old DB pension

atush

Ask for the CETV and th other questions above and come back.

But like others, I think keeping it as it is for now, and using employers dC pensions and PPs going forwards will give you the best mix. You will have little to no risk with the DB one, but will have risk with all your other pensions in the future.

hugheskevi

Ordinarily I would think DB pension is king and do NOT consider moving it but the increase per year is capped at a maximum of 2.5% year and perhaps it could grow more in a traditional investment DC pot.

That isn't the right question. The key metric is the discount rate the scheme uses, and whether you can expect to beat that an acceptable level of risk. The level of annual increase just shapes the income stream, it is the discount rate the scheme uses to value that income stream which is the key rate.

This is an interesting choice, as the DB scheme has two sources of significant risk. First is the employer defaulting, in which case the scheme would enter the Pension Protection Fund (PPF) and you would lose at least 10% of the value. You are fortunate in this regard that most or all of your service will be post-97 and your current scheme sounds like it only give statutory minimum awards - in many cases members with pensions entering the PPF lose a lot more than 10% of the value, but your loss would seem to only be about 10%.

Second is the inflation risk. In a DC scheme investments will have little inflation risk (at least whilst you are a long way from retirement), whereas there is nothing you can do to avoid inflation risk in the DB scheme. That could hugely erode the value over time if inflation increases and is higher than 2.5% over a sustained period.

It would also be possible for both risks to materialise, with the pension scheme entering the PPF and then a period of higher inflation occurring, and you would not be able to transfer it from the PPF. In such a scenario the DB pension would appear anything but a 'safe' investment.

One thing you may wish to investigate is whether the inflation cap applies each and every year, or whether it is applied cumulatively over the period from date of leaving to date of pension commencement. I suspect it will be the latter, in which case you may want to find out how much headroom, if any, you have from the recent period of low inflation.

But without the CETV not too much can be considered in detail.

kidmugsy

hugheskevi wrote: »

the employer defaulting, in which case the scheme would enter the Pension Protection Fund (PPF) and you would lose at least 10% of the value.

I'd lose far more than 10% of the value of my DB pension because I'd lose almost all my index-linking and my widow's. Perhaps not in the OP's case, but in others - such as mine - people seem to me to be hopelessly sanguine about what happens when your scheme falls under the PPF. For people with a long life expectancy, such as my widow, it could be catastrophic.

RuleTheWorld

Thanks for all these comments troops! I'll be back in 2 months or so with more details

RuleTheWorld

jamesd wrote: »

Ask the administrators for the transfer value. Sometimes these are good, other times not so good. You will need the advice of an IFA to transfer. Also find out:

1. how the value increases between now and the normal retirement age of the pension
2. how it handles inflation after you take it
3. what spousal benefits there are, if any
4. what death benefits are payable if you die before taking it
5. what death benefits are payable if you die after taking it

You've a lot of time to go for investments to grow but it still might not be realistic to beat what this pension offers. Depends on the specifics.

When you reach the age at which you take the pension you have a range of income choices:

1. Buy an annuity. Normally requires you to be insane or not shop around unless there is a good guaranteed annuity rate. As of about three quarters of the way through last year fully 60% of annuities were sold to existing customers, who either had a good guaranteed annuity rate (what the insurers group said) or didn't shop around (another possible reason). But if your life expectancy at retirement is low or you buy after age 78-80s sort of timeframe annuities can offer good value for money. If you have so much money that you don't care and just want it done with and an income paid, an annuity will deliver that.

2. Defer your state pension. At current annuity rates this option pays something like twice the amount of income an annuity would pay for the same amount of money. The gradual purchase of this by deferring means that it starts to become noticeably less good value after five years so those with larger pots won't be able to get such a good deal. The exact break even point depends on the deals available but up to ten years of deferral may swell still beat a standard annuity in value for money.

3. Income drawdown. Here the desired success rate matters because you pick the income based on the desired success rate. Twice or more what an annuity would pay is likely at 95-99% success rates. Failures at that level would be near the end of your maximum life expectancy and if you didn't reduce income. That's the worst cases. Average cases would result in increasing income and/or the pot at the end being worth a substantial amount, even more than it starts with if you don't increase income. Main disadvantage is that it's not guaranteed. The protection of state pension deferral income makes doing at least five years of that an excellent combination with drawdown because it increases level of income that can be taken from the rest within the target failure rate area. You can also do drawdown for a while then buy annuities once those start to offer good value for money, which they will probably eventually do as you get older.

1. 3 years worth at CPI capped at 5% and 6.5 years worth at CPI capped at 2.5%
2. 5 years worth at CPI capped at 5% and 4.5 years worth at CPI capped at 3.75%
3. 50% pension payable
4. 50% pension payable to spouse and a return of all contributions made. Additional uplift of 20%-50% depending on how many children. It doesn't define children but I presume this wouldnt be applicable after a certain age
5. Same as 4 as far as I can work out so you would think most probably 50% pension

RuleTheWorld

final value was calculated as £9,169.50/year and only now in a position to request a transfer value. One per year allowed with no charge

kidmugsy

I'm not being entirely whimsical when I say transfer it out to a SIPP that allows you to invest in gold bullion and do so. Now that HMG is publicly flirting with the idea of rewriting the contract between a pension scheme and its members, I'd say that 33 years of risking such behaviour - some of them doubtless under governments even more hysterical than this one - is none too attractive. Unless, of course, the CETV is hopelessly bad.

P.S. Come to think of it, is there a SIPP that allows investment in bullion stored in Switzerland? That might be better than storage in London.

RuleTheWorld

Joking aside. BHS and Tata do make me think.

The pension scheme has a deficit of hundreds of millions

But again would come back to gut feeling of not to touch it

kidmugsy

RuleTheWorld wrote: »

Joking aside. BHS and Tata do make me think.

I don't think we've learned anything new from the BHS case. But the Tata case is hair-raising: the govt apparently wants to retroactively change the agreement between the scheme and its members. Mr Corbyn must be slavering at the thought that he'll get to do it too when it's his turn.

NotSkint

Hi, just want you to check something.
Post 1 says you have an old DB pension.
Post 9 kinda implies you are still in it as you have some more service and a bit of a salary increase that impacts it.
Post 16 kinda implies you have 9.5 years service in the scheme.
Post 17 says you have got a pension of £9169.50/yr.
I don't know what you DB scheme accrual rate is but the following are kinda typical of those I do know:
DB schemes working on 1/80 year would make your salary £9169.5/9.5 x 80 = £77216.84 and a DB scheme working on 1/60 year £57912.63.
Great if you earn this, but I wonder if you might be misreading your pension statement and that the figures given are actually based on continuing employment until your Scheme retirement age.
Apologies, if you aren't, but just in case