Pulled out my DB transfer, advice needed.

marco_79

I have recently cancelled my proposed DB transfer after reading lots of threads on here, doing my own research and worrying about a big correction in the stock markets. The transfer was x43 at £930k for £22k pa pension, index linked. I'm only 38.


Plans were well in motion and would have been signed off by my FA due to the high value of the transfer, the time it has to grow and risk of ending up on PPF some way down the line, losing the index link feature and 10% of my DB.


With inflation over 3% and on-going fees of 1.5% I would need to have made 4.5% just to stay still. I think a lot of people like me will put their CETVs into a compound interest calculator and have dreams about being mega rich in their old age. I have now realised that the prospects of losing everything are far too great in comparison to this potential benefit.


I'm deferred from the DB scheme now due to a company takeover so keeping it going was not an option.


Anyhow to the advice required part. As guided by the FA the surplus income I have now got not going to a pension which is £1200 per month is going into a S&S ISA currently. The thinking behind this being I would be breaching the LTA shortly with the CETV if I kept putting more in a pension.


However taking this £1200 out each month after tax is putting my taxable income up to over £120k which means I'm losing all the tax free allowance. The net £1200 is the companies pension contribution but can be taken as cash or would be over £2300 going into a pension. This tails off to £550 net, £950 gross over the next 10 years.


I could remedy this tax situation quickly by putting that £1200 into my new companies DC scheme and claiming 40% tax back.
The downside being I can't touch the money to retirement.


Our situation is -
Wife has an old DB deferred at £3.5k pa index linked, age 60, CETV £120k .
My DB is £22k PA index linked to max 5%, age 60.
Mortgage £100k on a £250k property. 12 years left.
Savings and other other investments about £50k.
Job is about secure as it gets these days.
Fit and healthy, marathon training.


My gut feel is to leave our DBs as the foundation of our retirement along with the state pensions. Then put the £1200 (£2300 gross) into my new companies DC pension in an index link tracker fund and ride the bumps in the market. I feel that this is a decision I'm going to have to make and stick with as if I decided to transfer later presuming CETVs stay elevated I would be hit with a very large tax bill at retirement.


The alternate is I split it and put some in the DC and some in a S&S ISA.


We are not extravagant spenders. I think we could get by on our projected DBs as they stand but tight. Having £3k per month net income at 60 however is a goal.


Thoughts please.

sandsy

If you’re not transferring the DB, the LTA problem immediately falls away. Leaving the DB pension where it is means it is only valued at £440k (20 x £22k) for LTA purposes. So I’d go ahead with contributing to the work DC scheme and try to get your personal allowance back for as long as possible.

IanSt

I don't know at what age you are thinking of retiring, but if it were me then although adding to the DC would be a big plus I would still also keep adding into the S&S ISA. It's a pretty good feeling to have the ability to retire early at a time of your choosing without having to worry that the pension money is locked out due to age.

And although your job seems pretty safe, I'd also want to aim to have a big chunk in cash savings just in case. Many people reckon that 6 months salary is a good goal to aim for.

Malthusian

Plans were well in motion and would have been signed off by my FA due to the high value of the transfer, the time it has to grow and risk of ending up on PPF some way down the line, losing the index link feature and 10% of my DB.

To be pedantic you would not lose the index-linking feature, there would just be a lower cap on increases.

I am not in a position to say you made the right choice but it's interesting to hear an alternative opinion from someone who has had the eye-catching 44x CETV and walked away. I'm guessing that to have accumulated a £22k DB pension by 38 you must be a fairly high earner. (Assuming it's £22k at date of leaving or today's date, and not a projection to normal retirement age.)

That suggests you're quite likely to want at least £22k in retirement over and above your State Pensions, which, in the absence of any other guaranteed income to cover that £22k, sets a high bar to make the transfer suitable.

I agree with Sandsy. You are less than halfway to the lifetime allowance at present. And if you can get 60% tax relief by paying pension contributions within the £100k-£123k 60% tax band, it's a no-brainer. Even if these contributions are eventually hit by a lifetime allowance charge, if you're a basic rate taxpayer in retirement (even with State Pension + DB pension you'll have a substantial chunk of the higher rate tax band left), and take the excess over your lifetime allowance as income, you'll pay net 40% tax (75% * 80% = 60%) having had tax relief at 60%.

Even if you're a higher rate tax payer in retirement, you'll pay 55% on the excess over the lifetime allowance which is still lower than the 60% tax relief you got on the way in.

And with the current fund being worth £440k if you don't transfer out, it's too early to worry about the Lifetime Allowance anyway.

The above discussion of tax rates is almost certainly irrelevant to you because the tax system will be unrecognisable in 20-30 years' time. But we can only go by the current system. No matter what the tax system looks like in 20-30 years' time, I think it's very unlikely that you'll be worse off by taking 60% tax relief now.

AlanP_2

Doesn't sound like your wife is currently contributing to a pension. If she isn't it would worthwhile paying into one for her once you have maxed your better tax benefits.

Won't make a massive difference given your overall situation possibly but every little helps as they say.

marco_79

Malthusian wrote: »

To be pedantic you would not lose the index-linking feature, there would just be a lower cap on increases.

I am not in a position to say you made the right choice but it's interesting to hear an alternative opinion from someone who has had the eye-catching 44x CETV and walked away. I'm guessing that to have accumulated a £22k DB pension by 38 you must be a fairly high earner. (Assuming it's £22k at date of leaving or today's date, and not a projection to normal retirement age.)

That suggests you're quite likely to want at least £22k in retirement over and above your State Pensions, which, in the absence of any other guaranteed income to cover that £22k, sets a high bar to make the transfer suitable.

I agree with Sandsy. You are less than halfway to the lifetime allowance at present. And if you can get 60% tax relief by paying pension contributions within the £100k-£123k 60% tax band, it's a no-brainer. Even if these contributions are eventually hit by a lifetime allowance charge, if you're a basic rate taxpayer in retirement (even with State Pension + DB pension you'll have a substantial chunk of the higher rate tax band left), and take the excess over your lifetime allowance as income, you'll pay net 40% tax (75% * 80% = 60%) having had tax relief at 60%.

Even if you're a higher rate tax payer in retirement, you'll pay 55% on the excess over the lifetime allowance which is still lower than the 60% tax relief you got on the way in.

And with the current fund being worth £440k if you don't transfer out, it's too early to worry about the Lifetime Allowance anyway.

The above discussion of tax rates is almost certainly irrelevant to you because the tax system will be unrecognisable in 20-30 years' time. But we can only go by the current system. No matter what the tax system looks like in 20-30 years' time, I think it's very unlikely that you'll be worse off by taking 60% tax relief now.

The £22k is at date of leaving. Projected at age 60 is £36k. Thanks for your help I’m think along the same lines.

marco_79

IanSt wrote: »

I don't know at what age you are thinking of retiring, but if it were me then although adding to the DC would be a big plus I would still also keep adding into the S&S ISA. It's a pretty good feeling to have the ability to retire early at a time of your choosing without having to worry that the pension money is locked out due to age.

And although your job seems pretty safe, I'd also want to aim to have a big chunk in cash savings just in case. Many people reckon that 6 months salary is a good goal to aim for.

If I could retire tomorrow I would. One of the drivers for going down the DB transfer route was to get my hands on it at 58 and the S&S ISA would have been a FIRE for a retirement between 50 and 55. As I said above I’m just not comfortable with the investment risk at this stage in the market and I know timing the market is never a good idea. I will continue with the FIRE fund but it will take much longer than it would have had my DB transfer performed well. It’s just too much of gamble with nothing to fall back on.

Our target as a couple is £3k per month in today’s money at retirement, we are not a million miles away from that without the risk of a DB transfer. When I was a kid we barely had enough money to eat, going back to that is my worst nightmare.

cloud_dog

marco_79 wrote: »

As I said above I’m just not comfortable with the investment risk at this stage in the market and I know timing the market is never a good idea.

As you are talking about starting to add to a DC pot and possibly ISAs also, I don't think you should worry too much about trying to time the market (as you mention). If you start and in 6 months time there is a correction/crash...all the better for you in the long run.

Alternatively, if you are so very worried about a correction/crash and do want to time the market then (wouldn't normally suggest this but...) isn't there a cash or near cash option within your DC plan?

TBC15

x43 / £930k age38 for a 22K pension and binned it!!!!!

You will get a spanking soon on your next transfer value.

marco_79

TBC15 wrote: »

x43 / £930k age38 for a 22K pension and binned it!!!!!

And explain!

TBC15

I recently transferred a £174K ish pension on X42 if I sharpen my pencil to an extreme point, in my current circumstances at the age of 58.

You are 38. Someone at the age of 38 with such finances should seriously consider instigating finances as an interest/hobby