DB vs SIPP vs pension planning

LHW99

And unless you are post 75, there is no inheritance tax planning do do as the pension is inherited tax free.

True as far as DC pots are concerned, but I understood the comment to be that some other persons had transferred out of a DB pension and thought they had got some improvements by doing so. My understanding is that DB pensions generally have spouse and (limited) dependents only, so do not allow money to be passed on to (say) non-dependent children / grandchildren after the death of the DB pension holder..

kidmugsy

tiernsee wrote: »

Currently I have three frozen DB pensions - total annual payment from these projected at c£10k

I have a DC pension which I am not currently contributing to with about £70k in

I have my work DC pension which they and I contribute to which has approx. £330k in, I am contributing around £35-40k pa into this and am planning on retiring in 9 years

Apart from their intrinsic merits DB pensions are treated absurdly generously for purposes of the lifetime allowance (LTA). That could matter to you. Your £10k p.a. of DB pensions would be valued at £200k. Your £400k in money purchase pensions counts as £400k plus any investment growth that has occurred by the time you crystallise it. £40k x 9 = £360k. Total, if there is neither growth nor shrinkage = £960k. LTA = a tickle more than a million. Tight!!

atush

LHW99 wrote: »

True as far as DC pots are concerned, but I understood the comment to be that some other persons had transferred out of a DB pension and thought they had got some improvements by doing so. My understanding is that DB pensions generally have spouse and (limited) dependents only, so do not allow money to be passed on to (say) non-dependent children / grandchildren after the death of the DB pension holder..

'Some improvements' is a subjective response with no facts attached.

No nondependent children or GC get a payout with DB but dependent children and some non married partners can- dependent on the scheme. Normal or long lived persons and their spouses can do much better with an index linked penson for the rest of their life.

you are being very selective with your quote and I explained quite clearly instances in which transferring out of a DB pension can be a good idea.

sandsy

The problem is that you will never know if it's "better" or, indeed, worse unless you do it.

DB schemes offer certainty of retirement income. The scheme trustees manage all the investments which is aimed at proving a secure pension for as long as you live. A pension which will generally increase with inflation and offers spousal benefits. The downside is that everyone's in it together - those who die early won't get as much as those who live longer, so there's cross subsidies between members, a pooling approach.

In DC schemes, you're the one with responsibility for achieving your lifetime income - or paying others to do it for you, ie. a financial adviser to tell you what funds to invest in, an investment fund manager for managing assets within a fund, a pension provider for providing admin services. The upside is the flexibility you have to take benefits in a way that suits you better. The downside is the risk of failing to manage it properly or investments performing poorly or, horror of horrors, living too long and running out of money.

A good adviser will try to find out what is important to you in retirement, tease out of you how much you value security over risk, look at your financial capability to take on investment risk and make a judgement on which scheme is right for you. However, they can't predict the economic future and tell you for certain that you will be better or worse off.

xylophone

Get a state pension statement.

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

Your DB pensions (check normal scheme retirement age) revalue in deferment and will almost certainly be index linked (or partially index linked) in payment.

There will probably be a widower's pension.

The scheme booklets should clarify.

https://www.royallondon.com/Global/documents/GoodWithYourMoney/COMPANY-PENSIONS-FIVE-REASONS-TO-TRANSFER-OUT-AND-FIVE-REASONS-NOT-TO.pdf

Might it be worth considering transferring your personal DC pension into your workplace pension?

DairyQueen

For most people, most of the time, transferring from a DB scheme is a very bad idea. Giving-up a guaranteed, risk-free, maintenance-free, wholly/partly index-linked income, with widow/dependent benefits, is not something that anyone should do without fully understanding the consequences. It is also considered a high risk advisory area and many IFAs would rather forego the business than invest in the qualifications/insurance required to do so.

The chances of you receiving a recommendation to transfer are very small. Even if you do, many platforms will refuse to accept transfers from a DB scheme.

Having said that, I am one of the minority for whom it was recommended.

There were several factors which, when viewed collectively, swayed that decision:

- I have reduced life expectancy.
- We have other guaranteed sources of income (spouse has a generous DB scheme and we will both receive full SP).
- Spouse's pensions will provide him with plenty of income. He has no need of my DB widow benefits.
- We have other assets and SIPPs/DC.
- I have no children, and spouse's children are adults, so dependent benefits are not required.
- I was offered an enhanced CETV (cash equivalent transfer value). This was well above what I would have expected to receive if I had requested a transfer.
- IFA was satisfied that I was able/willing to take-on the risk of managing the fund myself and I also understood the cost (platform fees, fund charges) of doing so. I also understood the cost of paying an IFA to manage the fund should I ever be unable/unwilling to do it myself.
- Once in payment my DB pension was not fully index-linked. It was therefore guaranteed to lose value over time and especially so during periods when inflation exceeded 3%.
- Our circumstances are such that income tax as a couple needs to be carefully managed. Having the flexibility to determine my taxable income each year is therefore a benefit.
- It is unlikely that the balance of the fund will be needed by OH on my death. I am therefore able to pass this to my nephews free of inheritance tax, and they can receive it free of income tax if I die before age 75. This is a far better option for me than the only death benefit that would apply from the DB pension - a widow's pension that my husband does not need, that will reduce in value in real terms, and which would die with him.

So, yes, there are circumstances when it is 'better' to transfer out of a DB scheme but the factors that support such a recommendation do not apply to most people.

atush

LHW99 wrote: »

True as far as DC pots are concerned, but I understood the comment to be that some other persons had transferred out of a DB pension and thought they had got some improvements by doing so. My understanding is that DB pensions generally have spouse and (limited) dependents only, so do not allow money to be passed on to (say) non-dependent children / grandchildren after the death of the DB pension holder..

Which is why i said what i did by low LE. People of average health at retirement have an LE Above age 75.

Wirenth

It depends entirely upon your age, circumstances and goals. For the record, I have done it, but I am in my 30s, single, in good health and no depedents.

I had a small deferred 'Chapter 14' pension from a previous employer that would pay out £252 per annum (statement 2003) at age 65. But if I were to receive a state pension (which I am), this would be chopped by 25%.

I have another DB pension into which I am still contributing (yes, I realise my luck!), which would a) kick in at age 65 and b) consume all of the 0% personal allowance tax band. (And no, I would NOT transfer this one!)

So that small £252 pa pension, sliced by 25% because I would receive a state pension, would be further sliced by 20% tax.

The transfer value was approx 8K, so for me, no advice required. I transferred it into a SIPP (AJBell) and will use it to fund a year's retirement prior to age 65.

Think about what you want to do, and why...

Thrugelmir

jsinc wrote: »

Shame there's not a retail market in DB-DC pension swaps. If I had the opportunity to acquire DB pension benefits on typical scheme terms using my SIPP/earnings I'd probably buy the max possible.

You may well find the cost prohibitive if you were to do so. The purchase cost of index linked annuities is a clearer indication of the cost of providing a guaranteed life income. A long bull market understandably excites people. "Making" money is in reality far harder and certainly far less predictable.

jsinc

Thrugelmir wrote: »

You may well find the cost prohibitive if you were to do so. The purchase cost of index linked annuities is a clearer indication of the cost of providing a guaranteed life income. A long bull market understandably excites people. "Making" money is in reality far harder and certainly far less predictable.

Agree and prohibitive at some transfer multiples I've seen, but implied multiples on some scheme and APC terms are good in risk/reward terms. One obviously needs to balance that against broader salary and benefits, so I may be a little jealous but not critical.

(Apologies to the OP if derailing the thread, but I find DB vs DC and transfer opinion fascinating. Most of my career has been in financial markets but I'd probably pay up today for secure yet dull future pension income. Many I've worked with think similarly. I'm not sure if that's mostly a function of opinions on markets and participants, or on pensions)