Could anyone comment on taking a CETV who has done it??

happyandcontented

I have read all the pros and cons with regard to taking a CETV and we are still wavering. I would like to hear from anyone who has just decided to take the leap and do it.

Our position is that we have 400k in a DC pot and a CETV on a DB pension of around 800k.

We own our own house worth around £300k mortgage-free and have approx 50k of savings. No other debt.

We both turn 60 next year. All our kids are self-sufficient and homeowners.

We are both still working but I plan ( quite reluctantly!) to retire in July 2020, OH will carry on for a max of two more years. We both have full SP at 67. I have 2 very small pensions that kick in when I turn 60.

We estimate that we will want to travel extensively in the first few years of retirement and we want to do so without stinting.

We have also seen a new build house that we love but we would need to put 150k to it after selling ours. We think that may be a foolish move, but it is a dream house.

Given all the above and the fact that the DB pot has poor spouse provision unless the pension is actually in payment ( 65 is the nominated age) and the lack of inheritability we are seriously considering transferring the 800k out.

Currently, we are both in good health but close friends dying without realising dreams has made us think...but we just keep on thinking and never make a decision:rotfl:

This coming year events and big birthday mean we need to take that decision and put the plans in motion.

Thoughts?

Thoughts from anyone who has done this?

Albermarle

a CETV on a DB pension of around 800k.

Unless you say what DB benefits you would be giving up ( pension pa ; inflation linked etc ) then no one can comment on this figure.

Currently, we are both in good health but close friends dying without realising dreams has made us think.

Yes this is a normal reaction, but the statistics show that someone who has reached 60 and is in good health , no money problems, non manual job etc will have a 50% chance of living until their late 80's , so a 50% chance of living longer . As a couple there is around a 25% chance one of you will still be alive at 95.

Linton

Some considerations.....

Can you get the £150K from the DB pension lump sum?
Can you take your DB pension early?
What income will you need in retirement?
How much will the DB pension pay at 65?
How much will the DB pension pay to your spouse should you die after you take your DB pension?
Assuming you are in average health and given that you have survived until now, your chance of dying by 65 is about 4%. What would be the cost of life assurance to cover this?
Are you an experienced investor?

bostonerimus

To make a decision you need to do a retirement budget and income plan; you need to estimate how much income you will need, for how long and how you will generate that income. Do not let a sizeable CETV overly discount the practical and psychological value of a DB pension. Your friend's death has not changed your own mortality statistics and at least one of you has better than even odds of surviving well into your 80s.

FYI I had a couple of DB pensions and I kept the larger one as it basically guaranteed that I'd have enough income in retirement without having to dip into my DC pot. In 2015 I took the CETV of the smaller one and put it in a multi-asset fund with 60% equities and 40% bonds. Since then it has had an annual return of 8% which will support a larger lifetime income than the DB pension...if it continues, there's still a long time to go.

arnoldy

I’m in a similar dilemma.
Remember that unless you are in a platinum gold and diamond encrusted public sector DB scheme you are not likely to be index linked.
This means you are spot on to makes a measured decision.
You are probably CPI linked up to a cap say 2.5% - but only if the fund allows – that’s not uncommon in a private DB scheme. Check yours.
If in the next 30 years you have 2-3 years of inflation at 10% you are facing big challenges (brush with poverty) for non RPI linked DB pensions.
The main thing that puts me off a transfer is:

• Potential for LTA charge – but this tail should not wag the dog
• The Financial services industry in UK with their ‘Skimming’ and ‘Colouring by Numbers’ approach

The standard approach from most IFAs I get is: do the Risk Profile, look up what that means, and then put you in a Pru/Royal London/Other ‘balanced fund’ and ask for £10k
And then charge you about 2-3% in declared and hidden costs (IFA + Platform + Funds OCF+ Fund non OCF charges) each year – which is what I wanted to take out of the pension myself!!
But having said that I am 70% in favour of taking the CETV – and then managing my self – not feeding the suits.
I will decide in 2021.

Thrugelmir

arnoldy wrote: »

You are probably CPI linked up to a cap say 2.5% - but only if the fund allows – that’s not uncommon in a private DB scheme. Check yours.

Many private schemes are RPI linked and capped at 5%.

10% inflation rate is somewhat unlikely.

Albermarle

Many private schemes are RPI linked and capped at 5%

Yes this is exactly what mine is .( although it was closed many years ago like a lot of other private sector schemes)

Notepad_Phil

happyandcontented wrote: »

Thoughts from anyone who has done this?

You've not put down what this DB pension would actually pay out, but how about a thought from someone who has decided not to do it?

In my case I decided to stick with my DB pension because although there will be limited inflation proofing, I felt that as my wife has the greater likelihood of being the surviving partner then for my wife the higher the DB pension I could arrange the better it would be for her - though we do have quite a high DC amount already that she will have to look after.

Now I know that you've said that there is poor spouse provision until it's actually in payment, but are you completely sure about that?

I'm not yet receiving my DB pension, so I could still change my mind, but unless you're getting a really high multiplier for your CETV then I think you should be very careful to figure out what will be best for your partner when you're no longer around before transferring.

bostonerimus

arnoldy wrote: »

The standard approach from most IFAs I get is: do the Risk Profile, look up what that means, and then put you in a Pru/Royal London/Other ‘balanced fund’ and ask for £10k
And then charge you about 2-3% in declared and hidden costs (IFA + Platform + Funds OCF+ Fund non OCF charges) each year – which is what I wanted to take out of the pension myself!!
But having said that I am 70% in favour of taking the CETV – and then managing my self – not feeding the suits.
I will decide in 2021.

]

The initial and continuing costs to manage the CETV lump sum for income must be factored in. They could be the largest single cost you have in retirement. If you pay an IFA between 0.5 and 1% and then add platform and fund fees on top the number can be significant.

Socajam

Just had to ask this question and not meaning to be disrespectful: but who in there right mind talks about buying their dream house at 60. Once you turn 50, its down hill all the way, with the hope that we reach retirement.
I attended the funeral of two friends within a matter of 4 weeks - at the age of 54 and 57.
I am 62, mortgage free and there is no way I would be thinking of looking towards buying any dream house -
more likely downside to something without stairs. I intend to work less and enjoy the fruits of my hard labour, that started at age 16.
There is no retirement nowadays because those of us who are this age are dying younger now. Some not even seeing retirement.

Dox

arnoldy wrote: »

You are probably CPI linked up to a cap say 2.5% - but only if the fund allows – that’s not uncommon in a private DB scheme. Check yours.

"If the fund allows" doesn't dictate whether or not you get increases in line with statutory requirements - and index linking up to given levels (depending on when you built up your benefits) is a statutory requirement. So too is revaluation in deferment, again depending on when you built up your benefits.

You only get increases above the statutory minimum if either the rules stipulate that you will, or the employer is willing to shell out to meet the cost of these.