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  • FIRST POST
    • Bee Rummie
    • By Bee Rummie 16th Jul 17, 2:49 PM
    • 6Posts
    • 4Thanks
    Bee Rummie
    Transferring a DB Final Salary to a personal pension
    • #1
    • 16th Jul 17, 2:49 PM
    Transferring a DB Final Salary to a personal pension 16th Jul 17 at 2:49 PM
    Hi. I am 52 and have a deferred DB scheme. I have forecast scheme pensions of C. £19K & £20K from ages 55 and 56 if I don't take the tax free lump sum.
    I have had an updated CETV of £850K which is up c.£200K from the last CETV from approx 18 months ago. I understand that this is due to movement in 15 year Gilt rates.
    I am considering switching to a Standard Life growth fund now then going into drawdown at 55. My reasons for switching would be the fund available to my spouse on death, a higher potential pension at 55 i.e. 3% of £850K = £24Kish pa.
    The reasons for not switching would be loss of indexing at CPI on scheme pension and vagaries of market corrections. My biggest worry is switching at the wrong time re markets.
    I know I have to get this signed off advice wise but wondered what people's views are on this i.e. would you switch or would you take the guaranteed scheme pension at age 55?
    Thoughts welcomed!
Page 1
    • JoeCrystal
    • By JoeCrystal 16th Jul 17, 3:22 PM
    • 1,239 Posts
    • 697 Thanks
    JoeCrystal
    • #2
    • 16th Jul 17, 3:22 PM
    • #2
    • 16th Jul 17, 3:22 PM
    If you are that worried about such things with risk of having it in DC pension scheme, then you should be more than happy to have a great pension at £19,000 per year at age of 55 and onward. No need to worry about market crash at all, no need to worry about switching. Let the scheme worry about that issues on your behalf.
    Last edited by JoeCrystal; 16-07-2017 at 3:27 PM.
    • dunstonh
    • By dunstonh 16th Jul 17, 4:04 PM
    • 88,794 Posts
    • 54,144 Thanks
    dunstonh
    • #3
    • 16th Jul 17, 4:04 PM
    • #3
    • 16th Jul 17, 4:04 PM
    My biggest worry is switching at the wrong time re markets.
    It doesnt matter. It will happen at some point and with your timescale, it will happen a good number of times. Including quite a few very large loss periods. Timing has little to do with it over the long term.

    You need to be able to accept the volatility and accept that you may be required to change your income level.

    would you switch or would you take the guaranteed scheme pension at age 55?
    I certainly wouldnt switch £850k into the Std Life growth fund.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • ianthy
    • By ianthy 16th Jul 17, 5:28 PM
    • 76 Posts
    • 37 Thanks
    ianthy
    • #4
    • 16th Jul 17, 5:28 PM
    • #4
    • 16th Jul 17, 5:28 PM
    I am about to complete my transfer my fund is slightly higher at £937k. The advice from dunstonh is spot on. if you are going to move from the security of a DB pension, then you need to be comfortable with either much lower returns or higher returns and more volatility. I am sure you have already done so, but review what other investments you have should the markets perform badly for a period and you decide not to drawdown for 2-3 years or so.


    My decision to switch was based on the fact that I have other investments, OH has a DB pension, the need for greater flexibility in how I take my pension and while I am not a season/adventurous investor I can accept the volatility of the markets.


    Maybe take some independent financial advice and involve your OH, keep reading and posting on this forum. I have found the advice incredibly helpful .
    • davieg11
    • By davieg11 16th Jul 17, 6:39 PM
    • 232 Posts
    • 104 Thanks
    davieg11
    • #5
    • 16th Jul 17, 6:39 PM
    • #5
    • 16th Jul 17, 6:39 PM
    It's much safer to keep the security of db pension but you could withdraw £100k to leave £750k and drawdown 3% at £22k from that and take £20k per year from the 100k when the market crashes to give it time to recover. This gives you 5 years of security in downtowns.
    • k6chris
    • By k6chris 16th Jul 17, 7:06 PM
    • 102 Posts
    • 133 Thanks
    k6chris
    • #6
    • 16th Jul 17, 7:06 PM
    • #6
    • 16th Jul 17, 7:06 PM
    From the 2007 highs, the S&P 500 (only one index I agree) dropped about 58%, which to use you numbers, would see your £850k worth £360k. It took 4 years to recover, and yes, since then has gone up by another 56%. If you could sleep through that, then consider a transfer...I'm sticking to my DB
    EatingSoup
    • Bee Rummie
    • By Bee Rummie 16th Jul 17, 7:22 PM
    • 6 Posts
    • 4 Thanks
    Bee Rummie
    • #7
    • 16th Jul 17, 7:22 PM
    • #7
    • 16th Jul 17, 7:22 PM
    Thanks for the replies and food for thought. I have stress tested the idea of switching into a DC fund. The markets took around 12 months to recover in 1987 and 2008. The crash from the 1920s is a completely different animal. So if the fund moved down in value from £850K to, say, £600K (30% drop in value) then that would still pay c. £18K pa gross pension. You would expect it to recover losses over 1 - 2 years and achieve long term grow of c.5%. I have approx £100K in savings which I could use to stay out of the market for a while.

    The biggest attraction is a tax free lump sum that can be left to family and the potential of a higher annual pension. I guess the reason I am procrastinating (been looking at this for weeks now) is the fact that I am within 2 years of being able to access my pension and when you are so close, you then look at timing in more detail. I am still working so don't have to reach a final decision and the CETV can be updated again later on. Lots to consider....

    [The Standard Life Growth Fund is a personal pension fund and the Factsheet makes past performance a good read]
    • Bee Rummie
    • By Bee Rummie 16th Jul 17, 7:24 PM
    • 6 Posts
    • 4 Thanks
    Bee Rummie
    • #8
    • 16th Jul 17, 7:24 PM
    • #8
    • 16th Jul 17, 7:24 PM
    From the 2007 highs, the S&P 500 (only one index I agree) dropped about 58%, which to use you numbers, would see your £850k worth £360k. It took 4 years to recover, and yes, since then has gone up by another 56%. If you could sleep through that, then consider a transfer...I'm sticking to my DB
    Originally posted by k6chris
    Wow - did it really take 4 years? I read it was 12 months or so...
    • bigadaj
    • By bigadaj 16th Jul 17, 7:58 PM
    • 9,604 Posts
    • 6,110 Thanks
    bigadaj
    • #9
    • 16th Jul 17, 7:58 PM
    • #9
    • 16th Jul 17, 7:58 PM
    Thanks for the replies and food for thought. I have stress tested the idea of switching into a DC fund. The markets took around 12 months to recover in 1987 and 2008. The crash from the 1920s is a completely different animal. So if the fund moved down in value from £850K to, say, £600K (30% drop in value) then that would still pay c. £18K pa gross pension. You would expect it to recover losses over 1 - 2 years and achieve long term grow of c.5%. I have approx £100K in savings which I could use to stay out of the market for a while.

    The biggest attraction is a tax free lump sum that can be left to family and the potential of a higher annual pension. I guess the reason I am procrastinating (been looking at this for weeks now) is the fact that I am within 2 years of being able to access my pension and when you are so close, you then look at timing in more detail. I am still working so don't have to reach a final decision and the CETV can be updated again later on. Lots to consider....

    [The Standard Life Growth Fund is a personal pension fund and the Factsheet makes past performance a good read]
    Originally posted by Bee Rummie
    I'm not sure if current conditions aren't actually more like teh 1920s. No Great Depression but the road the can is being kicked down appear to be approaching infinity.
    • k6chris
    • By k6chris 16th Jul 17, 7:59 PM
    • 102 Posts
    • 133 Thanks
    k6chris
    Wow - did it really take 4 years? I read it was 12 months or so...
    Originally posted by Bee Rummie
    Actually slightly longer, October 2007 to March 2013, in fact it took until that March to regain from the 2000 highs, so 13 years S&P500 Link

    It's interesting to watch so many people get so complacent about the performance of equities (which is not a dig at any specific poster here, just a general observation). I have watched a large sum of money halve, and I know I don't have the temperament to go through it again!
    EatingSoup
    • davieg11
    • By davieg11 16th Jul 17, 8:15 PM
    • 232 Posts
    • 104 Thanks
    davieg11
    From the 2007 highs, the S&P 500 (only one index I agree) dropped about 58%, which to use you numbers, would see your £850k worth £360k. It took 4 years to recover, and yes, since then has gone up by another 56%. If you could sleep through that, then consider a transfer...I'm sticking to my DB
    Originally posted by k6chris
    Which is why an IFA will recommend a very diversified portfolio.
    • davieg11
    • By davieg11 16th Jul 17, 8:22 PM
    • 232 Posts
    • 104 Thanks
    davieg11
    Actually slightly longer, October 2007 to March 2013, in fact it took until that March to regain from the 2000 highs, so 13 years S&P500 Link

    It's interesting to watch so many people get so complacent about the performance of equities (which is not a dig at any specific poster here, just a general observation). I have watched a large sum of money halve, and I know I don't have the temperament to go through it again!
    Originally posted by k6chris
    Looking back at my old dc pensions, they have more than doubled in the last 20 years, without any further contributions and through the major crashes. Doesn't mean the next 20 years will be the same but here's hoping!
    • dunstonh
    • By dunstonh 16th Jul 17, 8:27 PM
    • 88,794 Posts
    • 54,144 Thanks
    dunstonh
    [The Standard Life Growth Fund is a personal pension fund and the Factsheet makes past performance a good read]
    It is 100% global equities. The typical UK investor is cautious. You dont seem to give an impression of being someone who has invested before, let alone nearly £1million. That fund is about 9/10 on a 1-10 scale. Your words dont appear to match someone who is a 9/10 risk investor.

    How would you feel if you statement in April said £850k but in September it said £425,000?

    You mention recovery. Yes, you would expect it to recover but you now have £425k. To get back to £850k you would need 100% growth.But you are still drawing £19k a year. That is 4.5%. So, not all of the return is going to go back on the value.

    The Std Life growth fund is not at all how you would expect a drawdown investor to be invested. Neither the investment style of the risk profile seems to fit the objective, knowledge and understanding.

    This is not to say I wouldn't do drawdown. However, in your position, I wouldn't be jumping gung ho up the risk scale and putting it all on a mediocre fund (it has underperformed sector from launch too and been a consistent quartile 3 fund). I would personally use a structured portfolio appropriate for knowledge, understanding, risk profile, objective and capacity for loss. Why take unnecessary risk and why invest so badly when you dont need to.
    Last edited by dunstonh; 16-07-2017 at 10:19 PM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
  • jamesd
    Have a read of Drawdown: safe withdrawal rates and in particular the examples of Guyton-Klinger method calculations and Guyton's sequence of return risk reduction method that greatly reduces the effect of market drops.

    Just using those things could almost double the initial potential income. Higher still once you add in the effect of the state pension and perhaps also the effect of people normally spending less as they get older. In exchange you accept not having inflation increases during moderate bad years and larger drops if there is a long sequence of poor results. But just average results would lead to an increase instead. You can constrain how low to go, trading that off against a lower initial income.

    If you want you can also constrain the downside risk by spending say £20k a year to buy a level - no inflation increase - annuity. The regular buying to reduce the effect of any period of sustained high inflation by buying after it. At age 55 that would buy about £800 a year of ongoing income with each purchase. For inflation-linked income state pension deferral is an excellent deal for those in normal good health.

    Also look into secured peer to peer lending from places like Ablrate and MoneyThing. I expect about 10% a year after allowing two percent for bad debt after sale of security. With £212k of tax free lump sum that's £21k a year of interest income and you will probably get more than that.
    Last edited by jamesd; 16-07-2017 at 9:31 PM.
    • bostonerimus
    • By bostonerimus 16th Jul 17, 11:46 PM
    • 642 Posts
    • 339 Thanks
    bostonerimus
    Your cash value is very large compared to the annual pension income
    Misanthrope in search of similar for mutual loathing
    • sandsy
    • By sandsy 17th Jul 17, 11:21 AM
    • 1,150 Posts
    • 666 Thanks
    sandsy
    Your cash value is very large compared to the annual pension income
    Originally posted by bostonerimus
    Alternatively, it could be considered normal, given the current level of gilt yields.
    • Cygnus Alpha
    • By Cygnus Alpha 17th Jul 17, 6:11 PM
    • 184 Posts
    • 302 Thanks
    Cygnus Alpha
    Don't forget, your indexed linked final salary pension will usually pay 50% or 67% of the pension to your spouse if you die.

    Worth throwing that in to your reckoning.
  • jamesd
    That's often a good supporting argument for transferring, which pays a 100% spousal pension instead. Not constrained just to a spouse, either. It can be paid or divided to anyone, whether they meet the definition of spouse or not. Cohabiting, say, no problem at all.
    Last edited by jamesd; 17-07-2017 at 11:06 PM.
    • dunstonh
    • By dunstonh 18th Jul 17, 9:35 AM
    • 88,794 Posts
    • 54,144 Thanks
    dunstonh
    That's often a good supporting argument for transferring, which pays a 100% spousal pension instead. Not constrained just to a spouse, either. It can be paid or divided to anyone, whether they meet the definition of spouse or not. Cohabiting, say, no problem at all.
    Originally posted by jamesd
    Although it is more typically used for deferred members. Not active members still building up entitlement.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
  • jamesd
    With £100k of savings and the income involved I assume immediate retirement since that's possible and it makes them a deferred member.

    But there's still the question of when to do a transfer. Fifteen year gilt rates seem most likely to rise and decrease the transfer value, with increasing age doing the opposite. Assuming the US stock markets are in the top decile of their ten year cyclically adjusted price/earnings ratio that's correlated with about a 25% a year chance of a large drop. Meanwhile Guyton's sequence of return risk mitigation approach reduces the effect of a drop on safe withdrawal rates using bonds and non-US markets can be used.

    My guess is that at the moment it's most likely to be beneficial not to transfer yet, in the hope that there's a major equity correction between now and transferring, which leaving the money in the DB scheme would probably provide around 100% protection for. Maybe initiate the transfer just after a big drop or say a year before the savings would be exhausted. A probabilities game rather than certainty. Since fifteen year investment returns are well inversely correlated with PE10 this seems to increase the chance of transferring at a low PE10 and increased returns expectation. And if no drop has happened, cash and bonds could be used for a while.
    Last edited by jamesd; 18-07-2017 at 12:47 PM.
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