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  • FIRST POST
    • cambb
    • By cambb 12th Mar 17, 3:57 PM
    • 165Posts
    • 4Thanks
    cambb
    Transfering my DB pension into SIPP
    • #1
    • 12th Mar 17, 3:57 PM
    Transfering my DB pension into SIPP 12th Mar 17 at 3:57 PM
    Hi,
    I'm 48 and currently have a frozen DB pension valued at 521K. I also have a second pension worth 80K that between myself and my employer we contribute about 1k a month into. Hoping to retire at 58 and use both pensions to drawdown to support my retirement.

    I have had some initial advice from a IFA about transferring the DB into a SIPP with Prudential into the Prufund Growth fund.

    Is that a decent fund and what are the risks in doing this kind of transfer?
Page 1
    • xylophone
    • By xylophone 12th Mar 17, 4:06 PM
    • 21,273 Posts
    • 12,214 Thanks
    xylophone
    • #2
    • 12th Mar 17, 4:06 PM
    • #2
    • 12th Mar 17, 4:06 PM
    https://www.royallondon.com/Global/documents/GoodWithYourMoney/COMPANY-PENSIONS-FIVE-REASONS-TO-TRANSFER-OUT-AND-FIVE-REASONS-NOT-TO.pdf

    Does the IFA have Pension Transfer Permission?

    http://www.pruadviser.co.uk/content/knowledge/technical-centre/pension_switches_transfers/
    • atush
    • By atush 12th Mar 17, 4:13 PM
    • 15,808 Posts
    • 9,581 Thanks
    atush
    • #3
    • 12th Mar 17, 4:13 PM
    • #3
    • 12th Mar 17, 4:13 PM
    If you have no skills in investing (as you are asking this question) then why do you feel that trading a guaranteed income for life is worse than taking all investment risk on yourself?

    Do you have a spouse? Do you have life limiting health issues?
    • cambb
    • By cambb 12th Mar 17, 4:21 PM
    • 165 Posts
    • 4 Thanks
    cambb
    • #4
    • 12th Mar 17, 4:21 PM
    • #4
    • 12th Mar 17, 4:21 PM
    Yes i have a wife, 2 children and no health issues. The main reason is my father is terminally ill @ 74 and I think if i was in his position my wife would only get half of the pension as it stands. I have worked out i need to live to 93 for the DB to "break even" and by that time what use would the money be? I would rather have the tax free amount in my 55 and enjoy it. Say the 521K + 200K by the time i retire invested would be able to support us through retirement. Forgot to mention that my wife also has a DB pension that would provide approx 400 a month when she retires.
    • hyubh
    • By hyubh 12th Mar 17, 5:18 PM
    • 1,751 Posts
    • 1,251 Thanks
    hyubh
    • #5
    • 12th Mar 17, 5:18 PM
    • #5
    • 12th Mar 17, 5:18 PM
    I have worked out i need to live to 93 for the DB to "break even"
    Originally posted by cambb
    How does it revalue before retirement, and increase once in payment?
    • EdSwippet
    • By EdSwippet 12th Mar 17, 5:42 PM
    • 435 Posts
    • 409 Thanks
    EdSwippet
    • #6
    • 12th Mar 17, 5:42 PM
    • #6
    • 12th Mar 17, 5:42 PM
    Say the 521K + 200K by the time i retire invested would be able to support us through retirement.
    Originally posted by cambb
    Presumably you expect your transferred 521k to grow between now and retirement? On these numbers, you would need to factor in the spectre of breaching the pensions lifetime allowance before you retire, and the potential 25% penalty charge on the excess.

    With ten years to retirement, your pension only needs to grow at around 5% real per year to breach the lifetime allowance, even if you stopped further contributions today. To avoid penalties you would need to either stop pension contributions either now or well before age 58, or retire earlier than that, or both, depending on how your selected funds perform.
    • cambb
    • By cambb 12th Mar 17, 5:56 PM
    • 165 Posts
    • 4 Thanks
    cambb
    • #7
    • 12th Mar 17, 5:56 PM
    • #7
    • 12th Mar 17, 5:56 PM
    How does it revalue before retirement, and increase once in payment?
    Originally posted by hyubh
    Im not sure TBH. I presume once i get my details from the pension dept the IFA will go through this?
    • kidmugsy
    • By kidmugsy 12th Mar 17, 7:54 PM
    • 9,260 Posts
    • 6,075 Thanks
    kidmugsy
    • #8
    • 12th Mar 17, 7:54 PM
    • #8
    • 12th Mar 17, 7:54 PM
    what are the risks in doing this kind of transfer?
    Originally posted by cambb
    (i) Investment risk: either you muck up the investments (e.g. sell in panic when the market drops) or the markets simply don't do well - a phenomenon that can last decades, judging by history.

    (ii) Miscalculation risk: you turn out not to have a clue about what the effects of inflation might be.

    (iii) Extravagance risk: you withdraw capital far too quickly.

    (iv) Longevity risk: you outlive your money as a result of (i), (ii), and (iii).

    Start with (ii): You say "I have worked out i need to live to 93 for the DB to "break even"". That's not too encouraging. What inflation rate did you assume? Even simpler, without looking it up, tell us what inflation-protection your DB pension will have. If you don't know you're not taking inflation seriously.
    • cambb
    • By cambb 13th Mar 17, 10:30 AM
    • 165 Posts
    • 4 Thanks
    cambb
    • #9
    • 13th Mar 17, 10:30 AM
    • #9
    • 13th Mar 17, 10:30 AM
    Right i've had a bit of a play with the pension website so below are the figures i'm working with:-

    Age 55 Gross Retirement Pension
    12,288.60 Per Annum

    Age 58 Gross Retirement Pension
    13,809.24 Per Annum

    Age 65 Gross Retirement Pension
    19,016.28 Per Annum

    Off the website my pensions would increase as below:-

    Pensions in payment earned after 5 April 1997 are increased in line with the Retail Prices
    Index (RPI) up to a maximum of 5% a year.
    Pensions earned before 6 April 1997, above the GMP, are increased in line with RPI up to a
    maximum of 3% a year.

    Any ideas how i can work out how much say 13,809.24 Per Annum would be worth in 20 years time if it rose 3% a year?

    Also i know this is a million dollar question but my CETV has gained 750 this week so is this a good time to transfer out or do i sit on?
    • hyperhypo
    • By hyperhypo 13th Mar 17, 11:46 AM
    • 42 Posts
    • 5 Thanks
    hyperhypo
    @OP

    am in similar postion deciding whether to transfer a DB pot of 422k into my 100k sipp, keep contributing for 3 years , make it to 600k and drawdown to SP. I'm 57.

    But i'm wondering how your CETV has grown in a week ...surely these are point in time offers, actuarial validations for a fixed term..at least mine is? I wasn't aware they are able to fluctuate ..

    The what to do with it is tempting though although my present thinking is to work the DC scheme hard and leave the DB as it is ...i am awaiting results of TVAS , but inclined (today) to stick !
    • kidmugsy
    • By kidmugsy 13th Mar 17, 12:03 PM
    • 9,260 Posts
    • 6,075 Thanks
    kidmugsy
    DB pension valued at 521K

    .....

    Age 58 Gross Retirement Pension
    13,809.24 Per Annum

    .....

    is this a good time to transfer out or do i sit on?
    Originally posted by cambb

    Is this a good time? Probably. They are offering you 37.7 x annual pension. That seems pretty desirable to me IF you want to transfer.

    But do you really want to? Only you can judge; I hope you've read the useful discussion at the Royal London link that xylophone provided.

    Last questions: how well funded is your DB scheme? How much faith do you have that your former employer will continue to keep it properly funded?
    • cambb
    • By cambb 13th Mar 17, 12:30 PM
    • 165 Posts
    • 4 Thanks
    cambb
    Cheers kidmugsy.

    The main reasoning behind the transfer is passing this onto my wife/kids in later life. I currently have 200k equity in my house and approx 200k savings so a guaranteed income is not really that important.

    The fund is well funded i believe and its my existing employer.

    i have only been tracking the value for a couple of month's as per below and i seem to remember a couple of years ago it was around the 388k mark.

    15/02/2017 504,724.69
    06-Mar 521,529.60
    13-Mar 522,250.43

    Just when do i go for it. My IFA said it can take up to 8 weeks to complete.

    Thanks for all the advise.
    • xylophone
    • By xylophone 13th Mar 17, 1:21 PM
    • 21,273 Posts
    • 12,214 Thanks
    xylophone
    I currently have 200k equity in my house and approx 200k savings so a guaranteed income is not really that important.


    I know retired people with at least that much in savings and far more in equity in their house but that does not make their index linked DB pensions "not really important"......
    • kidmugsy
    • By kidmugsy 13th Mar 17, 3:28 PM
    • 9,260 Posts
    • 6,075 Thanks
    kidmugsy
    Just when do i go for it.
    Originally posted by cambb
    Oh, before the market crash in May.

    But seriously, that really is for you to guess.
    • Linton
    • By Linton 13th Mar 17, 3:53 PM
    • 7,632 Posts
    • 7,398 Thanks
    Linton
    Yes i have a wife, 2 children and no health issues. The main reason is my father is terminally ill @ 74 and I think if i was in his position my wife would only get half of the pension as it stands. I have worked out i need to live to 93 for the DB to "break even" and by that time what use would the money be? I would rather have the tax free amount in my 55 and enjoy it. Say the 521K + 200K by the time i retire invested would be able to support us through retirement. Forgot to mention that my wife also has a DB pension that would provide approx 400 a month when she retires.
    Originally posted by cambb
    How did you work out 93? You would need to assume an average investment return and an average inflation rate to do the calculations - what value did you use? Even if the figure is right, from the ONS life tables, assuming you live until 65 and are of average health, the chances of you living past 93 are about 40%. As to what use would the income be - decent care doesnt come cheap.
    • cambb
    • By cambb 13th Mar 17, 4:12 PM
    • 165 Posts
    • 4 Thanks
    cambb
    How did you work out 93? You would need to assume an average investment return and an average inflation rate to do the calculations - what value did you use? Even if the figure is right, from the ONS life tables, assuming you live until 65 and are of average health, the chances of you living past 93 are about 40%. As to what use would the income be - decent care doesnt come cheap.
    Originally posted by Linton
    I used the 522k / 19000 pension. i know very finger in the air and i didn't factor in inflation. But what would the 19,000 be worth at 3% increase a year? I cant find a calc online to work this out without doing it myself year on year.
    • cambb
    • By cambb 13th Mar 17, 4:16 PM
    • 165 Posts
    • 4 Thanks
    cambb
    Oh, before the market crash in May.

    But seriously, that really is for you to guess.
    Originally posted by kidmugsy
    So what makes the figure go up and go down? So i can do some research on it before committing.

    Thanks again
    • kidmugsy
    • By kidmugsy 13th Mar 17, 4:37 PM
    • 9,260 Posts
    • 6,075 Thanks
    kidmugsy
    So what makes the figure go up and go down? So i can do some research on it before committing.
    Originally posted by cambb
    The policy of the pension trustees presumably is a major part of it; your age and salary, and interest rates.

    Beyond those you'd need to ask an expert. Start a new thread to attract 'pensiontech', perhaps?
    • sandsy
    • By sandsy 13th Mar 17, 5:19 PM
    • 1,086 Posts
    • 620 Thanks
    sandsy
    So what makes the figure go up and go down? So i can do some research on it before committing.

    Thanks again
    Originally posted by cambb
    A key factor is expected yields on assets that the scheme holds and expects to hold going forward. The less trustees think they can earn on those assets, the more money that will be needed now to pay out the DB benefits. Conversely, the more trustees think they can earn on those assets, the less money they'll need now to pay out the benefits.

    Yields are currently low and expected to remain that way so trustees think they need high amounts to pay out benefits - and you're entitled to a transfer value that represents their best estimate of that amount for you.

    So if yields start rising substantially, TVs will come down. In particular, DB schemes invest a substantial proportion of the assets for paying benefits in gilts and other income producing stocks. So gilt yields are particularly the yields to watch.
    • cambb
    • By cambb 13th Mar 17, 5:56 PM
    • 165 Posts
    • 4 Thanks
    cambb
    A key factor is expected yields on assets that the scheme holds and expects to hold going forward. The less trustees think they can earn on those assets, the more money that will be needed now to pay out the DB benefits. Conversely, the more trustees think they can earn on those assets, the less money they'll need now to pay out the benefits.

    Yields are currently low and expected to remain that way so trustees think they need high amounts to pay out benefits - and you're entitled to a transfer value that represents their best estimate of that amount for you.

    So if yields start rising substantially, TVs will come down. In particular, DB schemes invest a substantial proportion of the assets for paying benefits in gilts and other income producing stocks. So gilt yields are particularly the yields to watch.
    Originally posted by sandsy
    Thanks for the information
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