Is it worth the risk of opting out of a gold plated DB pension in these circumstances

madeinireland_2

As the title suggests I am in a very good final salary pension with over 30 years service. I'm looking at options of protecting myself from the LTA limit. At the moment as well as the pension I have £200k worth of linked AVC's and a DC pension of about £115k which makes the total value as of 5th April of about £1.075m.

I am considering opting out of the scheme in order to gain fixed protection. I won't be taking the pension until around 60 (I'm 55 in March). In that time I'm hopeful my AVC's and Pensions would continue to grow closer the the £1.25m limit that FP would give me.

Every now and then the company run release schemes and they could run one before end of March which takes the whole issue away but since they have not announced one yet I'm thinking it's now not likely till next early next year. Also the budget could change the equation if the chancellor removed the LTA limit.

If they run a scheme next year then I would gain as I would have the fixed protection and the voluntary scheme would give me a good pay off but if they did something drastic like compulsory redundancy then me leaving the pension scheme might enable them to move me out will just a statutory pay off - probably much less than those who would remain in the pension. I'm not sure how they would play the difference between someone in the pension scheme and someone not in it - maybe I should check with the union?

Anyway - Am I mad to consider this ?

Thanks...

Teaandscones

I would wait until after the budget before making any final decisions as the chancellor may abolish the LTA (as well as higher rate tax relief).

kidmugsy

Why that way round? You'll be over 55 so that you could take the DC's TFLS, and perhaps transfer the AVC and take its TFLS too. Wouldn't those two moves reduce your LTA problems? Or is the AVC too valuable while attached to the DB scheme: is it going to supply you with a TFLS for the two combined??

RickyB2000

A few things I can think of if your DB scheme is very generous:
1) put your pension and AVC into something very low growth - such as bonds. Get the growth from the DB and hope lifetime allowance has increased
2) if you are going to pay 40-45% tax by stopping, I would seriously look at whether it makes financial sense to keep paying into DB scheme and take the tax hit on your pension / AVC. Your return may still be greater relative to what you put in. If you went to 60, what would your total pension value be in the DB scheme?
3) Never crystallise the personal pension until you have to (75) so you can grow the DB scheme by nearly £200k for 60. Transfer the AVC and do the same. Hope LTA has raised by the time you turn 75.

madeinireland_2

kidmugsy wrote: »

Why that way round? You'll be over 55 so that you could take the DC's TFLS, and perhaps transfer the AVC and take its TFLS too. Wouldn't those two moves reduce your LTA problems? Or is the AVC too valuable while attached to the DB scheme: is it going to supply you with a TFLS for the two combined??

Birthday is way too close to start of tax year for that to be possible with any certainty. I suspect there will be a time delay between me asking for it and it happening to request although I have thought of it.

AVC is linked to pension and I can take it all tax free when I take the pension so as you say too valuable

kidmugsy

I gather the penalty for exceeding the LTA is tax at 55% tax. However if your employer has paid the bulk of the cost, is that the end of the world?

madeinireland_2

RickyB2000 wrote: »

A few things I can think of if your DB scheme is very generous:
1) put your pension and AVC into something very low growth - such as bonds. Get the growth from the DB and hope lifetime allowance has increased
2) if you are going to pay 40-45% tax by stopping, I would seriously look at whether it makes financial sense to keep paying into DB scheme and take the tax hit on your pension / AVC. Your return may still be greater relative to what you put in. If you went to 60, what would your total pension value be in the DB scheme?
3) Never crystallise the personal pension until you have to (75) so you can grow the DB scheme by nearly £200k for 60. Transfer the AVC and do the same. Hope LTA has raised by the time you turn 75.

Thanks useful to think about those suggestions although I may need to DC pension to fill some of the gap before I take the DB pension. The valuation is the valuation at 65 for the DB pension as that is what you can do when valueing for LTA comparison.

jamesd

Seeing what you can do with the unlinked DC pension in the available time window is the initial way I'd go. For DB it's a fairly straight question of whether the LTA cost on the extra income is more or less than your contribution to get that increase.

You can probably tell the pension company that you want the lump sum now and highlight the short time window available to get it done in this tax year before the LTA drop, also mentioning that timing is critical because you do expect to be at or over the LTA, so face real losses if it doesn't happen in the window. They can't act until your birthday but they can get things set up to go on the day.

ThereHeIs

RickyB2000 wrote: »

A few things I can think of if your DB scheme is very generous:
1) put your pension and AVC into something very low growth - such as bonds. Get the growth from the DB and hope lifetime allowance has increased

Really? Why take less risk than appropriate!

100% of low growth is less than 100% of the same growth plus 45% of the surplus created by taking an appropriate amount of risk!

robin61

madeinireland wrote: »

If they run a scheme next year then I would gain as I would have the fixed protection and the voluntary scheme would give me a good pay off but if they did something drastic like compulsory redundancy then me leaving the pension scheme might enable them to move me out will just a statutory pay off - probably much less than those who would remain in the pension. I'm not sure how they would play the difference between someone in the pension scheme and someone not in it - maybe I should check with the union?

..

I think it would be a good idea to get advice. The early retirement through compulsory redundancy terms for scheme B are very generous and would cost the company a fortune. Which helps to explain why they haven' t so far gone down this route. I would guess if you have opted out of the scheme then you won't have the same protection.