Transferring DB pension - why wouldn't I ?

kidmugsy

milford59 wrote: »

I guess that intuitively I feel that the Transfer Value is "mis priced" ...

Very likely. Certainly the LTA formula for DB pensions is "mispriced" and once seized is yours forever. If a government upped the '20x' to '30x' you might feel you'd missed a wonderful opportunity. You're spoiled for choice.

sandsy

Was your £1.5m protection based on fixed protection or individual protection?

kidmugsy

And another thing: I'd be tempted to get that vast TFLS out of your DC pension before Mr Balls' first Budget - or even before the election. Vast TFLSs are an appetising prospect for tax-raising politicians - especially those who know how dire the public finances are, because they did so much under Brown to make them dire.

P.S. Falling under a bus - buy some life insurance.

SJG1

232607 wrote: »

No wanting to comment too much on the good/bad aspect of whether it's the right thing to do but I do agree that low gilt yields are driving very high CETV,s at the moment. I've just transferred at a ration of 26:1 & was happy doing so after having done loads of calcs. At 30:1 I'd say that ratio is certainly in the fair to good range.
The issue is that low gilt yields won't be around for ever hence the opportunity to transfer out won't be either.

Regards.

I looked into the possibility of transferring my db scheme this year and was given a rate of approx 12:1 plus my avc's. I decided not to take that one up!

232607

SJG1 wrote: »

I looked into the possibility of transferring my db scheme this year and was given a rate of approx 12:1 plus my avc's. I decided not to take that one up!

Can't say I blame you on that. The key to any transfer is ensuring the value is a least fair. Guess there's a lot of companies happy to shaft the members given 1/2 a chance.

milford59

sandsy wrote: »

Was your £1.5m protection based on fixed protection or individual protection?

It is Fixed Protection 2014

jamesd

With around 1.8 million in pension pots after the transfer and protected 1.5 million LTA you'll need currently a market drop of around 17.5% to take benefits from it all without exceeding the LTA. Since markets drops of 20% or more are routine and you have timing flexibility it appears reasonable not to regard the LTA as actually reducing your benefit from transferring out.

Since you're experienced investing and the return required to match benefits is only 3.3% plus inflation that seems reasonable enough.

If you don't mind living in Portugal for several years you might also benefit substantially in income tax using their scheme that uses a 0% income tax rate for foreign income. This can be used to allow withdrawing of the whole pension pot tax free using flexi-access drawdown.

On the available facts, I'd do the transfer.

Given your level of assets it seems sensible for you to start making significant use of VCT investments. Those have a wide range of risk levels, including some solely asset-backed (meaning secured on physical property) options. The 30% income tax relief is capped at your income tax in the year of purchase so to maximise benefit under this you'd need to do it while still working and paying significant income tax. In return you can get around 5-7% tax free income, equivalent to 8-10% after allowing for the 30% tax refund. You can sell and repeat the tax relief claiming after five years, though 7-8 is more likely to be sensible. Given the benefit it could also be worth doing gradual crystallising of parts of the pension to fund this.

It's also interesting that you are no longer affected in practice by the reduction of the money purchase annual allowance from £40k to £10k because you're already effectively barred from making more pension contributions by the LTA protection requirements. So no need to restrict drawing to just the tax free lump sum. Of course the income tax rate that would apply to any taxable withdrawing needs to be considered so it may still be unwise to withdraw taxable parts.

kidmugsy

jamesd wrote: »

On the available facts, I'd do the transfer.

So might I. But his question was "why wouldn't I?" So I summarised the case against.

jamesd

Nothing wrong with being a little devil from time to time. Or a big one.

kidmugsy

Good_bad_and_ugly wrote: »

Prescriptive, outdated and dogmatic diktat has no place on a messageboard.

He prescriptively and dogmatically dictated.