Spouse element of DB Pension

Thrugelmir

vacheron wrote: »

I have an old Rolls-Royce DB pension which will be worth £4,100 when I reach 67 (in 2041) and my wife will receive 50% (£2,050) per year if I drop off the perch.

The current transfer value for that R-R pension (as checked online 3 minutes ago) is £174,400.

RR trustees will be looking at 10 year gilts yielding 1.63%. That's lower than the current rate of inflation and weighing up the future funding and administration costs of providing your pension. Jam today looks attractive but is it the right decision? No guarantee as to future investment performance.

mark55man

Because your pension seems mainly to be in the DB schemes (and thats not a bad place to be) you have to live with the downside that you don;t have a lot of flexibility unless you have been saving into other mechanisms (eg ISA)

The alternative to getting a CETV and taking the money is taking your DB early (but at a acturially reduced rate) so that the pension money kicks in earlier to help with the mortgage but you get less in the long term if there is a long term (if ther isn't you are up on the deal)

Separately there are regular threads on here saying that given the choice between investing in a pension and overpaying the mortgage - then the latter is worse value unless you are paying an unreasonably high mortgage rate. Focussing on mortgage first denies you the normally better returns available from the a balanced market - so leaving the security of DB to tuen it into cash to pay off the mortgage does seem to be doubling down and not in a good way

That said, CETV at the moment are quite high and many think this is unlikely to last for ever, so if there was any reason to think about it early that is it - but even that will play out over years and not be a knife edge. The way they work out the CETV is complex and I believe favours people who are nearer retirement, as the uncertaintlies of RPI and market return are more worked out (as you have less time to go - ie instead of having to estimate RPI they will have known figures for later)

Lastly! - you have to remember that when the CETV is calculated it has to be at no detriment to the remaining members of the scheme, thereby by definition its not in your best interests (at least by the measurements that the trustees are using).


Sorry a bit of a ramble - I'm not a professional but I have thought a lot about it.

DairyQueen

JillyC8 wrote: »

DairyQueen: I take your point... the driving factor for me is being able to improve my life (our lives) at a younger age rather than struggle along for another fifteen years to pay the mortgage and wait to build up to a more than comfortable situation later on in old age...

but of course its true I don't like the thought of a hard-earned pension disappearing when I do, if I pop off early ... I'd much rather pass the benefit on...

But the probability is that you won't pop off early. Always protect your income before any other consideration. For example, what if you are one of those who live to 100 rather than die at 60? Will you have sufficient income to cover that possibility?

I will. Thus, I could afford to take the risk of transferring-out of my DB.

JillyC8

mark88: good points made ... but what about mortgage rates? Aren't they only going to rise ... and is it not better to clear as much as possible whilst they are low? I'm a lone parent and don't have anyone to 'lean on' if things go wrong, hence the obsession with paying the mortgage down and making sure the roof over my head is safe.
DairyQueen: I thought you had taken the DB due to a potential shorter life span ... as to living till 100 I do have another DB pension which, although small, would boost my SP so not too worried about that ...

All good points to think consider ...

Thrugelmir

mark88man wrote: »

Separately there are regular threads on here saying that given the choice between investing in a pension and overpaying the mortgage - then the latter is worse value unless you are paying an unreasonably high mortgage rate. Focussing on mortgage first denies you the normally better returns available from the a balanced market - so leaving the security of DB to tuen it into cash to pay off the mortgage does seem to be doubling down and not in a good way

If you are in a secure job, suffer no relationship breakdown or serious health issues then by all means speculate. People are born with genes that place them somewhere on the scale of being either optimists and pessimsts.

Personally I always suggest caution. People need to be comfortable with their own decision. Not be sucked into a mantra of great stock market returns. On the back of a long bull run.

dave23

JillyC8 wrote: »

I guess I don't see myself jetsetting at 75 or pursuing an expensive lifestyle, so a case of finding a balance.

You might change your mind on this as you get older. My mum is 80 and still has a least one weeks holiday in the sun every year.

JillyC8

I'd still be able to go on holiday ... this isn't the only pension I have but it is potentially the most valuable one ...

The reasons I have for considering transfer are:

- Company not performing well and have been going downhill for some years so concerned they won't be able to fund the scheme for much longer
- Don't need the spouse element
- Large mortgage that I want to clear earlier for security/peace of mind
- move towards semi retirement earlier than 65
- freedom to leave something for loved ones when I'm gone

Reason for leaving it alone:
- Income for life