We're aware that some users are experiencing technical issues which the team are working to resolve. See the Community Noticeboard for more info. Thank you for your patience.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!

CETV v DB

Options
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

Comments

  • jamesd
    jamesd Posts: 26,103 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    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.
  • 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
    xylophone Posts: 45,600 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    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/
  • Sorry X - it is all pre 87
    They will revalue to 65 at 8.5% then that's it - as I understand it
  • sandsy
    sandsy Posts: 1,752 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    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
    Marcon Posts: 14,278 Forumite
    Ninth Anniversary 10,000 Posts Name Dropper Combo Breaker
    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.
    Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!  
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
    10,000 Posts Fifth Anniversary Name Dropper Photogenic
    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
    mgdavid Posts: 6,710 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    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.
    The questions that get the best answers are the questions that give most detail....
This discussion has been closed.
Meet your Ambassadors

🚀 Getting Started

Hi new member!

Our Getting Started Guide will help you get the most out of the Forum

Categories

  • All Categories
  • 350.8K Banking & Borrowing
  • 253K Reduce Debt & Boost Income
  • 453.4K Spending & Discounts
  • 243.7K Work, Benefits & Business
  • 598.5K Mortgages, Homes & Bills
  • 176.8K Life & Family
  • 256.9K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 16.1K Discuss & Feedback
  • 37.6K Read-Only Boards

Is this how you want to be seen?

We see you are using a default avatar. It takes only a few seconds to pick a picture.