Pension advice. Keeping DB or move to AVC

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
14 replies 4.3K views
Empty_pocketsEmpty_pockets Forumite
1.1K Posts
Hi,

Can any of the finance guys confirm what seems clear cut to me?

Have been in a employers career average scheme for the last 5 years, making contributions every month. In addition when I joined the scheme I bought with me a separate pot from an old pension (circa 5k) which was added as an AVC.

I have now come out of that scheme.
The valuation sits as follows

Deffered benefit
Members total pension at date of leaving £3863pa
Transfer value £43200
Also a mention of post 1997 section 92B at £35400
AVC £7814 (i'm guessing this is the 5K I brought with me).


I have a letter from my new pension provider confirming the total transfer value is 43200 (so thats the 35K plus the 7K AVC)
If I decide to transfer it will go into a system called BRASS and be invested.
Isn't that basically turning that guaranteed £3863 a year into a defined contribution type deal where I don't know what I'll come out with?
Should I stick or twist?

Thanks

Rick, age 34.
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Replies

  • PeacefulWatersPeacefulWaters Forumite
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    I'd rather have a guaranteed indexed £3,863 than £43,200 lump sum.

    What age is the £3,863 payable?

    Does it rise by RPI or CPI between now and then?

    What indexing does it use once in payment?

    What other benefits does it offer (e.g. spouse pension, ill health options etc)?
  • jamesdjamesd Forumite
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    Yes, it appears that BRASS is a defined benefit scheme with uncertain outcome and also an extremely limited range of investments.

    Keeping the defined benefit part is useful diversification and lacks investment risk so I suggest that you keep that as it is. If the AVC can be used to provide the 25% tax free lump sum then keeping it there seems reasonable unless the investment choices for it are poor - I don't know what they are.

    Given the very limited investment choices I'm not keen on the idea of transferring any money into the BRASS scheme and think that if you do want to transfer the existing pot you would be better off transferring to a different place than this. Of the choices the global growth appears most suitable for your age and I like the weighting of the various sectors, with reduced US and quite high emerging markets weightings, but these could change over time.

    Given the apparent lack of any employer matching for BRASS I suggest that if you have any idea how to use a broader range of investments you do not put any money into BRASS but instead pick a different provider that offers more options. You get the income tax relief regardless, basic rate added automatically in a personal pension and you tell HMRC about the amount paid in to get any higher rate relief by an adjustment to your tax code. This is different from the automatic tax relief of BRASS but has the same end result.

    A key advantage for transferring is that you'd get access to the money at the earliest age for pension access, which is currently 55 but likely to be 57 or higher by the time you get there. But I don't think that this is worthwhile since you have plenty of time to build up a new pot that can be used to bridge the time from then until you can take the existing defined benefit pot.
  • edited 29 November 2014 at 9:08AM
    Empty_pocketsEmpty_pockets Forumite
    1.1K Posts
    edited 29 November 2014 at 9:08AM
    Embarrassingly i'm not sure on the answers to most of those questions. It is index linked but I'm not sure which one. I think it was set up for 65.

    My new scheme is also 65 and is a final salary type scheme.

    Incidentally, when setting up the new FS scheme I decided to chuck an extra £100 into AVC/Brass over the normal £250pm pension payment.

    Is Brass not a good place to put my £100pm then? I do have enough in my ISA allowance to put it there instead if thats a better option.
  • LintonLinton Forumite
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    Hi,

    Can any of the finance guys confirm what seems clear cut to me?

    Have been in a employers career average scheme for the last 5 years, making contributions every month. In addition when I joined the scheme I bought with me a separate pot from an old pension (circa 5k) which was added as an AVC.

    I have now come out of that scheme.
    The valuation sits as follows

    Deffered benefit
    Members total pension at date of leaving £3863pa
    Transfer value £43200
    Also a mention of post 1997 section 92B at £35400
    AVC £7814 (i'm guessing this is the 5K I brought with me).


    I have a letter from my new pension provider confirming the total transfer value is 43200 (so thats the 35K plus the 7K AVC)
    If I decide to transfer it will go into a system called BRASS and be invested.
    Isn't that basically turning that guaranteed £3863 a year into a defined contribution type deal where I don't know what I'll come out with?
    Should I stick or twist?

    Thanks

    Rick, age 34.

    Lets do some crude maths...

    To buy an index linked pension now at the age of 65 of £3863 would cost something like £120K. Assuming that annuity rates dont change you want an investment that would change £35K into £120K over 30 years. That works out to be an average 4% annually. But of course the £3863 would be index linked, so we are talking about an average over good and bad times of say 4%+2.5% = 6.5%/year.

    Feeling lucky?

    Why rely on being lucky when you can get there by doing nothing and leaving it where it is?

    Why did you leave the old DB scheme? Seems to me like a seriously bad mistake.

    The link to Brass seems long on sales and short on information, unless I have missed something. Its not clear whether its DB or DC, it talks about employer contribution but doesnt say what it is. Most odd.
  • edited 29 November 2014 at 1:26PM
    Empty_pocketsEmpty_pockets Forumite
    1.1K Posts
    edited 29 November 2014 at 1:26PM
    The old scheme was an employer career average scheme. After 5 years with my employer I get a one off chance to join a supposedly better DB scheme. This is what I have done.

    Thanks for advice of keeping the 3k pa. Thought that would be best but just wanted to check I wasn't missing something.

    With regard to the Brass/AVC (is there a difference?) there is no employer contribution.
    I think some of the guys who have been there 20yrs+ used to get something extra.
    I was advised the only benefit for me was the tax relief.
    I'm just into 40% tax bracket so it seemed worthwhile even without the employer contribution.
  • With regard to what's left in the old scheme I found the book and it says it will be 'revalued each year to provide a measure of protection from inflation'.
    It goes on to say once in payment, it will increase by RPI up to a maximum of 5%.
  • xylophonexylophone Forumite
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    https://www.railwayspensions.co.uk/Resources/Client/PML.RailwayPensions/Templates/PortalHome.aspx?DocID=2726&

    http://www.rmt.org.uk/about/pensions/pensions-news/railways-pension-scheme-brass-avc-proposals/?preview=true

    I don't quite understand what is going on.

    Is the fact that the OP was working for an employer with a Defined Benefits Scheme and is now going to work for a Railway company?

    Or was he working for a Railway company and is now going to work for somebody else?
  • I was on the Network Rail company scheme. I'm now eligible and have taken the opportunity to join the Railway Pension Scheme.
  • xylophonexylophone Forumite
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    You are transferring from one section to another?

    http://www.mynrpension.co.uk/media/1515/RPS-60-NR-Scheme-booklet.pdf
    Section 4 Benefit types.

    Transferring benefits in from outside
    the RPS

    RPS 60 does not accept transfers-in from
    external pension schemes with the exception
    that the NR Section will accept transfers-in
    from the Network Rail Defined Contribution
    Pension Scheme (NRDC) and the Network Rail
    CARE Pension Scheme (CARE). Transfers-in
    from the NRDC and CARE would be invested
    in BRASS only. At retirement you can use
    these funds to provide a cash lump sum (up to
    HMRC limits), or convert to additional pension.


    Did you have the option to leave your pension deferred in the old scheme?
  • RPS 60 is not available to new joiners since 2012. I've just joined RPS 65.

    An example of difference, RPS 60 allowed a early retirement at 50 at 75% Pension. Do the same with RPS 65 do you're down to 40%.

    I was in CARE before. I can transfer £43200 as Brass/AVC or I can keep it in the old scheme and guarantee £3800 a year after 65.
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