DB Pensions for Muppets?

rathernot

I have a pension from a DB scheme, USS.

I no longer pay in as I now work in a different field with a different scheme so I believe I'm classed as a deferred member.

I have my last statement from 2015 which says I have accrued approximately:

* Prior to 2011 a deferred pension of £2500 p/a
* A lump sum of £7700

* From 2011 a deferred pension of £1800 p/a
* A lump sum of £5555

If I use their modeller here https://www.ussbenefitmodeller.co.uk/deferred/pension_increase with the £2500 and £1800 figures it spits out that aged 65 I should have a pension of £8100 p/a and a tax free lump sum of £25K.

Their calculation is based on (Pensionable service x Pensionable Salary) / 80.

When I left my salary was £39K and my service was 9 years.

Their modeller is a little short of detail on how they get their figures and the only variable you can adjust is inflation.

How accurate is it likely to be please?

NoMore

It will be correct for current date, for the future its a guess that you choose on what inflation is likely to be.

The 9/80ths is not going to change as your no longer in the job, the 39k will be adjusted for inflation and thats the guess bit.

rathernot

Thank you, so the bit I'm being dumb on is this - is the only thing influencing the future value inflation?

NoMore

yes, to check in that calculator if you set inflation to zero, you get the same results in the future as you get today.

kidmugsy

rathernot wrote: »

Thank you, so the bit I'm being dumb on is this - is the only thing influencing the future value inflation?

All that's adjustable is the inflation-protection number. But that might not equal the CPI rate of inflation because the scheme documents simply say, in effect, that the inflation-protection should be the same as for civil servants. And governments can change the latter on whim. Though probably only in dire economic emergency, I'd think. (The last change, from RPI to CPI, was part of dealing with Gordon Brown's crazy spending spree as Chancellor.)

If people were allowed to sell DB pension rights you'd find keen customers queuing up to buy yours.

rathernot

Thank you I did query things like transfer values some time ago but my understanding is that transfer values are based on the assumption of "If we're going to be paying £8k p/a for 30 years that's £240k so let's make an offer to get it off our books now".

I understand that DB pensions are coveted but I'm keen to understand something.

Right now my "pot" on that old pension is whatever it is and is subject only to inflation, correct?

In very simplistic terms let's say they offered £200K as a transfer value.

If that's in the markets for 20 years (the approximate time I have left until 65) @ 5% interest a quick calculation puts me at around £550K in the pot at retirement time.

I get that markets aren't guaranteed whilst a DB pension is, but I am still a little unclear in this scenario whether keeping the DB is as much of a no-brainer as it sounds?

Frankly I'd almost forgotten about it so either way it's a bit of an unexpected welcome gift

Kynthia

Would £200k guarantee you the annual income every year no matter how long you lived, no matter how high inflation got, no matter how poor investments went, no matter your skill level at managing larger pots, etc. Would it pay your spouse a percentage until their death, no matter how long they lived, and if you died young wpuld this pot pay your children a pension until adulthood along with your spouse for the rest of their life? Would this pot allow you to retire early should you become too ill to work?

I'm guessing it wouldn't.

rathernot

Thank you Those are all good points.

In my situation there is no spouse or dependents so being purely selfish I guess those don't come into play unless my personal circumstances change.

Illness and (for example) early retirement are good points, hopefully considering the latter more than the former hence starting to look ahead a little more

To be clear I'm not saying I want to transfer, simply trying to understand pros and cons, like I said I've been very slack on this stuff other than ensuring I pay in.

Albermarle

Firstly I suggest you spend some time going back through the numerous threads on this board on the subject of taking the CETV ( Cash equivalent transfer value ) vs keeping the DB annual income promise.


In advance here are a couple of points worth noting:
1) There is no fixed pot as such , the scheme will take a view on what the CETV should be . Some schemes offer more generous CETVs than others even though the DB benefits may be similar.
2) Before transferring you have to take mandatory advice from an IFA qualified in the subject . These can be difficult to find and will charge a few Grand. It's quite probable they will advise you not to transfer In fact as you have had the advice you can still go ahead with the transfer but if you have had advice not to transfer it can be difficult to find a pension provider to accept a transfer, but not impossible.. It is because everybody is cautious after problems with DB transfers in the past proving disastrous for the individuals concerned ( British Steel for example. )

kidmugsy

rathernot wrote: »

In my situation there is no spouse or dependents so being purely selfish I guess those don't come into play unless my personal circumstances change.

That's an important point. If you are male, however, you can become a parent fairly easily until a ripe old age.

In your shoes I think I'd find out how often they'd provide me with a free CETV valuation. Annually? Once every two years? ....

Then I might ask for the occasional valuation.

I wonder what effect a huge stock market crash would have. It might increase the attraction of a transfer since you could then invest when shares are cheaper. But would it reduce the CETV offered? I have no idea.

glennevis

If you're thinking of early retirement note that the USS scheme for deferred members only becomes payable at state retirement age. So as that increases to 66 then 67 or even 68, the date you can draw the full pension without actuarial reduction will shift.