DB transfer value shock

mgdavid

davieg11 wrote: »

That is great advice for anyone thinking of cashing a DB pension. In my case I just don't see the point of having £20k a year when you are 80 years old. I'll base my drawdown calculations from age 60 to 80. I could count on the 1 hand the amount of people I know above 80 and none of them leave the house due to health issues.

Amazing, just amazing.
'don't hit me with them negative waves Moriarty'
What will you do when you want to pay for a bit of help around the house & garden in your 80s and have run out of spare money?
Every time I see or hear of somebody dying in their 60s or 70s, or having major health problems at those ages I simply realise that statistically it improves my chance of being normally active until around 90. My side of that equation is to keep an eye on sensible things like weight, eating, exercise (mental & physical), active lifestyle etc and still having the equivalent of £30k in today's value to live on.

Linton

davieg11 wrote: »

That is great advice for anyone thinking of cashing a DB pension. In my case I just don't see the point of having £20k a year when you are 80 years old. I'll base my drawdown calculations from age 60 to 80. I could count on the 1 hand the amount of people I know above 80 and none of them leave the house due to health issues.

I think that basing drawdown plans merely to cover 60-80 is not a good idea. If you are housebound by the time you are 80 you probably need to pay for help with cleaning and gardening if not personal care. But many older people are in much better health - to counter your anecdote, I know of a couple who visited Australia in their 80s.

Having an unusable extra £20K in your eighties would be a waste, but not having it when you needed it would be a disaster.

davieg11

If I live to 80 and become housebound then I don't want my hard earned cash going to a care home. My elderly neighbour who is housebound gets carers round every day to look after him and gets taken out every Thursday to a council run home for a bit of lunch. My wife looks out for him and 2 others and gets them their newspaper every morning.

davieg11

Linton wrote: »

70.09% compounded return in 10 years = 5.5% annual return. It's difficult to see how you can manage a sustainable 5% of initial sum inflation-linked income out of that especially if you take into account that the 10 years since the great crash have been unusually good for investors and inflation has been unusually low.

I think anyone thinking of cashing in a DB pension would benefit from spending some time playing with cfiresim. What % chance of running out of money or decrease of income in the bad times are you prepared to accept?

In my view in general a far better use of a DB pension is to regard it as the safe part of a portfolio enabling the adoption a higher risk strategy than one would otherwise accept. And if one doesnt have a substantial portfolio of investments or significant other income, dont consider trying to cash it.

My current dc pension was launched 20/05/2000 and has an Annualised Performance of 4.97% since launch. I'm sure there has been a few ups and downs since then.

Dark_Sunday

Please correct me if I'm wrong, but you can transfer a £1M DC or other pension to a different fund & do not require an IFA. At age 55 you can also take all of your non-DB pension pot & not have any future pension provisions, except SP at age 65+ & you do not require an IFA. But if you have a DB pension with CETV of £30,001 an IFA is required.

Is this logical ?

sandsy

The difference is the guarantees you are giving up. They are so valuable that they're rarely offered today. Government legislated that you must understand the merits of giving them up before you're allowed to transfer, by taking advice from an FCA regulated adviser.

bowlhead99

Dark_Sunday wrote: »

Please correct me if I'm wrong, but you can transfer a £1M DC or other pension to a different fund & do not require an IFA.

Yes, if you have a large pile of assets being managed by one provider you are welcome to move it to a different provider. They are your assets to do with what you like.

At age 55 you can also take all of your non-DB pension pot & not have any future pension provisions, except SP at age 65+ & you do not require an IFA.

Yes, as mentioned they are your assets to do with what you like. If you want to pay a huge amount of tax to access them all at once, you could do that.

After all, you are no worse off if you take the million out of investment funds and buy a supercar and write it off, than if you use the million of pension assets to buy $1.25m of Microsoft shares and they go bust. Defined contribution pots are investment assets that have to be managed and are subject to investment risk. You can take very high levels of investment risk if you like. It is your money and the risk has always been on you to manage (through choice of provider, fund selection etc).

But if you have a DB pension with CETV of £30,001 an IFA is required.

With a DB pension you don't have a pile of assets on which the risk rests with you to manage. You have a promise that you will receive annual defined cash flows increasing with inflation for the rest of your life (and perhaps also a spouse's pension for the rest of his/her life after your demise). There is basically no risk whatsoever.

The DB pension is very expensive to provide to you, to give you that no-risk outcome of guaranteed payments. Using a particular accepted method the DB provider can put a price on it. So, they can convert their defined promises into a cash equivalent.

However, you did not sign up to owning a pile of assets or a cash equivalent when you signed up to that employer scheme. The promise was a lifetime of risk-free defined chunks of money every year forever. If you believe you could make more money by cancelling the contract for risk-free inflation-linked money and taking cash to manage it yourself, you can only do that if the regulator is happy you know !!!!!! you're doing.

Is this logical ?

Yes, very.

You were saying your pension was worth guaranteed £4k+ for the rest of your life which could be 40 years. If you dont want that 40 year promise you could spend one of those years' money on advice from an IFA so you could tell the receiving scheme you had received advice and were not some numpty who was unaware of the pitfalls of self-managing a large pot of assets.

Dark_Sunday

Response from HL:

"With regards to the transfer of Defined Benefit schemes valued at over £30,000, it is a legal requirement to receive financial advice before being able to transfer the pension. Furthermore, it is our policy at Hargreaves Lansdown that the advice given must be in favour of the transfer in order for us to proceed with it."

Dark_Sunday

bowlhead99 wrote: »

... pension guaranteed £4k+ for the rest of your life which could be 40 years. If you dont want that 40 year promise you could spend one of those years' money on advice from an IFA so you could tell the receiving scheme you had received advice ......

That's the gamble no-one knows how long they'll live. Probably a trifle optimistic living to the age of 105 tho.

So approx. figures:

Guaranteed, depending when you kick the bucket:
1 year: £4k
5 years: £20k
10 years: 40k
20 years: £80k
30 years: £120k

Not Guaranteed:
£91k transfer @ 6.8% growth for 12 years = £200k pot
TFLS: £50k; Drawdown @ 5% = £7.5k p.a.
or
Drawdown @ 5% = £10k p.a.

If all ifs, buts & maybes & the personal attitude to risk I guess.

davieg11

Dark_Sunday wrote: »

Please correct me if I'm wrong, but you can transfer a £1M DC or other pension to a different fund & do not require an IFA. At age 55 you can also take all of your non-DB pension pot & not have any future pension provisions, except SP at age 65+ & you do not require an IFA. But if you have a DB pension with CETV of £30,001 an IFA is required.

Is this logical ?

Dark_Sunday wrote: »

That's the gamble no-one knows how long they'll live. Probably a trifle optimistic living to the age of 105 tho.

So approx. figures:

Guaranteed, depending when you kick the bucket:
1 year: £4k
5 years: £20k
10 years: 40k
20 years: £80k
30 years: £120k

Not Guaranteed:
£91k transfer @ 6.8% growth for 12 years = £200k pot
TFLS: £50k; Drawdown @ 5% = £7.5k p.a.
or
Drawdown @ 5% = £10k p.a.

If all ifs, buts & maybes & the personal attitude to risk I guess.

That is the simple reason I'm transferring my db schemes, you are going to have at least 30 years of money in your dc scheme. 6.8% growth might not happen. The market will surely have a correction or crash in the next 12 years but I would bet you will have at least £100k at worst, which at a drawdown of 4K pa will still last 30 years. The facts show over the long term you gain with investments.