Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • Wobblydeb
    • By Wobblydeb 8th Sep 17, 1:18 PM
    • 893Posts
    • 1,396Thanks
    Wobblydeb
    Just wondering whether my defined benefits are worthwhile?
    • #1
    • 8th Sep 17, 1:18 PM
    Just wondering whether my defined benefits are worthwhile? 8th Sep 17 at 1:18 PM
    I've got 3 defined benefit schemes of which I am a deferred member. In current money they would pay out £2.8k, £2k and £3.5k per annum. I've also been investing in a SIPP for several years.

    I've always stuck with the advice to NOT transfer these defined benefit pensions, but I am rather frustrated as they increase at a rate below what my SIPP is earning. Typically CPI or LPI (Limited Price Indexation) which was 0.0% last year!! Whereas my SIPP has accrued at an average of 7.6% per annum.

    All the advice says "don't transfer" as you lose valuable benefits, but what are they? A pension for my spouse or child? My partner has his own pension arrangements, and I could leave 100% of the SIPP to my son.

    Should I just leave things as they stand, or is it worth getting advice? The sums are not huge, so I don't want to spend a lot of money on advice - especially when I could start researching this myself.
    I've got a plan so cunning you could put a tail on it and call it a weasel.
Page 1
    • molerat
    • By molerat 8th Sep 17, 1:54 PM
    • 17,325 Posts
    • 11,517 Thanks
    molerat
    • #2
    • 8th Sep 17, 1:54 PM
    • #2
    • 8th Sep 17, 1:54 PM
    Those figures would likely put the transfer values of each of them above the level where you must have advice before transferring so the cost needs factoring in. The advantage of keeping the DB schemes is that there is no risk - low return low risk, high return high risk - there is always the chance that the SIPP could go down. The main family benefits of DB pensions are usually whilst still working for the co, big payout + dependents pension.
    www.helpforheroes.org.uk/donations.html
    • Silvertabby
    • By Silvertabby 8th Sep 17, 2:26 PM
    • 1,790 Posts
    • 2,202 Thanks
    Silvertabby
    • #3
    • 8th Sep 17, 2:26 PM
    • #3
    • 8th Sep 17, 2:26 PM
    Ditto molerat.

    All 3 of these pensions are over the notional value of £30K (20 x pension). If they are held with 3 different providers, they may have different levels of protection - so your financial advisor will have to look at each scheme individually. That will rack up the cost.

    Note: the 20 x notional value is not necessarily the transfer value - you would have to ask your pension providers for that if you really do want to look into this further.
    • Wobblydeb
    • By Wobblydeb 8th Sep 17, 2:52 PM
    • 893 Posts
    • 1,396 Thanks
    Wobblydeb
    • #4
    • 8th Sep 17, 2:52 PM
    • #4
    • 8th Sep 17, 2:52 PM
    Yup, they are 3 different schemes / providers, and I am guessing total transfer value around £200k. e.g. I currently have a transfer quote of £73k for the £2.8k income.

    I appreciate that the SIPP may go down, which is one of the reasons I didn't touch them when I opened it and was just starting out with investing. It is definitely the biggest risk of the transfer.

    Perhaps a good halfway house would be a renegotiation of the benefits. I cannot be the only one who does not need to pass on pension to their spouse?
    I've got a plan so cunning you could put a tail on it and call it a weasel.
    • Dazed and confused
    • By Dazed and confused 8th Sep 17, 3:29 PM
    • 1,861 Posts
    • 829 Thanks
    Dazed and confused
    • #5
    • 8th Sep 17, 3:29 PM
    • #5
    • 8th Sep 17, 3:29 PM
    Or you could take a look at the additional benefits for each DB scheme, see which is best for your circumstances and then consider transferring the least favourable for you/your dependants to a SIPP.

    Not quite 50:50 but you could say end up with 3.5k DB and 4.8k converted to a SIPP. Or whatever combination suits you.
    • FatherAbraham
    • By FatherAbraham 8th Sep 17, 5:01 PM
    • 737 Posts
    • 561 Thanks
    FatherAbraham
    • #6
    • 8th Sep 17, 5:01 PM
    • #6
    • 8th Sep 17, 5:01 PM
    I've got 3 defined benefit schemes of which I am a deferred member. In current money they would pay out £2.8k, £2k and £3.5k per annum. I've also been investing in a SIPP for several years.

    I've always stuck with the advice to NOT transfer these defined benefit pensions, but I am rather frustrated as they increase at a rate below what my SIPP is earning. Typically CPI or LPI (Limited Price Indexation) which was 0.0% last year!! Whereas my SIPP has accrued at an average of 7.6% per annum.

    All the advice says "don't transfer" as you lose valuable benefits, but what are they? A pension for my spouse or child? My partner has his own pension arrangements, and I could leave 100% of the SIPP to my son.

    Should I just leave things as they stand, or is it worth getting advice? The sums are not huge, so I don't want to spend a lot of money on advice - especially when I could start researching this myself.
    Originally posted by Wobblydeb
    Your SIPP is more volatile than the defined-benefit schemes. Your defined-benefit schemes won't lose value. Someone else (the scheme sponsor) is taking all the risk on a DB scheme, not you, which is a valuable benefit (look at what an annuity costs to get an inkling of the value of someone else bearing that risk for you).

    Your "partner"? So you're not married? That can be highly significant for DB schemes. An unmarried partner might not get any survivor benefits.

    It is almost impossible to get any new defined-benefit pension membership in the private sector, which should give you an idea of how expensive and financial dangerous it is to provide a pension for somebody else. In your SIPP, you take on those costs.

    It may be beneficial to have a mixture of defined-benefit and defined-contribution schemes in your pension provision.

    If it isn't broken, why try to fix it?

    Warmest regards,
    FA
    • AlanP
    • By AlanP 8th Sep 17, 5:31 PM
    • 956 Posts
    • 674 Thanks
    AlanP
    • #7
    • 8th Sep 17, 5:31 PM
    • #7
    • 8th Sep 17, 5:31 PM
    So, in today's money £8.3k per year (inflation linked probably) for LIFE.

    That's before they continue to increase whilst still deferred.
    • JoeCrystal
    • By JoeCrystal 8th Sep 17, 7:24 PM
    • 1,292 Posts
    • 755 Thanks
    JoeCrystal
    • #8
    • 8th Sep 17, 7:24 PM
    • #8
    • 8th Sep 17, 7:24 PM
    The sums are not huge,
    Originally posted by Wobblydeb
    Especially when combined, it is similar to what the maximum new state pension is. So it is rather huge sum in many respects. It is still very worth having, especially when fewer people have access to such scheme. If your pension schemes collapsed, no worries, Pension Protection Fund will pay out instead. No such remedies are available for DC pension scheme which may suffer a major market crash potentially delaying the retirement.
    • OldBeanz
    • By OldBeanz 8th Sep 17, 8:39 PM
    • 693 Posts
    • 534 Thanks
    OldBeanz
    • #9
    • 8th Sep 17, 8:39 PM
    • #9
    • 8th Sep 17, 8:39 PM
    Starting from the wrong end. Work out how much you need. Bird in the hand as far as DB pensions are concerned for most. £16.5k guaranteed income plus partner support suggests you can take more risks (and rewards) with your SIPP.
    • sandsy
    • By sandsy 9th Sep 17, 3:53 PM
    • 1,216 Posts
    • 712 Thanks
    sandsy
    You're not comparing like with like.

    With a SIPP, the value of the pot increases (or decreases) with investment returns.

    With a DB pension, the annual income which is payable for life increases annually with an inflation index. So the increase applies to the starting level of income which could be paid for 30 or 40 years, depending on how long you live, and will itself increase each year once it starts being paid.
    • cloud_dog
    • By cloud_dog 9th Sep 17, 4:22 PM
    • 3,254 Posts
    • 1,815 Thanks
    cloud_dog
    Depending on age, amount in the SIPP, amount likely to be in the SIPP come the time you draw on it I would be tempted keep the DB pensions (despite the potential large transfer value), and to think of the DB pensions as 'Risk Management' offsetting the increased risk via the SIPP.

    It almost seems like an ideal situation.
    Personal Responsibility - Sad but True

    Sometimes.... I am like a dog with a bone
    • ewaste
    • By ewaste 9th Sep 17, 4:41 PM
    • 44 Posts
    • 32 Thanks
    ewaste
    It also depends on when you can take those defined benefits, they may have protected lower pension ages than the state pension which would be worthwhile if you want to retire earlier than you state pension age. Furthermore what exactly is the index linking on each deferred scheme, you mention some have CPI indexing while others have other indexing. This will certainly influence the decision on whether to keep a pot or take the CETV especially if you've got a while until you plan to retire.
    • bostonerimus
    • By bostonerimus 9th Sep 17, 5:06 PM
    • 1,118 Posts
    • 628 Thanks
    bostonerimus
    Diversification is a good thing. Those DB benefits are guaranteed and add nice diversification to your finances. Think of them as your fixed income so you can take on more risk in your SIPP and ISA. In retirement you'll have state pension, DB benefits and ISA and SIPP withdrawals which should give you a firm foundation and lots of freedom.
    Misanthrope in search of similar for mutual loathing
    • atush
    • By atush 10th Sep 17, 11:12 AM
    • 16,333 Posts
    • 10,081 Thanks
    atush
    I've got 3 defined benefit schemes of which I am a deferred member. In current money they would pay out £2.8k, £2k and £3.5k per annum. I've also been investing in a SIPP for several years.

    I've always stuck with the advice to NOT transfer these defined benefit pensions, but I am rather frustrated as they increase at a rate below what my SIPP is earning. Typically CPI or LPI (Limited Price Indexation) which was 0.0% last year!! Whereas my SIPP has accrued at an average of 7.6% per annum.

    All the advice says "don't transfer" as you lose valuable benefits, but what are they? A pension for my spouse or child? My partner has his own pension arrangements, and I could leave 100% of the SIPP to my son.

    Should I just leave things as they stand, or is it worth getting advice? The sums are not huge, so I don't want to spend a lot of money on advice - especially when I could start researching this myself.
    Originally posted by Wobblydeb
    You must not have had your sipp for very long. Pensions can be up 20% one year, down 7% the next. So it is the average over twn years or more that you need to think about.

    Then there are other thigns to consider, like they hold 0 risk for you. Which can allow you to engage in more risk in your sipp as you have those guaranteed index linked benefits banked.

    If you have a younger wife, and children, they also hold survivors benefits.
    • xylophone
    • By xylophone 10th Sep 17, 12:38 PM
    • 23,419 Posts
    • 13,611 Thanks
    xylophone
    You speak of a "partner" - (spouse/other?) - you are the beneficiary of his pension should he predecease you?

    You mention a son - not your partner's child?

    What do your deferred schemes have to say about death benefits /nominated beneficiaries etc?

    What are your current pension arrangements - just the SIPP?
    • Wobblydeb
    • By Wobblydeb 11th Sep 17, 4:30 PM
    • 893 Posts
    • 1,396 Thanks
    Wobblydeb
    It also depends on when you can take those defined benefits, they may have protected lower pension ages than the state pension which would be worthwhile if you want to retire earlier than you state pension age. Furthermore what exactly is the index linking on each deferred scheme, you mention some have CPI indexing while others have other indexing. This will certainly influence the decision on whether to keep a pot or take the CETV especially if you've got a while until you plan to retire.
    Originally posted by ewaste
    But the DB schemes would transfer to SIPP so (at present) can be taken earlier than state pension. They might increase it, but at present that is 55 isn't it?

    The best kicks in aged 60. That's 17 years away, and is RPI. I guess that's worth keeping, although the provider nearly went under during the financial crisis

    The other two kick in aged 65 (22 years away) and are LPI (Limited Price Indexation) which is a capped CPI. I don't know about you, but the inflation I experience is closer to RPI. These annuities are not keeping pace with inflation.....

    You must not have had your sipp for very long. Pensions can be up 20% one year, down 7% the next. So it is the average over twn years or more that you need to think about.

    Then there are other thigns to consider, like they hold 0 risk for you. Which can allow you to engage in more risk in your sipp as you have those guaranteed index linked benefits banked.

    If you have a younger wife, and children, they also hold survivors benefits.
    Originally posted by atush
    I have had my SIPP for 7 years, and yes, it has been up and down in that time! The 7.6% is compound annualised return over that 7 years, a large portion of which has come from the recent bull market.

    I have a partner the same age, and they have their own pension provision. Either of us should be comfortably off surviving on our own pension. By my rough calculations, my son would be better off inheriting a £200k SIPP than a promise of 20% of pension until he finished education. In fact, if I dropped down dead tomorrow he would receive about £30k from the DB benefits. If I had transferred them to a SIPP he would get £200k.

    You speak of a "partner" - (spouse/other?) - you are the beneficiary of his pension should he predecease you?

    You mention a son - not your partner's child?

    What do your deferred schemes have to say about death benefits /nominated beneficiaries etc?

    What are your current pension arrangements - just the SIPP?
    Originally posted by xylophone
    Yes, my partner has nominated me as beneficiary on his pension. Again, I don't think I would need the additional income in retirement and if he dies before then, there is life insurance through our employers.

    Son = me and my partner's child.

    Checking one scheme, 50% pension to surviving nominated partner, and 20% to son until finishing full time education.

    Current pension arrangements in decreasing order of annuity: Government / SIPP / 3 x DB schemes
    I've got a plan so cunning you could put a tail on it and call it a weasel.
    • Wobblydeb
    • By Wobblydeb 11th Sep 17, 4:36 PM
    • 893 Posts
    • 1,396 Thanks
    Wobblydeb
    Thank you so much for the replies, it is really appreciated.

    The low risk nature of DB schemes stands out as being the key benefit I don't want to give up. Perhaps lower growth and low value in inheritance are worth that risk? If I want to take them early, I am sure there will be some flexibility at that point in time. My SIPP will also be a more known value by then.

    Lots to chew over, but nothing I need to rush into.
    I've got a plan so cunning you could put a tail on it and call it a weasel.
    • atush
    • By atush 12th Sep 17, 1:43 PM
    • 16,333 Posts
    • 10,081 Thanks
    atush
    But the DB schemes would transfer to SIPP so (at present) can be taken earlier than state pension. They might increase it, but at present that is 55 isn't it?

    The best kicks in aged 60. That's 17 years away, and is RPI. I guess that's worth keeping, although the provider nearly went under during the financial crisis

    The other two kick in aged 65 (22 years away) and are LPI (Limited Price Indexation) which is a capped CPI. I don't know about you, but the inflation I experience is closer to RPI. These annuities are not keeping pace with inflation.....

    I have had my SIPP for 7 years, and yes, it has been up and down in that time! The 7.6% is compound annualised return over that 7 years, a large portion of which has come from the recent bull market.

    I have a partner the same age, and they have their own pension provision. Either of us should be comfortably off surviving on our own pension. By my rough calculations, my son would be better off inheriting a £200k SIPP than a promise of 20% of pension until he finished education. In fact, if I dropped down dead tomorrow he would receive about £30k from the DB benefits. If I had transferred them to a SIPP he would get £200k.

    Yes, my partner has nominated me as beneficiary on his pension. Again, I don't think I would need the additional income in retirement and if he dies before then, there is life insurance through our employers.

    Son = me and my partner's child.

    Checking one scheme, 50% pension to surviving nominated partner, and 20% to son until finishing full time education.

    Current pension arrangements in decreasing order of annuity: Government / SIPP / 3 x DB schemes
    Originally posted by Wobblydeb

    OK, sounds like you are working it out from all angles. Just be aware that you cant assume your 7% plus going forwards. As you havent been thru a major downturn.
    • somethingcorporate
    • By somethingcorporate 12th Sep 17, 4:13 PM
    • 8,839 Posts
    • 8,533 Thanks
    somethingcorporate
    If we went through a major crash tomorrow which wiped out your entire SIPP gains you wouldn't even consider this option.

    7 years in your sipp is simply not long enough to see many ups and downs to see why the security of DBs are worth their weight.

    I agree with the others, you are hedging your bets and if I were you would continue to do so - which also allows you to be bolder in your risks in the SIPP.
    Thinking critically since 1996....
    • CBX1985
    • By CBX1985 13th Sep 17, 11:00 AM
    • 13 Posts
    • 10 Thanks
    CBX1985
    The low risk nature of DB schemes stands out as being the key benefit I don't want to give up.
    As an IFA myself, once you state these words you really should keep your money in your DB pension.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

582Posts Today

4,735Users online

Martin's Twitter