Reasons to cash in a DB pension?

Marine_life

I am approaching 55 and one of my pensions will commencing paying at age 63. Depending on the transfer value, I am considering transferring that to a DC pension in order that I can have more control over the money.

My rationale being as follows:
1. It isn't the largest portion of my pensions.
2. I would likely pay tax at the higher rate once the distributions start.
3. I would like to have the flexibility to leave the money as an inheritance.

I recognise that I would sacrifice an index linked pension (with, in this case, 50% spousal benefit) but what are the other factors I should take into account?

tacpot12

Transferring will require you to take advice from a IFA Pensions Transfer Specialist, and this will be expensive, so your pot will be a bit smaller than the transfer value. The advice is expensive because of the insurance that the IFA has to carry in case they mis-advise you.

The other consideration is do you want to manage the investment yourself, and have the worry of doing this, or do you want to pay someone to manage the DC pension for you?

Apart from that loss of the inflation protection (index linking) and spouse's pension, I can't think of anything else.

The IFA will lay out all the pros and cons. I would advise that you tell the IFA you are approaching the decision with a completely open mind, but ensure that in the fee structure you agree that they agree they will sign any paperwork required by your DB scheme to allow you to transfer. Not that some DC schemes won't accept a transfer if the IFA does not recommend it. There are SIPPs that will accept a transfer without an IFA recommendation.

mark55man

start by asking your scheme to give you a CETV valuation - in our scheme the CETV value favoured those a few years (2-4) away rather than more (5-10) so timing is an issue. also different schemes have different valuation assumptions so I think you need to know what amount you are talking about before its worth doing too much investigating. most schemes allow 1 free valuation per year (may even be a requirement for them to allow this, mine just does)

LHW99

Apart from that loss of the inflation protection (index linking) and spouse's pension, I can't think of anything else.

Using up the pot too soon - could you survive on just the other pensions?
What is you wife's provision for after you pass on? Could she cope with having to monitor the DC pot?

Marine_life

tacpot12 wrote: »

Transferring will require you to take advice from a IFA Pensions Transfer Specialist, and this will be expensive

Does it have to be expensive? i.e. are those fees regulated / dictated?

tacpot12 wrote: »

The other consideration is do you want to manage the investment yourself, and have the worry of doing this, or do you want to pay someone to manage the DC pension for you?

Yes, I would be fine doing that.

ex-pat_scot_2

You will also need to factor in the LTA considerations.
Your DB will be valued at a simple multiple of 20x the annual benefit, for LTA purposes, whereas your CETV might yield nearer 30x to 40x ...
That could be enough, when combined with your other DC pots, to take you over the £1.055m LTA

xylophone

Are you a non resident?

If so, will this raise problems in respect of finding a provider to accept the proposed transfer?

Marine_life

mark88man wrote: »

start by asking your scheme to give you a CETV valuation - in our scheme the CETV value favoured those a few years (2-4) away rather than more (5-10) so timing is an issue. also different schemes have different valuation assumptions so I think you need to know what amount you are talking about before its worth doing too much investigating. most schemes allow 1 free valuation per year (may even be a requirement for them to allow this, mine just does)

I have requested the CETV just waiting for it to arrive.

Marine_life

ex-pat_scot wrote: »

You will also need to factor in the LTA considerations.
Your DB will be valued at a simple multiple of 20x the annual benefit, for LTA purposes, whereas your CETV might yield nearer 30x to 40x ...
That could be enough, when combined with your other DC pots, to take you over the £1.055m LTA

It shouldn't cause a problem as my main pension is from overseas who is outside of the LTA calculations.

For this one I expect a CETV of £250 - £300 k and other than that I only have another c. £75K in UK DC pots.

xylophone

Does it have to be expensive? i.e. are those fees regulated / dictated?

The fees are not regulated or dictated - they will be set by the PTS you engage.

https://www.moneymarketing.co.uk/pension-transfer-charges/

https://www.ftadviser.com/pensions/2019/04/25/advisers-told-they-can-only-do-set-numbers-of-db-transfers/

Thrugelmir

Marine_life wrote: »

I recognise that I would sacrifice an index linked pension (with, in this case, 50% spousal benefit) but what are the other factors I should take into account?

What makes you believe that the investments you choose will produce a better long term return ? As you (and potentially wife) age do you want the hassle of personally managing them.

Will you be resident in the UK or overseas. If you reside in the UK this part of your pension provision won't be subject to currency fluctuations.