Reasons to cash in a DB pension?

dunstonh

mark88man wrote: »

So my challenge is my DB is 75% of my pension provision therefore if I make the wrong choice I'm affecting 75%. I get the impression from Marine_Life that the pension he is thinking about is much less of a percentage. Therefore the risk of a bad decision may be the same, but the impact of that risk is much less. So I think that is a relevant factor - especially if it the financial risks are outweighed by softer or longer term benefits

The size of it is not really a justification in itself.

For example, say someone had two pensions. One was worth 10% of overall value and the other 90%. However, the 10% one had a GAR of 12% on it. Would you say that you dont want the GAR as its only 10% of the value?

No you wouldnt as it mean you could draw less from the other larger pension which in turn would grow more.

It may well be that this "smaller" pension could generate much of the income requirement without the need to use the larger pension, which in turn will grow more because it is not being touched.

So, the fact it is a smaller proportion of the overall retirement planning is not a justification to transfer it.

And if you want to provide to beneficiaries, then there is always the consideration that the larger pot has had less drawn from it and if the income is too much from the DB scheme then the excess can be used to buy life assurance. Life assurance is not part of the lifetime allowance and can be set to be paid outside of the estate. The real world figures may or may not make that viable.

Marine_life

By way of follow up....I've now received the CETV which is much higher than I expected with a transfer value of just over £400,000 (against a current DB pension of £12,500 per year) which is a CETV around 32.

I am going to be speaking to an IFA to get some independent thoughts but my initial reaction is to go ahead with the transfer given our objectives.

Any additional thoughts appreciated.

crv1963

Marine_life wrote: »

By way of follow up....I've now received the CETV which is much higher than I expected with a transfer value of just over £400,000 (against a current DB pension of £12,500 per year) which is a CETV around 32.

I am going to be speaking to an IFA to get some independent thoughts but my initial reaction is to go ahead with the transfer given our objectives.

Any additional thoughts appreciated.

Which makes it greater than the 15% of your provision you first thought unless your overseas provision also has a higher value than you thought.

Have you considered -

1) Is your wife as confident as you with managing the investments/ pensions/ monies?
2) Have you enough secure UK based income in retirement to cope with fluctuations in currency? And heaven forbid a return to currency controls?

Have you left clear instructions/ information with your plans and savings if you get hit by the Number 10 bus as you walk down for your newspaper?

Thrugelmir

Is the DB scheme linked to CPI or RPI?

xylophone

Is the DB scheme linked to CPI or RPI?

Relative's excess over GMP is linked to uncapped RPI.

http://www.swanlowpark.co.uk/retail-price-index

24.9% anyone?:)

He remembers the year well - unfortunately he was a mere stripling and the serving staff were under "pay restraint"!

Marine_life

crv1963 wrote: »

Which makes it greater than the 15% of your provision you first thought unless your overseas provision also has a higher value than you thought.

Yes it is. However, when I run the figures using conservative (2.5%) average growth assumptions for a £400k portfolio, I would need to live to around age 120 for the DB pension to make sense. With those growth assumptions we can invest the portfolio to minimize exposure to big market moves.

Have you considered -

crv1963 wrote: »

(1) Is your wife as confident as you with managing the investments/ pensions/ monies?

No. I would intend to put this portfolio into lock it and leave fund which she needs minimal input to and / or pay someone to manage it for us / her.

crv1963 wrote: »

2) Have you enough secure UK based income in retirement to cope with fluctuations in currency? And heaven forbid a return to currency controls?

That's a concern to which I don't have an answer yet. We are gradually moving funds back to the UK but my pensions are paid in EUR.

crv1963 wrote: »

Have you left clear instructions/ information with your plans and savings if you get hit by the Number 10 bus as you walk down for your newspaper?

Not yet! But I am keeping my eyes open to avoid that bus!

Marine_life

Thrugelmir wrote: »

Is the DB scheme linked to CPI or RPI?

Ummm....not sure

Marine_life

Have now had an initial meeting with an IFA who confirmed my own calculations that given our position a transfer is a complete no-brainer.

So the question is now what to do with the money. My immediate reaction was to throw it into a mixed portfolio with a c. 40:60 mix of equities and bonds but the IFA has suggested we take a look at a prudential with profits pension investment. I has not really thought about that but I have to say the idea of a single fund is quite appealing.

Any thoughts?

Malthusian

Marine_life wrote: »

Have now had an initial meeting with an IFA who confirmed my own calculations that given our position a transfer is a complete no-brainer.

Find a better IFA.

My immediate reaction was to throw it into a mixed portfolio with a c. 40:60 mix of equities and bonds but the IFA has suggested we take a look at a prudential with profits pension investment.

Seriously, find a better IFA.

Any thoughts?

The thoughts that I can get past the MSE filters are

1) No IFA worth paying would ever say that any DB transfer is a no-brainer. Even if you are on your deathbed and the choice is between taking the CETV and leaving a six-figure inheritance, or doing nothing and leaving your heirs return of contributions plus interest and a kick in the family jewels. People have been known to get up from deathbeds.

2) For a £400,000 CETV you should get proper bespoke portfolio advice, not be dumped in With Profits.

Giving up the real guarantees of a DB pension and then paying for the pretend guarantees of With Profits makes zero sense. If you are prepared to take the risk of transferring out of a DB pension you shouldn't need to pay someone to put their hands over your eyes and stop you looking at fluctuating values.

PruFund is used by lazy advisers to save them the work of a) asset allocation and researching funds b) taking phone calls from clients worried about their investments going down, at significant cost to the client. (High ongoing charges, plus growth held back in good years to continue paying bonuses in bad ones.)

Marine_life

Malthusian wrote: »

No IFA worth paying would ever say that any DB transfer is a no-brainer. Even if you are on your deathbed and the choice is between taking the CETV and leaving a six-figure inheritance, or doing nothing and leaving your heirs return of contributions plus interest and a kick in the family jewels. People have been known to get up from deathbeds.

.
They are preparing a full report the 'no brainer' response was just their initial reaction. I only paid contributions of just over £14,000. If I can achieve average growth of 2.5% on the invested portfolio then I would need to live to 120 before the DB pension starts paying back. Clearly, I want to do much better than that.

Malthusian wrote: »

Giving up the real guarantees of a DB pension and then paying for the pretend guarantees of With Profits makes zero sense.

I'm not sure that smoothing is necessarily bad so long as the investor has their eyes open.

Malthusian wrote: »

PruFund is used by lazy advisers to save them the work

I am all for simple (as opposed to lazy) ...so long as the fees reflect simple...so I will definitely be challenging the suggestion.