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Advice re deferred defined benefits pension

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Advice re deferred defined benefits pension

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mpensionmpension Forumite
23 posts
Hi,

I would appreciate some advice if anyone has time?

I have a deferred defined benefits pension. I haven't been paying into it for over ten years, but it is index linked.

the current pension value is approx 1000gbp per month or 8700 with a 25% cash free lump.

However, the transfer value is 380000. this does not seem to add up with the 25% lump.

is this normal for DB pensions and would I possibly be better off transferring the pot into another pension?
Ideally, id like a pension where my wife and then child get some money from it after Im gone.

Thank you in advance
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Replies

  • edited 19 May 2019 at 1:54PM
    SilvertabbySilvertabby Forumite
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    edited 19 May 2019 at 1:54PM
    mpension wrote: »
    Hi,

    I would appreciate some advice if anyone has time?

    I have a deferred defined benefits pension. I haven't been paying into it for over ten years, but it is index linked.

    the current pension value is approx 1000gbp per month or 8700 with a 25% cash free lump.

    However, the transfer value is 380000. this does not seem to add up with the 25% lump.

    is this normal for DB pensions and would I possibly be better off transferring the pot into another pension?
    Ideally, id like a pension where my wife and then child get some money from it after Im gone.

    Thank you in advance

    The reduced pension/25% tax free cash option depends on the scheme commutation rate. The public sector use a relatively poor rate of 1:12 (ie, give up £1 of annual pension for every £12 of tax free cash) but other schemes are more generous.

    Don't try to compare the 25% tax free cash should you remain with your DB scheme with 25% of the CETV value - it's apples and oranges.

    The CETV of £380,000 in return for an annual pension of £12K is a little over 30x, so it's a good bet that you are in a private DB scheme. (The only public sector scheme which still allows transfers out is the LGPS, and the GAD set transfer factors are nowhere near that!).

    No-one on here can/will advise you to transfer or not, I'm afraid - not allowed. However, as your CETV is over £30K you will have to take (and pay for) independant financial advice. Be aware that this advice is becoming rarer and more expensive, due to the increase in insurance premiums IFAs now have to pay to help safeguard themselves against mis-advice claims in the future.


    HTH !
  • AlbermarleAlbermarle Forumite
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    Cashing in your DB pension is a very serious financial decision . To add to the comments above I suggest you read this good review of the pros and cons .
    https://www.moneyobserver.com/final-salary-pension-transfers-scenarios-when-you-should-consider-transferring
  • JillyC8JillyC8 Forumite
    165 posts
    I've been Money Tipped!
    How can advisors be sued later on if they have advised the pension holder not to transfer but they choose to do it anyway? (Be gentle)
  • JillyC8JillyC8 Forumite
    165 posts
    I've been Money Tipped!
    mpension wrote: »
    Hi,

    I have a deferred defined benefits pension. I haven't been paying into it for over ten years, but it is index linked.

    the current pension value is approx 1000gbp per month or 8700 with a 25% cash free lump.

    However, the transfer value is 380000. this does not seem to add up with the 25% lump.

    is this normal for DB pensions and would I possibly be better off transferring the pot into another pension?
    Ideally, id like a pension where my wife and then child get some money from it after Im gone.

    Do you mean 8700 a year?

    If so I'm in a similar position with an old DB pension although mine is worth less. Prepare for some negativity. DB pensions were designed to provide an income for life and the pension freedoms only apply to DC pension so they're better off left alone.

    Like you I would like to transfer mine at some point as I don't have a spouse, have other arrangements and would like to leave money to my children, but to do so would cost a lot in advice so I doubt it's worth it in my case.
  • edited 19 May 2019 at 4:40PM
    SilvertabbySilvertabby Forumite
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    edited 19 May 2019 at 4:40PM
    JillyC8 wrote: »
    How can advisors be sued later on if they have advised the pension holder not to transfer but they choose to do it anyway? (Be gentle)


    It's already happening! DunstanH and hyubh may pop up with some anecdotal accounts, otherwise look at the Pension Ombudsman website for some past cases. Seems if a pension fund member transfers out against the advice of the IFA, and then later loses a shedload of money, then the IFA could still be deemed to be at fault because they (the expert) weren't robust enough with their warnings to the pension fund member (not an expert, and so can't be be expected to know what they were doing).

    And it's still early days.... Pension Freedoms was just yesterday, in pensions speak, and the majority of people of who transferred out of their DB pensions (including public sector pensions) either haven't retired or have only been retired for a year or two. There hasn't been a major stock market crash in that time so, those with pensions in reputable personal pensions/SIPPs etc shouldn't be in any pain - but it would only take an overnight drop of 20% to make a difference. That, plus the temptation to 'draw down' well over any safe rate, could see many people potless in 10 or 15 years time. They will then compare what they have (nothing) with what they could have had if they had remained in their DB schemes and feel hard done by. Then the trouble will start.
  • JillyC8JillyC8 Forumite
    165 posts
    I've been Money Tipped!
    It's already happening! DunstanH and hyubh may pop up with some anecdotal accounts, otherwise look at the Pension Ombudsman website for some past cases. Seems if a pension fund member transfers out against the advice of the IFA, and then later loses a shedload on money, then the IFA could still be deemed to be at fault because they (the expert) weren't robust enough with their warnings to the pension fund member (not an expert, and so can't be be expected to know what they were doing).

    And it's still early days.... Pension Freedoms was just yesterday, in pensions speak, and the majority of people of who transferred out of their DB pensions (including public sector pensions) either haven't retired or have only been retired for a year or two. There hasn't been a major stock market crash in that time so, those with pensions in reputable personal pensions/SIPPs etc shouldn't be in any pain - but it would only take an overnight drop of 20% to make a difference. That, plus the temptation to 'draw down' well over any safe rate, could see many people potless in 10 or 15 years time. They will then compare what they have (nothing) with what they could have had if they had remained in their DB schemes and feel hard done by. Then the trouble will start.

    It's surprising the pension freedoms exist at all, given the risk of running out of money later on. Maybe it will be revoked at some point.
  • edited 19 May 2019 at 3:47PM
    SilvertabbySilvertabby Forumite
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    edited 19 May 2019 at 3:47PM
    JillyC8 wrote: »
    It's surprising the pension freedoms exist at all, given the risk of running out of money later on. Maybe it will be revoked at some point.

    It was a good idea - ie, treat people like adults - but I fear that far too many people will end up later in life with nothing but the State pension to live on.

    When the Pension Freedoms were announced, it was made clear that they only applied to DC pension schemes (ie, in order to drawdown instead of purchasing a poor value annuity) and not DB schemes. Unfortunately, a lot of people didn't read all the details and the LGPS was swamped with phone calls from fund members (both deferred and current) who wanted 'their money' to be transferred to their bank accounts. The only way they could do this was by first transferring their LGPS benefits to a private pension plan, even though the CETV was often less than 20 x the pension given up, but many still did this. LGPS administrators aren't allowed to give actual financial advice, but I would explain what they would be giving up in return for a less than generous CETV (and a big tax bill). Sadly, I feel that many had already mentally spent their expected windfall by then, so my words usually fell on deaf ears.
  • JillyC8JillyC8 Forumite
    165 posts
    I've been Money Tipped!
    It's understandable how DB pension holders might feel it's better to transfer though. If you have a DB pension and croak it at 65 and there is no spouse where does it go?

    It would be better if the govt could come up with a set of 'rules' around this, for instance, those wishing to transfer may need to tick certain boxes first, such as having other arrangements in place, before they're allowed to transfer.
  • AlbermarleAlbermarle Forumite
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    It's surprising the pension freedoms exist at all, given the risk of running out of money later on. Maybe it will be revoked at some point.
    The freedoms have been welcomed and put to good use by the more knowledgeable and responsible people. However it also makes it easier for people with little/no knowledge of financial issues , to make big mistakes and even get scammed completely. This was blindingly obvious at the time they were introduced and with hindsight the freedoms should have been more restricted ( although not stopped altogether )
    I think it shows how sensitive DB transfers are when :
    1) Experienced IFA's have to pay a fortune for indemnity insurance against future claims
    2) Many pension providers will simply not accept a DB transfer without a positive reccomendation , even though it would be good business for them .
  • edited 19 May 2019 at 4:12PM
    JoeCrystalJoeCrystal Forumite
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    edited 19 May 2019 at 4:12PM
    I am not entirely sure, but I think there used to be a guaranteed income of £20k+ before taxes requirement before allowing flexible drawdown on other pension funds. But then, it will only allow access to selectively a few people which defeats the whole point of pension freedom.
    IThey will then compare what they have (nothing) with what they could have had if they had remained in their DB schemes and feel hard done by. Then the trouble will start.

    I am looking so forward to reading the posts from bitterly disappointed or unhappy people who transferred out their DB pension scheme. ;)
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