DB pension vs Enhanced tranfer value

davieg11

kidmugsy wrote: »

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?

There is too many gloomy thoughts about DB pension transfers on here. In my opinion No Risk in life is No Reward in life. Your state pension is your DB pension for life. There are millions of people living only on state pension in this Country and surviving. If you take the CETV and invest it, you could retire earlier than you thought. If markets bomb, you can work an extra couple of years but still retire early. If the IFA has a critical yield of 3.73% plus inflation, it will be a positive recommendation. I got a positive recommendation on a 6.1% yield to retire at 60 or 4.8% to retire at 65.

craig1912

davieg11 wrote: »

There is too many gloomy thoughts about DB pension transfers on here. In my opinion No Risk in life is No Reward in life. Your state pension is your DB pension for life. There are millions of people living only on state pension in this Country and surviving. If you take the CETV and invest it, you could retire earlier than you thought. If markets bomb, you can work an extra couple of years but still retire early. If the IFA has a critical yield of 3.73% plus inflation, it will be a positive recommendation. I got a positive recommendation on a 6.1% yield to retire at 60 or 4.8% to retire at 65.

Agree- will have done mine in next couple of weeks. Wife has a Db scheme of £20k ish, will have my state pension in 10 years. My pension fund of circa £1m (CETV of £850k) allows me to retire early (57) have a decent living and gift some to the kids- critical yield is approx 5.5% so it's a no brainer for me.

jerrysimon

Just to give another perspective.

I am risk adverse and wont be transfering mine. I am not sure I would know how to invest it anyway. I am retiring at 56.5 next month. I thought about it, but the fact I am leaving early, it will rise with inflation, my wife will get 50% if I was to drop dead and there is also a lump sum to look forward to, swung it for me.

Having said that I am not sure you can transfer Civil Service pensions anyway. There was a short window when the rules changed but I think they closed it to stop the rush on the Gov coffers. I think if lots had done it they would have been in trouble lol



Jerry

jamesd

You can't transfer any unfunded public sector pension, including Civil Service.

If 56.5 is not your normal pension age it's usually worth drawing on savings and 0% for purchase card deals and maybe other borrowing to get closer, cutting down the actuarial reduction that you'll suffer. That is, retire when you like but take the pension later.

Assuming you have savings, be sure to max out your contributions to a private pension before the end of the tax year, all the way up to your pay minus work scheme contributions if you can. This effectively makes 25% of your pay free of income tax.

You can do even better than that if you wait to claim the work pension until 2018-19, using your whole 2017-18 personal allowance to take out more tax free. If you have the savings or credit you can do it for more years to further increase the gain from tax relief on the way in and no tax on the way out.

roysterer

jamesd wrote: »

You can do even better than that if you wait to claim the work pension until 2018-19, using your whole 2017-18 personal allowance to take out more tax free. If you have the savings or credit you can do it for more years to further increase the gain from tax relief on the way in and no tax on the way out.

Hi James,
Does this mean if you lived off savings for say 3 years prior to taking your pension you could add an additional 3 years of personal tax allowance to your max 25% tax free lump sum (ie an extra 33k)??

jamesd

Yes, it does.

jerrysimon

I have been through this already on here. I still dont see the benefit in waiting unless you have other money to use which I dont. I could draw down on my mortage as its paid off but I can draw down from it for another 8 years.

Drawing my pension 3.5 years early will effectively reduce it from 21K to 17.5K. However those 3.5 years will return over 61.25K. If I waited to 60 and then drew the 21K it would take me 17 years to get that money back.

If I was to fund the 17.5K from savings or from my mortgage draw down, then when I got to 60 I would also have used up 61.25K which would have to be paid back.

I suppose technically you would only need 54.6K as that would return the same as 17.5K earnt money being taxed.

I am even more inclined to take the pension early given that at 66.5 I would then receive my state pension.


Jerry

Camster

Jerry. Your thoughts echo mine.

I see a lot of posts on here where people say they could take their pension early, but decide to live off their savings until they reach the age where there would be no reduction in their pension. (usually 2-3 years or so).

I don't understand the benefits of this, as the payback period for the pension they are missing out on by not taking in early is so long.

Obviously if they live long enough, they would gain out of the decision, but why not take the pension early and enjoy the benefits of the additional income while you are younger?

jerrysimon

Yes exaclty my thoughts as well.

At the end of the day we all have choices I guess and as such we all make different ones dependant on our circumstances

I do often think our strategy and reasons for it is over looked on this board. I do know there are some very patient and careful planners here, I can therefore undertsand why they may chose to wait.

Jerry

jamesd

Say the payback period is seventeen years for a 55 year old. Age 73. Even male life expectancy at 55 is high eighties and most common age at death is around 92 or 93 at the moment. If health is typical then waiting is a move that's likely to work well. If a higher income while younger is wanted then borrowing can deliver that, repaid out of some of the increased pension. Can do things like taking income of reduced work pension plus state pension even though one or both isn't being paid yet.

If the objective is higher income younger, starting the work pension is bad strategy to achieve it.