DB Pension Suggestions

hyubh

fallen121 wrote: »

the "pot" of accumulated DB benefits Mercer are quoting seems to indicate a figure of around £63k is driving this

No, with DB it's the other way round - the scheme and its actuary start with the benefits promised, then calculate a 'best estimate' of the money the scheme would need now to fund those benefits, were they not already 'on the books'.

While the benefits promised don't change over time, the assumptions used probably will - aside from longevity assumptions, the biggie in recent times is pension funds switching from investing in equities to gilts and corporate bonds as a 'derisking' move, which with gilt rates being low pushes up the 'best estimate' cost of funding promised benefits.

I realise some of these benefits aren't guaranteed on transfer to a non DB scheme so would be lost

It's simpler than that - the benefits in the DB plan are completely extinguished on transferring out.

to my way of thinking, that's not a great return compared to say, an annuity?

It's not a 'return', and if an annuity (i.e. guaranteed income for life) is really what you both want, I doubt you'd be able to afford a better one than not transferring out in the first place. However, if he isn't actually fixated on an annuity, i.e. he's happy to manage his money during retirement, a high CETV (if it is high- it's not clear as yet) may make transferring out a reasonable option.

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

More likely they have just seen the pound signs...

, 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.

That wouldn't be a good reason - just because someone has a preserved final salary pension doesn't mean they can't have a personal pension as well. In fact, you can be an active final salary scheme member and still have a personal pension as well. Moreover, having a mixture of DB and DC might be a good way to mix both flexibility and assurance.

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.

Unless it is specifically configured for his particular scheme, this won't be helpful.

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.

As xylophone says, you both need to understand the terms of the DB pension first. Do you still have a copy of the deferred benefit statement on leaving? Seeing how it states the pension is made up would be helpful - it should include details of any splits, how the pension revalues before it comes into payment, the normal retirement age, and the increases due when it is in payment.

fallen121

Just for clarity, the "Retirement Illustrator" I keep referring to is the one provided by Mercer and is specific to the the scheme concerned. So NOT some random online thing.

What everyone seems to be telling me is that we need to seek out and understand the terms of the scheme we are in (and as the spouse, I clearly have an interest in this) and if we don't have the information to hand we need to ask Mercer to provide it. For example, we need to understand what if anything has changed since the last time we were provided with a statement.

We also need to understand if there is a lump option (they are providing a Retirement Illustrator which suggests this is an option, if there isn't then then it's extremely misleading to even include that in the Illustrator IMHO). So I think we just need to ask that question direct.

We also need to seek out and understand the other schemes my husband has and seek some kind of professional advice as to whether there might be any benefit in combining some of these into an ongoing scheme. Confusingly, they all have different retirement ages, although as retiring early isn't something we've considered we wouldn't take anything before NRD.

I think my husband also needs to take a view on when he might retire given that SP doesn't kick in until 67. I guess he has the option to keep working but it would only make sense to defer any pensions that would continue to accrue if he didn't.

Lots to think about!

hyubh

fallen121 wrote: »

Just for clarity, the "Retirement Illustrator" I keep referring to is the one provided by Mercer and is specific to the the scheme concerned. So NOT some random online thing.

Yes, your 1.56 pm post made that clearer (I didn't see it before I posted).

What everyone seems to be telling me is that we need to seek out and understand the terms of the scheme we are in (and as the spouse, I clearly have an interest in this) and if we don't have the information to hand we need to ask Mercer to provide it.

Yes.

For example, we need to understand what if anything has changed since the last time we were provided with a statement.

The basic terms themselves won't have (e.g., the minimum age the pension can be drawn), though things like early retirement factors might have.

We also need to seek out and understand the other schemes my husband has and seek some kind of professional advice as to whether there might be any benefit in combining some of these into an ongoing scheme. Confusingly, they all have different retirement ages, although as retiring early isn't something we've considered we wouldn't take anything before NRD.

Are these DB too? In which case 'combining' isn't a good way of putting things - he'd be transferring out to a money purchase/DC arrangement in each case. Conversely, if they are pure DC, then any 'NRD' is purely notional. It's possible to have something historical in between however, i.e. DC with some sort of guaranteed element, were the plan holder to draw benefits in the originally intended manner - so be aware for spotting that.

LHW99

Also, don't overlook the fact that most DB schemes make provision for a spouse's pension, which annuities don't unless that option is chosen when the annuity is set up (which gives a lower monthly payment).

Kynthia

DB schemes don't have a pot of money, therefore you can't take 25% of the non-existent pot as a tax free lump sum. However many schemes do have a lump sum specified in the terms as my husband will get three times his annual pension but I'll get £0 in mine. DB schemes generally allow you to increase the amount of lump sum in exchange for reducing your annual pension which is known as commutation. Often it's not great value to do this but all schemes are different and everyone's situation is different, so for tax or life expectancy reasons it could be a good idea. Some schemes also allow you to reduce the automatic lump sum in exchange for increasing annual pension, however this 'reverse commutation' is often at a worse rate than the commutation rate.

hyubh

Kynthia wrote: »

DB schemes don't have a pot of money, therefore you can't take 25% of the non-existent pot as a tax free lump sum.

25% of the LTA value of the pension is the statutory PCLS limit for a DB scheme.

fallen121

DB schemes generally allow you to increase the amount of lump sum in exchange for reducing your annual pension which is known as commutation.

This seems to be exactly what this one is offering. Seems attractive but depends on what the total payout from all the other schemes + SP would provide PA/PM to live on. SP we know but the others require further investigation. Pointless taking a lump sum (which will just vanish) if the net effect would be to leave insufficient money to live on.

Are these DB too? In which case 'combining' isn't a good way of putting things - he'd be transferring out to a money purchase/DC arrangement in each case.

Not sure at present what the other pensions are. Probably a mixture. One is LPFA which is likely to be DB and I suspect the biggest which is probably why we've never considered transferring it.

Also, don't overlook the fact that most DB schemes make provision for a spouse's pension, which annuities don't unless that option is chosen when the annuity is set up (which gives a lower monthly payment).

Yes, there is a spouses pension. Fortunately I also have my own pension arrangements so wouldn't be entirely dependent on this if the worst happened. But of course I am also younger which statistically means I am likely to be in receipt of it at some point

hyubh

fallen121 wrote: »

DB schemes generally allow you to increase the amount of lump sum in exchange for reducing your annual pension which is known as commutation.

This seems to be exactly what this one is offering. Seems attractive but depends on what the total payout from all the other schemes + SP would provide PA/PM to live on.

That and the 'commutation rate', i.e. how much lump sum will £1 of forgone pension buy him?

Are these DB too? In which case 'combining' isn't a good way of putting things - he'd be transferring out to a money purchase/DC arrangement in each case.

Not sure at present what the other pensions are. Probably a mixture. One is LPFA

Assuming that's LPFA as in London Pensions Fund Authority, then it's LGPS, so DB indeed.

xylophone

https://www.yourpension.org.uk/LPFA/Left-The-Scheme/Deferred-members/Guides-Factsheets.aspx

http://www.yourpension.org.uk/Files/Files/In%20The%20Scheme/2.%20LeavingtheLGPSA5April2011.pdf

may be worth a read.

Is your husband not receiving an annual statement?

He needs to clarify the type of each pension he has - the DB pensions have safeguarded benefits and some DC schemes have safeguarded benefits.

Does he have a pension to which he is currently contributing?