 5% fixed rather than 5% capped? Again this is high.
Also 2/3rds spousal benefits is higher than the more typical 50%.
All of these things taken together suggest that the value of the benefits is higher than normal and would go some way to explaining the CETV at a normal discount rate.
It's also the case that the better the benefits, the harder it is to show that a transfer is in your best interests.0 -
£11k to £18k implies 5% pa revaluation in deferment which is high for the whole amount.
Are you sure pension increases are 5% fixed rather than 5% capped? Again this is high.
Also 2/3rds spousal benefits is higher than the more typical 50%.
All of these things taken together suggest that the value of the benefits is higher than normal and would go some way to explaining the CETV at a normal discount rate.
It's also the case that the better the benefits, the harder it is to show that a transfer is in your best interests.
I have rounded the figures - it actually works out at 4.93% increase as a small amount of the total only goes up at 3%. The figures work out - I have checked previous statements and they are in line. If OH was younger the 2/3 benefit would be a consideration.0 -
Personally I would retain the DB, a 4.93% increase each & every year is a great deal.
I have a deferred DB with 0% increase each year on the "no statutory increase" portion once in payment, so might get 1/4 of whatever the inflation rate is in reality.
That one I am looking at transfer possibilities, but am still not 100% convinced.0 -
I agree it is a great pension - it also has a great transfer value though and one that has gone up 200% in the last 6 years!
If I could get an average income/growth of 5% from the SIPP over the next 30 years - then I would be better of with the SIPP even if I live to 100! That's taking exactly the same escalating pension.
Of course we could be in for thirty years of poor stock market returns and Japan style deflation worldwide. In which circumstance I might run out of cash in this pot much earlier. However I would have control and could for instance not increase the amount I withdraw each year.
If interest rates return to historic norms and or we get a period of high inflation - I would be much better off having the flexibility to take advantage. My bet is that the latter scenario is more likely - of course I might be wrong, but if I am I'm still unlikely to be on the bread line.0
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