Accessing Pension Fund - Advice needed

jamesd

I think it'd be fine for DB scheme members to be able to sell their income, as is proposed as an idea for annuities. But it's not a cake that can be both had and eaten because it is inevitable that the payout will be less than the income that is being given up. All deals like that would have to be medically underwritten and those in less good health would get less, eliminating one of the main reasons to want a lump sum: knowing you're likely to die before average for the scheme. It could still be a useful option to have, though.

mgdavid

Alf, those old enough to have the unadulterated luxury of DB pensions already have their cake and eat it too by virtue of having an indexed salary-related pension. Backed up by the state PPF should the worst happen.
I have two old bits of private sector DB pension, one from 1986-94 and one '97-06. They have turned out to be worth far more than I realised and are the mainstay of my pension income.
IMO anyone who thinks there is something better than a DB pension is stark staring mad.
Now did you have a question, or is it going to be rant time again?

gadgetmind

mgdavid wrote: »

Now did you have a question, or is it going to be rant time again?

I think we all know the answer to that one!

gadgetmind

agarnett wrote: »

Jack who is alright?

Am I? You've argued at length that my (self-managed and low fee) DC pension very much isn't all right, and you keep pulling a list from under your bridge in an attempt to prove it.

I didn't think you had any involvement in DB schemes

Very recently, my wife has been in one. The contribution is only 6% pa, and we'd need at least 4x that going into a DC scheme to come anywhere close to the benefit she'll get. She is, however, continuing her SIPP alongside to increase flexibility and reduce risk.

Clearly it is inequitable for all those in a DB scheme to continue to be locked in just because it is DB

What mostly causes those lucky enough to have DB pensions to be "locked in" is that transferring to a DC scheme would put them in a massively worse position. For this reason, only the most foolish would even attempt it, but there are clearly people who fall into this category.

greenglide

Clearly it is inequitable for all those in a DB scheme to continue to be locked in just because it is DB

Why?

The funding of the DB scheme can take into account the vanishingly small number of cases whereby members fail to get the "full" benefit of it. This includes, of course, people who die before claiming (especially deferred members).

Who benefits? Well, the members and the employer (usually, ultimately, the tax payer).

Locking people in such schemes seems quite right and fair but should really have been in the scheme rules from the very beginning.

It isn't that much different from someone who has an annuity who complains that after a short period they become ill and realise that they won't get "their money back" and everybody seems to expect that - it is like expecting everyone to make a profit out of any kind of insurance.

agarnett

greenglide wrote: »

Why?

The funding of the DB scheme can take into account the vanishingly small number of cases whereby members fail to get the "full" benefit of it. This includes, of course, people who die before claiming (especially deferred members).

Who benefits? Well, the members and the employer (usually, ultimately, the tax payer).

Locking people in such schemes seems quite right and fair but should really have been in the scheme rules from the very beginning.

It isn't that much different from someone who has an annuity who complains that after a short period they become ill and realise that they won't get "their money back" and everybody seems to expect that - it is like expecting everyone to make a profit out of any kind of insurance.

I understand where you are coming from, but surely the DB example you are thinking of is someone who has long term been an active member of a DB and expects to stay that way up to retirement? I.e. the sort of thing that many of us started our working lives believing might be our destiny.

I was optimistic enough to even believe that my DB pension was pretty much as good as any Civil Service pension and I think more than one silver haired branch manager / chairman actually told me something similar! I had a clue a couple of years into my first job from a wiley old work colleague that there was more to it than that when he retired - at his retirement do, I remember him jovially telling me to make sure I carried on the good work and not mess the company up so he could be sure his pension would keep being paid! I thought he was joking at the time, but there was as it turns out, never a truer word! The company has been messed up and the scheme is in jeopardy, but supposedly a very new phenomenon (PPF) will catch any falling babies now. I wonder if that umbrella will still work when it is stray deferred cats and dogs like most of us with lofts full of bits of paper saying stuff like "your final salary pension is now an average salary pension" and "your RPI index-linked pension is now linked to CPI" and "your contracted out DB pension and everything since which got contracted out which you have forgotten about or never understood because no-one really understood it, will now put a big dent in your state basic pension when you finally get there, so don't cash your SERPs policy because we'll know if you do and treat you like some deliberate depriver of one's own capital!"

The reason I think that DB members (both current in payment retirees and deferred members) should be able to liquidate their entitlements in a manner that reflects the new freedoms given to DC planholders is not so much for the man and boy 40/60ths, 20/30ths brigade, nor particularly for long term LGPS or other Civil Service types, but for those who I feel sure are in the majority now, i.e. those who have been in and out of DB schemes both voluntarily and involuntarily over a number of jobs, and have reached retirement with a mixed bag or are approaching retirement with a mixed bag.

It surely isn't fair to lock them in with bits of DB purely because they had no crystal ball indicating they should transfer out of any bits of DB with their name on before retiring? Is there really a good reason for the OP in this thread to find that three years down the line, his or her old mates with different style pensions can gain much easier instant access to big wedges of "retirement" cash, but the OP must involuntarily "stay behind" to play out some boring scene from "The Last of the Dinosaurs"? You can't lump them all together and say "It's foolish for them ever to want to transfer DB to DC". It's bloody foolish to smoke most of your life and upon retirement find that you've only a few years to live, but many people are in that situation and would like the cash now. Or perhaps it is foolish for any caring parent to wish to help a child through the minefield of university financing by cashing in a chunk of their retirement livelihood like the OP is considering. But many people are scared not for themselves but for their children's futures and consciously do wish to put themselves in the firing line or on an unknown financial precipice in their children's stead.

On that basis, to achieve equal freedom of choice, the current state of the new reforms is clearly only a work in progress. There has to be a fairer solution.

I think those of us who have worked predominantly in the private sector and have accessible private sector pensions for better or worse, do risk Schadenfreude if we assert too much that DB scheme members (especially public sector) somehow made their choice and now must live with it.

gadgetmind

agarnett wrote: »

supposedly a very new phenomenon (PPF) will catch any falling babies now.

It's just coming up to its tenth birthday.

And the inherent unworkability of unfunded promises has been known about for much longer than that.

http://fortune.com/2013/08/15/the-1975-buffett-memo-that-saved-wapos-pension/

Despite this, the advice for those with access to DB to join and stay in is correct in close to 100% of cases, as is the advice for those with access to tax efficient (and/or with company contributions) DC schemes to also make full use of these.

agarnett

gadgetmind wrote: »

It's just coming up to its tenth birthday.

And the inherent unworkability of unfunded promises has been known about for much longer than that.

http://fortune.com/2013/08/15/the-1975-buffett-memo-that-saved-wapos-pension/

Despite this, the advice for those with access to DB to join and stay in is correct in close to 100% of cases, as is the advice for those with access to tax efficient (and/or with company contributions) DC schemes to also make full use of these.

Don't we just love the naysayers!

C'mon gadgetmind, if you did a rough search of the term Pension Protection Fund or PPF over time during that 10 years, the pattern of serious debate over what it is, who it will protect, and who it won't, and it's overall effectiveness, you might realise that it is quite a recent thing that any of us dare say with any confidence that generally it might now be as safe a protection as FSCS, for example.

I don't question the general "unworkability" of many DB promises, but let us remember that when it first started to become obvious, the general retort by the corporates who made the promises was that there was never a promise, but merely a pension scheme, and the pension was not part of the employee contract! For LGPS and Civil Service Pension Schemes, everyone kept the question (and its burgeoning cost) zipped for years.

The same could be said for the fledgling PPF! Yes there was a protection fund, but the funding of it was very uncertain and if the expected number of calls upon it materialised, it too would be unworkable!

PS Is that fortune article subscribers only? I can find the memo elsewhere but I just get a fortune header with an invitation to subscribe via your link?

geoff2

As I understand it at the moment, I will pay tax at an appropriate rate on any money I withdraw over the 25% lump sum, as if it were earnings. I am on the minimum wage, so I am wondering whether I can use previous years' unused tax allowances to minimise the %age I have to pay if I withdraw quite a large amount, say for arguments sake £50k. Opinions appreciated.

jem16

geoff2 wrote: »

As I understand it at the moment, I will pay tax at an appropriate rate on any money I withdraw over the 25% lump sum, as if it were earnings. I am on the minimum wage, so I am wondering whether I can use previous years' unused tax allowances to minimise the %age I have to pay if I withdraw quite a large amount, say for arguments sake £50k. Opinions appreciated.

In a word - no!