transfer out of DB scheme

steamroller

Hi, I know this subject has been discussed a lot and provokes a lot of varying opinions but I would genuinely value any advice please. I am 52, my partner is 51 and our son is 14. We have several pensions between us but one of mine is a deferred DB scheme from a previous employer which is estimated to pay me £7400 per annum when I am 60, but has a current transfer value of £147,000. My family pay more than £6000 pa in rent and I am considering transferring to a DC scheme so that I can take advantage of the new rules and withdraw the whole amount after I am 55 to buy a home for my family. Tlhis would seem like the most beneficial thing to do for us because I would have to live for a lot of years for the £7400 to amount to more than the £147,000 (of which I know 75% is subject to tax), I don't have a spouse who would benefit from the pension if I died first and I would be able to buy a family home with the money thereby saving £6000+ per year and it would be an inheritance for my son when I die. Can I have your constructive and very gratefully received advice please?

atush

You would have a spouse if you married your partner? Also you have a dependant who would receive an income.

if you got a pot of 147K from this pension (and 147K would NOT buy that indexed linked pension again) 36.75K would be tax free. Over 110K would then be taxable income, depending on this year's income, some would be taxed at basic rate, but even more would be taxed at 40%, some even at 45% perhaps. A huge waste of your pension money and a stupendously bad idea.

If this is your only pension, what would you retire on? Would your work forever? What type of pension does your partner have?

Even if allowed (and I can't see an IFA who would sign off on it) it would be a bonkers idea.

What have you been doing with your income for the last 30+ years? Have you no other savings and investments you could use for a house deposit?

xylophone

If this is your only pension, what would you retire on?

It isn't.

We have several pensions between us but one of mine is a deferred DB scheme from a previous employer which is estimated to pay me £7400 per annum

The OP would need to get an IFA sign off, but the advantage of this is that the IFA would be able to consider the OP's situation in the round.

The OP would need to consider the situation for her child if she died before her pension came into payment - she might also want to consider her expression of wishes. http://www.hmrc.gov.uk/pensionschemes/death.htm

She would also need to consider the index linking on the deferred pension.

She should also look into the single tier state pension as she will become eligible after 6 April 2016.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf

If the IFA is prepared to sign off a transfer, it might be as well if it were done sooner rather than later? http://www.professionalpensions.com/professional-pensions/news/2335119/budget-2014-govt-to-ban-public-sector-pension-transfers-to-dc-pots

atush

Quote:
If this is your only pension, what would you retire on?
It isn't.

wasn't entirely clear as the other pensions could be the partner's (and the OP has no legal claim as they aren't married) and if he has a second one, why not use that one instead of the DB indexed one?

atush

I still think this is an unmitigated disaster, to take money out of a DB pension to buy a house with someone you dont want to marry (who would own half the house) and pay up to 45% tax on said pension to do so.

If they have another smaller DC pension or more use that/those instead as there would be less tax to pay? Along with other family savings?

mania112

ok let's look at this:

1) An IFA needing to sign it off: I'm not sure what this means? is Atush saying an IFA has to agree it's a good idea? No, an IFA doesn't. An IFA will happily take the clients fee in exchange for arranging the transfer. The recommendation can be NOT to do it, but still carry out the transaction if the client insists it's what they want to do.

2) Nothing will be paid to your partner: It vary's from scheme to scheme, but more often than not, a cohabiting partner where you share the bills will be accepted as a recipient for a death benefit should you predecease them. You'd need to check with the scheme.

3) £147,000: When you retire, you'd normally have a higher transfer value than you have now. I bring this up because you might prefer to wait before making a decision either way.

4) Tax: Let's say at age 55 your DB scheme now has a transfer value of £160,000 (just to make sums easy, but could be about right). If you transfer it you can take (under current rules) 25% tax free, £40,000. That leaves £120,000 taxable, currently that would mean 40% tax - £72,000 remaining. Can you buy a house for £112,000 where you live?

5) Rent versus Pension: Your rent is £6,000pa and your pension will pay £7,400pa you'll be in profit if you kept the pension and paid rent.

6) Inheritance: This is the one area a DB scheme isn't as attractive as a personal pension. Once you die, if your kids are then grown up and you outlive your partner, there's nothing left. In the same situation with a Personal Pension your kids would get the value remaining in the pension minus a 55% tax charge. Cashing out fully on day one and buying a property has its own drawbacks in as much as you're losing 40% on day one and removing cash from your estate by buying bricks and mortar. If your family don't want (or can't have) your property they're lumbered with selling it and the costs involved.

mania112

...I averaged the tax payable to 40%, but to be 100% accurate:

Basic rate 20% on income of £10,000 to £31,865
Higher rate 40% £31,866 to £150,000
Additional rate 45% Over £150,000

xylophone

An IFA needing to sign it off

Any receiving scheme will almost certainly insist on an IFA sign off and not just any old IFA - http://www.fca.org.uk/firms/financial-services-products/investments/pension-transfers

https://www.moneyadviceservice.org.uk/en/articles/transferring-out-of-a-defined-benefit-pension-scheme

xylophone

someone you dont want to marry (who would own half the house)

Not sure that this would be the case if the parties are unmarried?http://www.lawontheweb.co.uk/Family_Law/Cohabitation

mania112

xylophone wrote: »

Any receiving scheme will almost certainly insist on an IFA sign off and not just any old IFA - http://www.fca.org.uk/firms/financial-services-products/investments/pension-transfers

https://www.moneyadviceservice.org.uk/en/articles/transferring-out-of-a-defined-benefit-pension-scheme

You're also not explaining what you mean by signing it off (and I can't see anything in the links that helps either).

Only IFA's with a certain level of qualification can transact a transfer (I think that's what you're trying to show in the first link) and yes, as per your second link, you should always seek advice.

What i'm saying is an IFA doesn't need to recommend a transfer to make the transfer.

Unfortunately, or not (for the client or an IFA who wants to make a few quid), that's fact. I'm just trying to clear up the hazy term 'sign off'.

steamroller

Thanks for the advice so far, the problem I have is trying to decide whether to transfer or not before the government ban these transfers next April as suggested.