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Impaired life member of old deferred DB pension? ... is cashing out best for you?
agarnett
Posts: 1,301 Forumite
The growing frenzy caused by the imminent government rule changes has shown more people than ever before that they can control those once hidden pension pots where their names were always on them, but which they thought they couldn't touch ... until they retire or die, that is.
But there is a old danger that needs checking carefully. What happens if I die before I do anything with it or retire? With DC pensions, the answer tends one way, but with old DB schemes it tends the other. The answer could be very unexpected indeed, especially in those schemes those that were "non-contributory".
What the government has really done here is invented yet another twist in their need to continue Quantitative Easing in the economy at large. So they aren't much interested in protecting us, just in seeing a great tide of released cash wash away some of the economy's woes and make it look like it is growing.
Hoards will have contacted SIPP providers and IFAs up and down the country and will be panicking to get new arrangements in place to draw down on any DB scheme benefits they are still lucky enough to have. Others will be congratulating themselves on the wisdom of sticking with the original plan and seeing their DB scheme deliver the goods later, as originally intended.
Are the sometimes massive Transfer Values we hear being quoted a fair deal? Who really decides how they are calculated ? Are members cashing out being deliberately short-changed and effectively treated like the proverbial fool and his money?
Do the IFAs signing off on transfers out even have a clue about the levels of short changing? If not, what possible good does their involvement do other than pay lip-service?
There is one group of members who may not have to think quite so much about whether they are being short changed - that's those whose estate and loved ones will not see a penny of the transfer quotes being quoted today where there is a much heavier risk than normal of the member dying tomorrow not having transferred it. The whole lot might just disappear into the scheme thus making it a little bit easier for the employer and trustees to manage benefits for those who remain (alive!).
There is a risk of course that even the most healthy among us could fall under a bus, but in that case perhaps we should be buying life assurance to cover the potential loss of the cash, rather than risk being short-changed by transferring it now?
I have seen very little discussion of this danger (dying and loved ones losing the lot!), but please excuse me if I am repeating a warning already seen in other threads.
If you are sick or a smoker and cash out then you'll be offered the same as a transfer value as the next member who is a fit as a butcher's dog.
There are at least two warnings in this - one for those more likely to die early, and another for those perhaps more likely to do the Spock thing by not cashing out i.e. live long and prosper, but make sure there is life insurance in place!
I think it is worth keeping these things in people's minds at this time.
But there is a old danger that needs checking carefully. What happens if I die before I do anything with it or retire? With DC pensions, the answer tends one way, but with old DB schemes it tends the other. The answer could be very unexpected indeed, especially in those schemes those that were "non-contributory".
What the government has really done here is invented yet another twist in their need to continue Quantitative Easing in the economy at large. So they aren't much interested in protecting us, just in seeing a great tide of released cash wash away some of the economy's woes and make it look like it is growing.
Hoards will have contacted SIPP providers and IFAs up and down the country and will be panicking to get new arrangements in place to draw down on any DB scheme benefits they are still lucky enough to have. Others will be congratulating themselves on the wisdom of sticking with the original plan and seeing their DB scheme deliver the goods later, as originally intended.
Are the sometimes massive Transfer Values we hear being quoted a fair deal? Who really decides how they are calculated ? Are members cashing out being deliberately short-changed and effectively treated like the proverbial fool and his money?
Do the IFAs signing off on transfers out even have a clue about the levels of short changing? If not, what possible good does their involvement do other than pay lip-service?
There is one group of members who may not have to think quite so much about whether they are being short changed - that's those whose estate and loved ones will not see a penny of the transfer quotes being quoted today where there is a much heavier risk than normal of the member dying tomorrow not having transferred it. The whole lot might just disappear into the scheme thus making it a little bit easier for the employer and trustees to manage benefits for those who remain (alive!).
There is a risk of course that even the most healthy among us could fall under a bus, but in that case perhaps we should be buying life assurance to cover the potential loss of the cash, rather than risk being short-changed by transferring it now?
I have seen very little discussion of this danger (dying and loved ones losing the lot!), but please excuse me if I am repeating a warning already seen in other threads.
If you are sick or a smoker and cash out then you'll be offered the same as a transfer value as the next member who is a fit as a butcher's dog.
There are at least two warnings in this - one for those more likely to die early, and another for those perhaps more likely to do the Spock thing by not cashing out i.e. live long and prosper, but make sure there is life insurance in place!
I think it is worth keeping these things in people's minds at this time.
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Comments
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Each DB scheme will have its's own rules which are available to members,but generically :
- most schemes provide benefits for spouses/civil partners and dependent children in the event of death before taking the pension.Certainly it would be prudent to check what these are
-most schemes also guarantee payment of the full pension in the first 5 years it is taken,even if the member dies in that period
Rules for the calculation of a CETV are set out in the attached link for your enjoyment.I don't subscribe to your theory that trustees and actuaries are colluding to " short change " on CETVs,particularly if the scheme is in deficit,as most are.
http://www.thepensionsregulator.gov.uk/guidance/guidance-transfer-values.aspx#s18000 -
My advice is, never cash in a DB pension !!!! Look up GMP !!
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- most schemes provide benefits for spouses/civil partners and dependent children in the event of death before taking the pension.Certainly it would be prudent to check what these are
If any WOMEN worked for National Westminster Bank up until 1988, they need to read this. Women weren't entered into the Widows and Orphans pension Fund as a matter of course until 1987/88, although they could have been asked if they wanted to join it. I certainly can't remember being asked. If I die, my husband get 5% of my pension as I only had one qualifying year.
-most schemes also guarantee payment of the full pension in the first 5 years it is taken,even if the member dies in that period
Yes, Nat West does guarantee 5 years payments if you die in the first five years, but if you are not yet claiming your pension, that's it, no lump sum, no death payment and only a very small partner pension.0 -
The growing frenzy caused by the imminent government rule changes has shown more people than ever before that they can control those once hidden pension pots where their names were always on them, but which they thought they couldn't touch ... until they retire or die, that is.
But there is a old danger that needs checking carefully. What happens if I die before I do anything with it or retire? With DC pensions, the answer tends one way, but with old DB schemes it tends the other. The answer could be very unexpected indeed, especially in those schemes those that were "non-contributory".
As my Nat West Bank one is.
There is one group of members who may not have to think quite so much about whether they are being short changed - that's those whose estate and loved ones will not see a penny of the transfer quotes being quoted today where there is a much heavier risk than normal of the member dying tomorrow not having transferred it. The whole lot might just disappear into the scheme thus making it a little bit easier for the employer and trustees to manage benefits for those who remain (alive!).
There is a risk of course that even the most healthy among us could fall under a bus, but in that case perhaps we should be buying life assurance to cover the potential loss of the cash, rather than risk being short-changed by transferring it now?
The thought of losing 'free money' by falling under a bus is never far from my mind!! Not one penny piece did I pay into my bank pension.
I have seen very little discussion of this danger (dying and loved ones losing the lot!), but please excuse me if I am repeating a warning already seen in other threads.
If you are sick or a smoker and cash out then you'll be offered the same as a transfer value as the next member who is a fit as a butcher's dog.
Just had my latest transfer value, interesting to say the least.
There are at least two warnings in this - one for those more likely to die early, and another for those perhaps more likely to do the Spock thing by not cashing out i.e. live long and prosper, but make sure there is life insurance in place!
If we knew when we were going to pop off, life would be so much easier!!
I think it is worth keeping these things in people's minds at this time.
If you had a large (non contributory) pension transfer value, what would you do? I'm still debating.0 -
So am I!If you had a large (non contributory) pension transfer value, what would you do? I'm still debating.
But what I feel I must do is take out some Term Life cover to cover the non-contributed "free money pot" while I make up my mind (thankfully I am healthy enough to get cover at normal rates I think).
It scares me to think I had been unaware of the risk I was taking previously.
Sure I have other life cover, but this would have been a nasty surprise to my loved ones if they went through my papers and saw previous six-figure CETV quotes and then got told by trustees that there was nothing
0 -
So am I!
But what I feel I must do is take out some Term Life cover to cover the non-contributed "free money pot" while I make up my mind (thankfully I am healthy enough to get cover at normal rates I think).
I've got everything in the house, including the tortoise, well insured!
It scares me to think I had been unaware of the risk I was taking previously.
Yes, I only found out about the same thing recently.
Sure I have other life cover, but this would have been a nasty surprise to my loved ones if they went through my papers and saw previous six-figure CETV quotes and then got told by trustees that there was nothing
Yes, bit of a kicker. My children are past the age where they would get anything, and my hubby isn't planning on painting the town red (or even pink!) with the tiny annual pension he would get fro the bank. I think I worked it out as being between £125 to £250 per year, depending on what figures I used. Don't think he'll be planning on bumping me off just yet!!0
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