CETV v DB

ARFUR_CHANCE

I have read many posts on this topic over the years with the consensus firmly that you should never give up a DB pension. Indeed some of the seasoned pension veterans who kindly offer their experience on here are still firmly of that view.


But surely since the Pension freedoms the position is less clear cut?


STAY WITH A DB PENSION

1. No investment risk
2. No longevity risk
3. Annual increments
4. Spouse pension

TAKE CETV AND TRANSFER

1. Pot can be inherited by spouse then children
2. Early death of self effectively halves the benefit to Spouse
3. Early death of self and spouse ends benefit completely
4. Can take out lump sums of cash if needed
5. Can allow for early planning of retirement
6. Flexibility of spend when fit/healthy
7. Pot should rise over time
8. Control of own money
9. CETV's at an all time high
10. Risk of scheme collapse into PPF

Anyone else have any additional thoughts on this area?
Genuinely interested and have a decent DB Pension but a tempting CETV

jamesd

You have three items in the take CETV section that belong in the stay with DB section:

2. Early death of self effectively halves the benefit to Spouse
3. Early death of self and spouse ends benefit completely
10. Risk of scheme collapse into PPF

If you were to take a transfer the pension pot would provide 100% spousal and child benefit because they get the investments that could generate the same income. PPF only applies to defined benefit pensions, it is not available at all after a transfer out.

After a transfer an annuity could be bought if desired. Whether that would have death benefits for a spouse would depend on whether you purchased one with that feature and a lower starting income level or not. Same for inflation linking.

State pension deferral would probably pay more than annuity purchase, and is high enough to be attractive for at least a while even for those who are happy to use income drawdown and stay invested.

ARFUR_CHANCE

I actually meant - but stated it badly - that the 3 items you mentioned are reasons to move out of a DB - thank you for the correction.


Another point to add is that GMP could form a significant percentage of your final DB pension. And from now onwards that will no longer be index linked within the State system. In my case what I always thought would be a 3% minimum uplift on my final DB Pension will actually only be a 1.5% effective uplift as my GMP element (now frozen to increases) will comprise around 50% of my total DB Pension

xylophone

Another point to add is that GMP could form a significant percentage of your final DB pension. And from now onwards that will no longer be index linked within the State system. In my case what I always thought would be a 3% minimum uplift on my final DB Pension will actually only be a 1.5% effective uplift as my GMP element (now frozen to increases) will comprise around 50% of my total DB Pension

Your scheme must continue to revalue your GMP/excess in deferment.

If all your GMP is post 88 they must index link it up to 3% in payment.
https://www.barnett-waddingham.co.uk/comment-insight/blog/2014/08/18/what-is-a-gmp/

ARFUR_CHANCE

Sorry X - it is all pre 87
They will revalue to 65 at 8.5% then that's it - as I understand it

sandsy

In your second list (Take CETV and transfer), only 1 and 4 are explicitly as a result of pension freedoms - the other factors were all there before.

What value do you personally assign to all the factors you've identified?

How important is it to you to have control of your money, the ability to manipulate the shape as you want (in a way that is different to the DB scheme) and give up certainty of income for a less certain future and one where your spouse inherits not an income but their own pot of any remaining funds?

Do you have an idea of what retirement will look like for you and how your spending patterns will look, both at retirement and later as you age?

What other pensions/investments/savings do you have to complement this pension - do any of them provide a degree of certainty/comfort and what proportion of your total retirement funding do they comprise compared to this pension?

Marcon

Get some proper financial advice - if your CETV is more than £30,000, the trustees of your scheme (or the administrators on their behalf) are required to check that you have sought (although not necessarily followed) such advice.

Bear in mind that the clock is ticking on the guarantee period for your CETV (3 months) and you have no right to an updated CETV within 12 months . You may be able to request another CETV within the year, but could have to pay around £500 for it.

AnotherJoe

ARFUR_CHANCE wrote: »

I have read many posts on this topic over the years with the consensus firmly that you should never give up a DB pension. Indeed some of the seasoned pension veterans who kindly offer their experience on here are still firmly of that view.

[*]

Far too definitive. I would say the consensus view is that it's rarely a good idea but there are circumstances (exceptions) where that does not apply.

mgdavid

A factor not mentioned is whether the DB pension is the only pension, or whether there are other non-DB pensions, significant savings and/or investments.
As with investing, diversification is a strong plus factor. Keeping the DB alongside the other sources mentioned above seems very sensible as a hedge against unforeseen events.