Just wondering whether my defined benefits are worthwhile?

Wobblydeb

I've got 3 defined benefit schemes of which I am a deferred member. In current money they would pay out £2.8k, £2k and £3.5k per annum. I've also been investing in a SIPP for several years.

I've always stuck with the advice to NOT transfer these defined benefit pensions, but I am rather frustrated as they increase at a rate below what my SIPP is earning. Typically CPI or LPI (Limited Price Indexation) which was 0.0% last year!! Whereas my SIPP has accrued at an average of 7.6% per annum.

All the advice says "don't transfer" as you lose valuable benefits, but what are they? A pension for my spouse or child? My partner has his own pension arrangements, and I could leave 100% of the SIPP to my son.

Should I just leave things as they stand, or is it worth getting advice? The sums are not huge, so I don't want to spend a lot of money on advice - especially when I could start researching this myself. :huh:

molerat

Those figures would likely put the transfer values of each of them above the level where you must have advice before transferring so the cost needs factoring in. The advantage of keeping the DB schemes is that there is no risk - low return low risk, high return high risk - there is always the chance that the SIPP could go down. The main family benefits of DB pensions are usually whilst still working for the co, big payout + dependents pension.

Silvertabby

Ditto molerat.

All 3 of these pensions are over the notional value of £30K (20 x pension). If they are held with 3 different providers, they may have different levels of protection - so your financial advisor will have to look at each scheme individually. That will rack up the cost.

Note: the 20 x notional value is not necessarily the transfer value - you would have to ask your pension providers for that if you really do want to look into this further.

Wobblydeb

Yup, they are 3 different schemes / providers, and I am guessing total transfer value around £200k. e.g. I currently have a transfer quote of £73k for the £2.8k income.

I appreciate that the SIPP may go down, which is one of the reasons I didn't touch them when I opened it and was just starting out with investing. It is definitely the biggest risk of the transfer.

Perhaps a good halfway house would be a renegotiation of the benefits. I cannot be the only one who does not need to pass on pension to their spouse?

Dazed_and_confused

Or you could take a look at the additional benefits for each DB scheme, see which is best for your circumstances and then consider transferring the least favourable for you/your dependants to a SIPP.

Not quite 50:50 but you could say end up with 3.5k DB and 4.8k converted to a SIPP. Or whatever combination suits you.

FatherAbraham

Wobblydeb wrote: »

I've got 3 defined benefit schemes of which I am a deferred member. In current money they would pay out £2.8k, £2k and £3.5k per annum. I've also been investing in a SIPP for several years.

I've always stuck with the advice to NOT transfer these defined benefit pensions, but I am rather frustrated as they increase at a rate below what my SIPP is earning. Typically CPI or LPI (Limited Price Indexation) which was 0.0% last year!! Whereas my SIPP has accrued at an average of 7.6% per annum.

All the advice says "don't transfer" as you lose valuable benefits, but what are they? A pension for my spouse or child? My partner has his own pension arrangements, and I could leave 100% of the SIPP to my son.

Should I just leave things as they stand, or is it worth getting advice? The sums are not huge, so I don't want to spend a lot of money on advice - especially when I could start researching this myself. :huh:

Your SIPP is more volatile than the defined-benefit schemes. Your defined-benefit schemes won't lose value. Someone else (the scheme sponsor) is taking all the risk on a DB scheme, not you, which is a valuable benefit (look at what an annuity costs to get an inkling of the value of someone else bearing that risk for you).

Your "partner"? So you're not married? That can be highly significant for DB schemes. An unmarried partner might not get any survivor benefits.

It is almost impossible to get any new defined-benefit pension membership in the private sector, which should give you an idea of how expensive and financial dangerous it is to provide a pension for somebody else. In your SIPP, you take on those costs.

It may be beneficial to have a mixture of defined-benefit and defined-contribution schemes in your pension provision.

If it isn't broken, why try to fix it?

Warmest regards,
FA

AlanP_2

So, in today's money £8.3k per year (inflation linked probably) for LIFE.

That's before they continue to increase whilst still deferred.

JoeCrystal

Wobblydeb wrote: »

The sums are not huge,

Especially when combined, it is similar to what the maximum new state pension is. So it is rather huge sum in many respects. It is still very worth having, especially when fewer people have access to such scheme. If your pension schemes collapsed, no worries, Pension Protection Fund will pay out instead. No such remedies are available for DC pension scheme which may suffer a major market crash potentially delaying the retirement.

OldBeanz

Starting from the wrong end. Work out how much you need. Bird in the hand as far as DB pensions are concerned for most. £16.5k guaranteed income plus partner support suggests you can take more risks (and rewards) with your SIPP.

sandsy

You're not comparing like with like.

With a SIPP, the value of the pot increases (or decreases) with investment returns.

With a DB pension, the annual income which is payable for life increases annually with an inflation index. So the increase applies to the starting level of income which could be paid for 30 or 40 years, depending on how long you live, and will itself increase each year once it starts being paid.

cloud_dog

Depending on age, amount in the SIPP, amount likely to be in the SIPP come the time you draw on it I would be tempted keep the DB pensions (despite the potential large transfer value), and to think of the DB pensions as 'Risk Management' offsetting the increased risk via the SIPP.

It almost seems like an ideal situation.