mind the gap - DB transfer

chiefie

I completely understand the consensus that it is rarely beneficial to transfer a DB pension.
But what if you have more than one and the one you leave alone, together with state pension will meet your needs from NRD.
I can see the logic of some people wanting to transfer a DB scheme so that they can fill the gap between taking it under osbourne's new rules and their NRD when the other DB pension and state pension will kick in.
It's not always about quantity and payback it can also be about quality of life enabling some people to finish work earlier or go down to part time working. Or you could just use the TFLS portion for helping the kids out whilst leaving the rest invested and carry on working as normal.
Ready to be shot down but that's my thinking ...... Having a separate SIPP also helps
Mrs chiefie has her own arrangements too, not fantastically generous but I doubt we will ever be a burden on the state ...

bowlhead99

If people have more than enough money to fulfil their future needs out of a DB pot, and do not need certainty from the second and third and fourth DB pots, then they can go ahead and do something else with one or more of them (if they can find and pay someone willing to give them the advice that it is or it isn't a sensible approach, before doing their transfer).

The problem is deciding whether the first one or two or three DB pensions are really going to be enough to fulfil your future needs, given that the future is uncertain and the transfer values are often insufficient to create an equivalent future value as what the DBs would give.

I agree if you have a huge and adequate income coming in the future then you might prefer to have part of the surplus future income stream converted into a different type of scheme that can be accessed earlier to bridge a timing gap.

Nothing in principle wrong with that if you know exactly what is being given up (spouse provision and index linking etc etc ) to get you some short term finance and it is not going to leave you some years down the line over-reliant on the state or on selling or refinancing illiquid or useful assets like your home.

So, the merits of accessing DB pensions will differ for individual circumstances, and as you say there is a consensus that for most, the demerits outweigh the merits. That's why you usually have to get an IFA or equivalent to sign off. It doesn't mean it is always absolutely the wrong thing to do with some part of your pension assets.

mgdavid

bowlhead99 wrote: »

........ It doesn't mean it is always absolutely the wrong thing to do with some part of your pension assets.

Agreed, and indeed nobody on this board has ever tried to suggest that; the posters with the first-hand industry experience have always been very fair in saying that 'usually' it will be a bad decision but not always.

david78

How will you get an advisor to give advice to transfer the first DB though? Wouldn't they potentially be culpable if you subsequently also transferred the second DB as well (using some other adviser) and this latter transfer could be proven to be bad advice. Where would the line be drawn?

hugheskevi

In such a situation (pension income > required expenditure), my first thought would be to try to increase required expenditure rather than take the loss of value from reducing pension income via transfer-out (assuming the transfer is not optimal from a pure expected value analysis).

The most obvious way would be to increase mortgage / pay down mortgage slower, rather than transfer pension. This would make a capital sum available which can then be repaid in the future using the pension.

jamesd

It's usually not a good idea but there are exceptions and the current low interest rates increase the number of exceptions because they increase the amount of money it takes to buy a particular level of income. So transfer values are currently higher than usual.

What you can usefully do is ask for transfer values from the pensions and then say what you'd get in benefits from the pension and when. That way it'll be possible to work out whether any of them is giving a transfer deal that looks worth having. This will also serve as the basis for the justification for it being a desirable move.

redbuzzard

Making it mandatory to take advice (which presumably must support the suitability of the decision) before being able to transfer a DB entitlement is a little at odds with the freedom to take 25% tax free.

Granted, the fact that it is tax free makes it a significantly better deal than transferring the whole of it and just drawing on the CETV, but the thought may well occur to a future government.