transfer db to dc

Zelazny

Graham001 wrote: »

yeah sorry about that, i thought you meant the seasonaly adjusted figures according to the johnson sliding scale then applying the quantum measures. But the reality is if i were to invest the same sum it could achieve 4-6% net, now you can give it whatever fancy name you like but that is a better return year on year than my pension currently

I doubt that it is, actually. Consider a deferred pension of £25,000 for a member who is currently 55 years old. Most schemes have an early retirement penalty of around 5% per year, so to take it 10 years early the member would be looking at a benefit of around £12,500 for life. The deferred pension would grow at least in line with CPI (possibly more, depending on scheme rules).

Assuming CPI of 2.5% and 5% reduction per year, the benefits grow as follows:

at 55: 12,500
at 56: 14,093
at 57: 15,759
at 58: 17,499
at 59: 19,316
at 60: 21,213
at 61: 23,193
at 62: 25,259
at 63: 27,414
at 64: 29,660
at 65: 32,002

The value of the benefits at each age can be approximated by looking at the figures for a single life, RPI, 5 year guarantee annuity from http://www.ft.com/personal-finance/annuity-table (most company pensions are actually joint life, but that may not be relevant here). I'm also interpolating linearly to get the values between the figures given. This gives a pension value as follows:

£508,543
£552,782
£596,674
£640,349
£683,923
£727,500
£763,056
£798,544
£834,065
£869,707
£905,549

These increase by more than 6% per year until the member is at least 61.

Now, the other thing to consider is that a CETV will likely be 30% or so below the amount required to purchase a similar annuity. So we would expect a CETV at 55 to be in the region of £360,000. If this grew at a steady 6% per year, it would be worth ~£638,000 at 65, which is 29.6% less than the pension would be worth when the member reached 65. Not such a good deal...

BobQ

kidmugsy wrote: »

You have missed the point. With the rules suitably written, you'd get chumps giving up their extravagant DB benefits just so that the could pocket less loot, but sooner. A win for the taxpayer, there.

It might work but not only does a transfer involve paying the CETV to the new provider it also means (for those still working) that the income from their now higher pension contributions is lost and so the taxpayer needs to make up the difference to maintain the benefits for the current and future pensioners.

sandsy

Graham001 wrote: »

In the region of 4-6% which is better than the yield of my pension.

And how was that calculated?
It's a tricky calculation at the best of times! Especially where you have different components of GMP, non-GMP etc.