DB to DC transfer - Barclays 1964 scheme

pkw1972

I have been taking the time to review my pension arrangements. I am 43 years of age and my wife is 42. I was previously a member of the Barclays 1964 Defined Benefit scheme which closed in 2010. As part of this review I recently obtained a CETV from Barclays.

Pension 1 - Barclays 1964 DB scheme
* Benefits - Projected pension of £22915 at age 60 (based on 2.5% RPI increases per
annum) , 50% spousal pension, annual increases up to 5% against RPI
* Valuation - £481,500 guaranteed transfer value based on a current Statement of Entitlement - valid
until Oct. This works out at approx 33x current annual pension value (based on £486,623 / £14726)

Pension 2 - (current employer)
* 100% in a Lifestyle fund - currently 100% invested in equities
* Projected fund value at 60 - 150k (based on 4.5% growth)

Pension enhancement
I have a nil mortgage on home valued circa 700K. In 2020 I am planning to downsize home and release £400K to invest to further enhance my pensions

Savings
£80K cash currently waiting to be invested. I will be looking to invest across a diversified
allocation of Funds / Trusts. I have been holding on whilst there is a period of volatility in the
markets, in the hope of gaining better discounts on some of the investment trusts that I have been looking at

I want to have more control over how I draw my income down in retirement and DB schemes don’t offer this flexibility. In the early years of my retirement I expect to do more travelling and will want to drawdown more, whereas later on I expect to drawdown less. More importantly, on my death I want my wife to receive 100% of my pension fund (not 50%). My children will have grown up by the time I draw my pension so wont benefit from any of the children’s pension. I would prefer to have control over how much and when I can pass money onto them (to assist them getting on the property ladder etc). I realise that drawdown pensions wont offer the guarantees my DB offers, however it offers a lot more flexibility to me and I am happy to accept a certain level of risk to achieve my goals.

I have already seen an IFA and had a Pension Transfer Report produced. This came back with a Critical Yield of 4.45% being required to achieve the same benefits as the Barclays Pension.

Having produced my report, the IFA has never come back to me with his recommendation whether to proceed or not. I have since decided to look for a different IFA as I haven’t been completely convinced with some of the advice that has been given to a family member.

The IFA I have been looking at charges upfront fees to produce TVA transfer report (whereas the other one charged no upfront fee, but would have charged 1% of the amount transferred with an ongoing platform fee of 0.45% / annum). So far the reports produced have cost me nothing. I am happy to pay an IFA to go through the process again

Someone I know just had his pension report produced and it came back with a Critical Yield of 7.4%. Based on this, his personal circumstances, attitude to risk and the volatile markets, he was recommended not to proceed at present with a view to revisit it in 12-24 months

If I transfer my Barclays pension and am able to achieve the 4.45% yield I estimate this will give my a pension pot of roughly £1.0m at 60 (excluding pension 2 & other investments). Using various drawdown calculators I think it would be fair to assume that achieving £22915 would be fairly easy to achieve from a £1m pot?

Current thoughts / questions

1) I have spent a lot of time doing projections and considering what ifs. Based on the yield of 4.45% and my attitude to risk, am I right in thinking that this is very feasible. Even if I can only achieve a slightly lower annual return, I still think this is achievable. Also, with Gilts being so low, this represents an opportunity that might not be as good in the future?

2) I am concerned that I am going to pay for a report to be produced only to be told that the yield represents to much of a risk or my IFA doesn’t want to take the risk and will just tell me not to proceed. What are your experiences of IFAs attitudes towards Critical Yields (and the chances of success) and whether IFAs are willing to proceed with the transfers? I am also interested to hear from anyone who has navigated this successfully and got theirs approved. What was your experience of the whole process?

3) I have completed several attitude to risk questionnaires and would regard myself as 5 out of 7 (Fina Metrica) which I think would equate to moderately adventurous. Am I being overly cautious bearing in mind it’s 17 years to my retirement?

4) Am I taking the right approach with regards wanting to move from DB to DC? Should I be considering other options that maybe I haven’t already considered?

I have read a lot of articles in the media / web saying this would only be viable for possibly 1 in 10, IFA’s not wanting to take the risk, additional risks for retiree and all the problems getting pensions companies to take the transfer but there also appears to be many articles which are starting to support the theory of transferring and that for many the flexibility, high CETV values, pension freedoms & peoples lifestyles not all being linear linked to wanting to use annuities, that many are starting to warm to the idea of transfers from DB to DC

I hope I have given enough information here for everyone to offer their advise / experience. If I need to provide more info, please let me know.

Thanks

mania112

At this point in time I think you might struggle to find anyone who will complete this transfer, regardless of critical yield.

4.45% is on the borderline in my opinion because although most decent funds will surpass this, it's never a guarantee (so in my mind you have to say it needs to achieve 6/7 to be sure to recoup from years where it's lower.)

The regulator has a keen eye on this area of business and it's scared some advisers away - and you'd have to think the one's that will do it a) might not be the best, and b) won't be the cheapest.

I can see why you think you might want to change this pension to a flexible one, but maybe you need to see the benefits of keeping it too.

kidmugsy

pkw1972 wrote: »

In 2020 I am planning to downsize home and release £400K to invest to further enhance my pensions

That took my eye. Why not enjoy having a better or larger house now rather than trying to pile up more pension assets for your old age? I approve of pensions but there must surely come a point where people decide that they've put quite enough aside. But even if you want to pile up more, why not do so with an owner-occupied house anyway? The tax benefits are enormous and seem unlikely to be reformed into something more rational in the foreseeable future.

atush

I imagine they meant they would sell their home and buy a smaller one, not go into rented?

In my case, that is what I plan to do- as when the 3 boys are gone (one is already) then I wont need a 5 bed 3.5 bath house with 2 acres? With all the high running costs, maintenance etc

pkw1972

mania112 wrote: »

At this point in time I think you might struggle to find anyone who will complete this transfer, regardless of critical yield.

Are you an IFA and thats what you are seeing in the industry or is that just a gut felling?
Do you know of anyone who has managed to get this through an IFA and know what their Critical Yield was?

mania112 wrote: »

4.45% is on the borderline in my opinion because although most decent funds will surpass this, it's never a guarantee (so in my mind you have to say it needs to achieve 6/7 to be sure to recoup from years where it's lower.)

I have done a quick calculation based on 2% growth of the fund upto retirement

Starting sum £481,500 at 2% growth for 17 years = £674,216
Using Fidelity Drawdown Calculator £674,216 would give me the £22,915. Under poor market conditions it would run out aged 93, under average market conditions there would be £471,974 left at age 100. Am I missing something really obvious here or is it fairly reasonable to assume this is achievable?

mania112 wrote: »

I can see why you think you might want to change this pension to a flexible one, but maybe you need to see the benefits of keeping it too.

In addition to the original notes, it may be worth me pointing out that my wife has a very small pension fund of £60k, so she will be relying on my pension in retirement. With that in mind, I think I would be happy to accept a slightly smaller pension than £22915 knowing that she will continue to receive this should I die. Rather than her only getting 50%. Another upside would be that there will be monies to pass to the kids should both of us die at an early age

pkw1972

kidmugsy wrote: »

That took my eye. Why not enjoy having a better or larger house now rather than trying to pile up more pension assets for your old age? I approve of pensions but there must surely come a point where people decide that they've put quite enough aside. But even if you want to pile up more, why not do so with an owner-occupied house anyway? The tax benefits are enormous and seem unlikely to be reformed into something more rational in the foreseeable future.

The plan would be to buy a smaller house, not rent. I would only rent if needs must. How to appropriate the spare funds of the sale would need to be carefully planned. Some would go into building an ISA portfolio in both our names (to maximise the annual allowances) and some would be fed back into a SIPPs to gain further tax relief benefits.

In retirement I would look to deplete the ISA funds first before looking to draw down money from the pensions as there are IHT benefits to the pension staying as is for as long as possible

The house I live in is quite large and expensive to run. By moving into a smaller house we will obviously be able to reduce costs, allowing us to spend more money on other passions, like travelling. At the end of the day it is just a house and there is no point living in a big house just for the sake of it

mania112

pkw1972 wrote: »

Are you an IFA and thats what you are seeing in the industry or is that just a gut felling?
Do you know of anyone who has managed to get this through an IFA and know what their Critical Yield was?

I'm an IFA. I don't hold the qualification myself to transfer DB schemes, so it would be a case for another firm - 2 firms that I would use previously are not currently putting transfers through.

They have opted on a maximum critical yield, but they have not told me what that is. My guess is either 2.5% (illustration middle growth) or 5% (FCA guideline middle growth).

Previously, a client could say 'i see the downsides, and understand the critical yield is x%, but i still want to do it anyway.' - that's currently not accepted by FCA as justification for an IFA to make a transfer.

It's a funny old game because not too long ago the possibility of transfer DB to DC was looked at and the FCA decided to continue to allow them.

So we had a green light, now an amber light - most IFAs are taking the opportunity to make it a red light - but if their business model relies on it, i'm sure you'll still find some who will take the business on.

mania112

^ which leads to the cost side of things. It's not going to be cheap. This will be a surprise to you how much some will charge, and the critical yield is bumped up too.

kidmugsy

pkw1972 wrote: »

The plan would be to buy a smaller house, not rent. I would only rent if needs must.

I didn't say anything about renting. What has renting got to do with anything?

pkw1972 wrote: »

By moving into a smaller house we will obviously be able to reduce costs, allowing us to spend more money on other passions, like travelling. At the end of the day it is just a house and there is no point living in a big house just for the sake of it

I dare say, but why buy a cheaper house? Why not, for instance, buy a smaller house in a better location for much the same amount of money? That will (you might reasonably hope) grow in value, gaining from the absurd tax advantages given to owner-occupiers, until you finally decide to swap to something cheaper. Or just hold on to it indefinitely to take advantage of the proposed new IHT deal.

Daniel54

Personally I have never been seriously tempted to transfer out my DB pensions.

A few weeks ago my sister-in -law phoned ,worried that her husband had been scammed on his pensions and forwarded his advisor's report.I checked the FCA register and both he and the company are authorised for DB transfers.

To my amateur eye the report itself was not wholly convincing,but the key issue was that he has significantly impaired health ( self inflicted) at the age of 59

To answer your question,in round terms the DB pension at age 60 was £7k per annum and transfer value £210k.Cost of the report was £4k plus ongoing fees of £2.5k for the first year.Critical yield was 4.8%.

Drp8713

Have you thought about Lifetime Allowance and the new £1M limit from next year?

Your £23k x 20 is £460k for LTA purposes, plus your other £150k leaves you no issues.

Two DC pots of £1.15M would give you issues.