DB Pension Suggestions

fallen121

Aegon UK had a DB scheme that closed to new entrants in 2003 and stopped accruing in 2013. My husband worked for the company for 5 years 1997-2002 and left when our daughter was born. The scheme is now managed by Mercer.

Based on current info provided by Mercer, the scheme will payout £1,183 per annum to him when he retires in 2021. That's a little less than £100 per month.

Now I realise that current thinking is that for most people, transferring out of a DB scheme is not a good idea. But the "pot" of accumulated DB benefits Mercer are quoting seems to indicate a figure of around £63k is driving this (I realise some of these benefits aren't guaranteed on transfer to a non DB scheme so would be lost), but even so, to my way of thinking, that's not a great return compared to say, an annuity? I did a rough online comparison using a finger in the air pot of £36k which seemed to suggest that an income of £1700 might be possible. Is this accurate?

The annual report suggests that a not insignificant number of deferred members (of whom there are more than active members due to the scheme closure) are transferring out, and in the absence of any concrete information, I can only assume that these people must have longer to go to retirement than my husband, so it makes sense for them to transfer the pot out to some other scheme which they can continue to top up and/or add to from their current employment for say another 20 years or so.

Looking for suggestions rather than advice, but if you were in a similar position, would you leave things as they are and if not, what options might you investigate? Just looking for a few ideas.

Dazed_and_confused

There is no "pot", that's the whole point of DB schemes.

Do you mean you have obtained a CETV?

Linton

Where did you get your figure of a £1700/year annuity for £36k from? Inflation linked annuity rates at 65 are around 3%.

Conversely £63k CETV for a £1183/year DB pension gives a ratio of >50, much higher than any other value I have seen quoted on this forum.

fallen121

I was probably wrong to describe the £63k headline figure as a "pot". It seems to be an accumulated value of pension benefits. Many of which I suspect wouldn't transfer as they are unique to a DB scheme. Mercer are a bit thin on detail unless you ask for a CETV.

Knowing that the annual pension promised by this scheme is £1183, I tried to use an online calculator to determine what kind of pot would be required to derive a similar value from a DC scheme for comparison purposes. Yes, I probably should have used Excel, but it was late and I was tired. I also wasn't prepared for the fact that the level of personal detail required to just toss figures around an online annuity calculator is excessive. Companies want to provide the best advice, I understand that. But I don't want to be deluged with spam for a product I don't want or need. So apologies if that figure was a bit random. It seems that you can't do much in the way of investigation without the salesman calling. Yes, it's all dressed up as "best advice". But nothing comes for free.

And no, haven't requested a CETV. Can't do that without providing details of the scheme we want to transfer it to, which we can't as we haven't even set one up as we don't even know if we want to do that yet. They also have a new rule that if you do request a CETV and then allow it to expire (3 months) then you can't request one again for 12 months.

None of this is life or death. We understand that you can't cash out a DB scheme in the same way as a DC so aren't looking to do this. The worst that could happen is that we do nothing, and then my husband collects the pension in 2021. It just would be nice to know if there is anything we could do to enhance it or improve it as my husband is still working (self employed, no People's Pension but various pensions from various companies he's worked for over the years, all trivial amounts and all closed to additional contributions).

Yes, we could take professional advice. But this costs, and for this fairly trivial amount we could end up spending money to end up in the same position as if we did nothing and spent the IFA fee on a night out.

Should we just forget the whole thing and go on a bender? :beer:

sandsy

Are you sure the £1183 is the projected pension at retirement? Many schemes refuse to provide a projection on the grounds they can't estimate future inflation increases up to retirement age. What was the value of the pension when he left in 2002?

fallen121

sandsy wrote: »

Are you sure the £1183 is the projected pension at retirement? Many schemes refuse to provide a projection on the grounds they can't estimate future inflation increases up to retirement age. What was the value of the pension when he left in 2002?

You're right. £1183 was the figure as at 22/08/2002. This is why I came on here, to get some clarity, and you are providing it.

After some messing around I discovered a "Retirement Illustrator" where you enter your chosen retirement age and whether or not you want the 25% lump sum.

Comes out at £2,160.84 P with no lump sum and £1,598 PA with a lump sum of £10, 653.

I have no idea what assumptions the retirement illustrator makes to arrive at these figures.

xylophone

Your husband has a deferred DB pension - the pension will revalue in deferment at least on a statutory basis.

https://www.barnett-waddingham.co.uk/comment-insight/blog/2012/07/24/revaluation-for-early-leavers/

When the pension comes into payment there will be some index linking.

Does your husband have a statement of benefits on leaving and a scheme booklet?

Has he obtained a new state pension statement? Have you?

https://www.gov.uk/check-state-pension

dunstonh

You're right. £1183 was the figure as at 22/08/2002. This is why I came on here, to get some clarity, and you are providing it.

So, 15 years of indexation to be applied to that.

After some messing around I discovered a "Retirement Illustrator" where you enter your chosen retirement age and whether or not you want the 25% lump sum.

You dont have a 25% lump sum with the scheme you have. You have a lump sum option which uses a different calculation.

I have no idea what assumptions the retirement illustrator makes to arrive at these figures.

it is vital to know the assumptions in any calculation otherwise you wont know if the assumptions are valid or not. Especially when comparing options.

fallen121

Ok so we have a "Statement of Entitlement" but it is on Scottish Equitable paper so pre-dates or is not long after the merger with Aegon. So must be years old.

Presumably on transfer to Mercer there would have been some minor changes to T&Cs so these statements would have needed to be issued again? .

Having said that, the transfer to Mercer happened only recently and there's thousands of deferred members. So possibly any statutory mailings that have to be paper based haven't happened yet. But there's the option to ask this question online. So I will do that now. Thank you.

Yes, we can both access our state pensions online and yes, we are both fully paid up in years, although we need to keep paying NI contributions until we stop working. Neither of us will get this until we're 67 though.

xylophone

Your husband could do an audit of all the other pensions that he has accumulated over the years.

it would certainly be in his interests to ensure that he keeps the records securely filed and administrators updated with any change of address or circumstances.

Do any of them have "safeguarded benefits"?

Does he have an existing personal pension to which he contributes?

If your husband wanted to transfer out the Aegon DB or any other pension with safeguarded benefits valued at more than £30,000, he would be required to take the advice of a Pensions Transfer Specialist.

It does strike me though that in the circumstances you describe, ( mixture of pensions/current self employment), it might actually benefit your husband financially to take expert advice on pension planning.

He might choose to regard Aegon and his SP as the backbone of his planning and perhaps combine other old plans into a modern plan which would better suit his purposes.

https://directory.moneyadviceservice.org.uk/en

fallen121

Ok so I've had another look at the Retirement Illustrator.

"For ease of use we have pre-populated your personal details with the information we currently hold about you." Well as far as I can see, all the info they hold, name, age address, salary on leaving etc. is correct.

"The illustrator is, by default, set up to produce an illustration of your benefits assuming you retire at your Normal Retirement Age." Normal retirement age for Aegon seems to be 60, and that's the default for the calculator, so left that alone.

Because I am being told on here that there is no 25% lump sum with this scheme, I went and looked up the "information" bit next to it and this is what is says:

Select a chosen Cash Lump Sum. Your decision will impact the amount you will receive in terms of an annual pension. The options given are Nil, Specific Amount and Maximum. The default is nil, which is what I have left it at.

I find it odd that the lump setting exists given that the illustrator stated that it was pre-populating itself with information it already knew. Presumably it knows that there is no 25% lump sum with this scheme if there isn't.

Still comes back with £2,160.84 PA. When I did with the lump sum option set to maximum the colour options on the graph make it clear that the lump sum is from the Aegon bit and not any other pensions in payment or AVCs because if you enter those (I didn't) they are shown in a different colour.

The only assumption I can see is that it assumes a 4.32% Lifetime Allowance Percentage