I finally understand......I think

PaddyLondon

Recently I was bent on transferring a DB pot to a SIPP, and taking my chances on growing it to outperform leaving it where it is. I had half a mind to the worry the Government might ban transfers, thus removing the opportunity to change a promise of future income, for an asset that could potentially be passed onto dependants etc

I also considered taking a pension early (I'm 54) to get the lump sum and grow it, and starting modelling when the cut over date between (a) leaving it till 60 becomes more valuable than (b) taking it early would occur (with tax assumptions, present value calculation etc.

Then I understood.....

Every year I wait, the actuarial impact of waiting is an 5% increase in benefits, thus Transfer value (I'm approximating - the actuarial reduction for me to take at 54 instead of 60 is around 25%). The DBs are index linked. So assuming inflation at 2.5-3%, that is a "guaranteed" 7.5-8% pa growth in value of the DB. So for my cunning plan to be work, I'd need to outperform this level of growth over six years. So if you took long term equity investment (eg in a S&P tracker) at 10% - you would be taking a lot of volatility risk for a 2.5% average annual growth premium, relative to leaving the "funds" in a DB scheme.

Have I go it? Or is there a wrinkle that means there is a rationale for my original intention?

Lokolo

I think you would be very silly to even attempt it. There's a reason why private sector had to stop their DB schemes, they couldn't get the returns to keep up with what they were offering.

Your_Hero

You've got it. Leave it where it is.