DB pension vs Enhanced tranfer value

CRAIGSVILLE

Hi,


Looking for a bit advice before going to an IFA please.


I am just turning 45 with 12 years left before retiring.
No spouse , 3 kids.


I have an old DB final salary pension with a value of £375000 , but I have been given a transfer value of £510000 which is quite a significant increase.


The old DB scheme value only rises 2.5% a year, so in 12 years it will still be worth less than my transfer value I have been given, or about the same once IFA fees come off for a transfer.


If it is invested properly for the 12 years + at retirement, it seems a no-brainer, especially if I can give it to my kids / future grand kids later when im gone.


I have another DC pension at the moment, and a few S+S ISA's , so I should be able to drawdown on the possible transferred pension without it going down much.


And do you think an IFA think it would be a good idea to transfer it?


Any thoughts ?


Thanks


Craig

Linton

What do you mean by "a value of £375K"? The values that matter in deciding whether a transfer is justified are the Transfer Value and the annual pension payment (and the details of the pension). From these an IFA can work out the return required to achieve an equivalent pension by investing the Transfer Value.

CRAIGSVILLE

Sorry forgot to say my final salary pension is £19000 which is where the £375000 figure is at the moment.

p00hsticks

At what age is the pension payable ?
Does your wife have pensions of her own ?
What about a pension for spouse after you die ?
How much is in the DC pension and the 'few S+S ISA's' ?
What retirement income are you aiming for ?
Do you have any heath issues that could see you dying early ?
At what age are you planning on retiring ?

Personally, if this is the only DB pension you have, I'd hang onto it - there is a lot to be said for a guaranteed income for life.

PensionTech

Sorry forgot to say my final salary pension is £19000 which is where the £375000 figure is at the moment.

No. This is the "crystallisation" value. It's a made-up figure HMRC use to work out how much of a certain tax allowance you're using up, and it's grossly out of line with the actual "value" of your pension. Ignore it entirely. It has nothing to do with how much your pension is actually worth as an equivalent cash sum.

The old DB scheme value only rises 2.5% a year, so in 12 years it will still be worth less than my transfer value I have been given

This is not how transfer values work and the "growth" of a DB pension is not on its own a metric you can use to compare against a lump sum.

I suggest you do a lot more reading on this.

Linton

I assume the £375K comes from £19K X 20 which is what is compared against the Lifetime Allowance:

£375K isnt the value in any real sense, it's just a number HMRC use for calculating whether the size of your DB pension exceeds the limits. The factor of 20 could have made sense in 2006 when the Lifetime Allowance was introduced but circumstances have changed whereas HMRC rules havent. You cant deduce anything by comparing it with the Transfer Value.

I dont know what an IFA would say, but from the numbers I feel that the case for a transfer wouldnt be a no-brainer. The absence of the need for a spouses pension would be in your favour. You dont give any indication of the size of you pension and S&S investments but since you dont focus on them I assume they are small compared with the DB pension. Major other sources of income could have helped the case for transferring.

kidmugsy

CRAIGSVILLE wrote: »

If it is invested properly for the 12 years + at retirement, it seems a no-brainer, especially if I can give it to my kids / future grand kids later when im gone.

One of the best things you can do for your descendants is ensure that you are financially independent in retirement so that they won't feel obliged to fund you, or worry about your finances, or worry about you worrying about your finances. A DB pension does this very well, as long as you feel that the scheme itself is financially secure.

By the way, do you mean that you can start the final salary pension at age 57? Is that the scheme retirement age for you, or do you expect to pay an actuarial reduction for drawing it early?

One more gloomy thought: the IHT deal on leaving pensions to descendants is likely to prove so expensive for the taxpayer, and so illogical, that it might well have been scrapped long before you die. You could easily live another 50 years for all we know: it's a whale of a punt that this law won't change over two generations.

P.S. You're only 45: can you be confident that a widow's pension will not be a useful feature of the scheme?

jamesd

The law requires that the pension sees evidence that you have taken advice. You don't need to follow the advice, just get it.

The investment return needed to match the income based on the current value is just 3.73% plus inflation, barely above the UK stock market dividend level. On those numbers the transfer appears to be a good deal provided you're comfortable with investing.

CRAIGSVILLE

Thanks for all the useful info guys :-)
A lot to think about. Why are pensions so bloody difficult? Lol
Thanks again :-)

ianthy

I am in the process of transferring my DB pension and I think the decision is the most difficult one I have ever taken - as it is irreversible. Even Marriage is easier as you can get divorced LOL! You are trying to create solutions far into the future - ill health, care, govt changes of policy, cost and standard of living etc., I would also like to leave some of my pot to relatives and friends but I think the advice is sound in that the first priority is to be financially independent, what ever the circumstances.

davieg11

ianthy wrote: »

I am in the process of transferring my DB pension and I think the decision is the most difficult one I have ever taken - as it is irreversible.
You are spot on there. I signed my transfer forms, added my birth certificate, sealed the envelope, then it took me another 2 weeks to post the letter as I kept changing my mind. Went for it in the end, and I won't know for another 20 years if I made the correct choice.