Transferring out of DB Pension

Roborovski

I have recently been made redundant and am considering best way to access my company DB pension. I am 59 and can draw a pension of £25k. Under the rules, my spouse is entitled to a 50% pension in the event of my passing, also my children up to age 23 should we both die. My concerns are: 1. Money lost to my estate after the death of my spouse and myself. 2. The scheme is only 60% funded (according to last actuarial valuation, 2015) and the company itself may well be declared insolvent by its American parent. Question is, would I be better transferring out of the DB scheme (transfer value £720k). I have arranged an appointment with a specialist IFA to discuss options, but would appreciate any thoughts that forum members might have to help me ask the right questions.

Andrew31

I would see the IFA and take professional advice on three quarters of a million pounds. No one will be able to give you an answer on here as to if it is the right thing, unless you laid out your life and they spent hours analyzing it.

But scheme funding not a big issue as you get 90% whatever.

all depends on your need for income in retirement and your attitude to risk.

My advice when it comes to the IFA, dont so much questions you ask, more the ones you answer, just be as open as honest as possible all the questions asked form a part of your overall circumstances.

Thrugelmir

Pension increasing with CPI or RPI?

Roborovski

Pension increases with CPI (up to 5%)

xylophone

Have you and your spouse obtained state pension forecasts?

https://www.gov.uk/check-state-pension

Are you able to access the pension immediately? is this without actuarial reduction?

Is commutation offered ? If so, what is the factor?

Does your statement of benefits on leaving show pre and post 88 GMP?

Re PPF

https://www.pensionsadvisoryservice.org.uk/pension-problems/pension-security/the-pension-protection-fund

Remember that your index linked DB pension is a very valuable benefit - as you grow older and perhaps less inclined to want to worry about managing a DC pension, its value becomes even more obvious.

And I have now been personally acquainted with people living well into the nineties who were drawing a DB pension for over 35 years.

https://www.royallondon.com/media/press-releases/2018/may/five-good-reasons-to-transfer-and-five-good-reasons-not-to-royal-london/

Linton

Looking at the amounts of money, compared with some CETVs we have seen quoted, £720K for £25K/year is not particularly generous. Looking at it the other way round £25K/year inflation linked is about what someone might give as a finger in the air approximate sustainable income from a £720K lump sum, but of course this would come with risk. Whereas your DB pension is risk free.


My amateur's guess is that the IFA would say a transfer is not in your best interest. However it all depends on your specific circumstances.

daveyjp

If you want to leave a legacy use your guaranteed annual income to achieve it.

Cashing in doesn't guarantee you a lump sum forever.

Mick70

Possibly because you are 59 , but that comes across as quite a conservative conversion rate . Also you don’t say if you get a lump sum with your DB pension ?
I wouldn’t transfer for that value and would have expected it to have been a bit higher .

shinytop

OP, my numbers are very similar to yours. I got a CETV just to check it wasn't an offer I couldn't refuse and it wasn't. I too have been offered about 30 times the annual amount to transfer and I had decided beforehand I wouldn't even consider less than 50x.

I don't know what other arrangements you have in terms of pensions and savings but £25k plus benefits is a very nice position to be in. If you took the CETV you might end up with more but then again you might end up with less. And you'd probably worry about it for the rest of your life.

Malthusian

shinytop wrote: »

OP, my numbers are very similar to yours. I got a CETV just to check it wasn't an offer I couldn't refuse and it wasn't. I too have been offered about 30 times the annual amount to transfer and I had decided beforehand I wouldn't even consider less than 50x.

Generally if a scheme is in a position to offer CETVs of 50x they should get an insurer to buy the scheme out. There will be exceptions like those with a very early retirement age compared to the standard 65.

Roborovski wrote:

My concerns are: 1. Money lost to my estate after the death of my spouse and myself.

Have you considered using the DB pension to fund whole of life insurance? How much inheritance will your children need?

2. The scheme is only 60% funded (according to last actuarial valuation, 2015) and the company itself may well be declared insolvent by its American parent.

And yet the scheme hasn't missed a single pension payment or they wouldn't be offering CETVs. Any company can go insolvent but as long as it isn't, it has an obligation to fund the scheme. The deficit could disappear if investment returns are higher than expected, members die off sooner than expected or are less sexually attractive than the actuaries assumed (and therefore leave fewer widows and widowers).

If it does fail you will go into the PPF, and even the PPF with its 10% haircut and restrictions on inflation-linking provides a better risk-free guaranteed income than anyone could obtain with the CETV.

If you decide to transfer (whether or not an independent adviser recommends it) the primary drivers should be your own circumstances and attitude to risk rather than "get out now before it's too late". If the scheme is in dire straits the CETV would be reduced anyway.

Roborovski

xylophone wrote: »

Have you and your spouse obtained state pension forecasts?

Yes. I need 2 further years of contributions to gain full pension in 2026.

xylophone wrote: »

Are you able to access the pension immediately? is this without actuarial reduction?

I can access the pension now. It would be back-dated to the date I left my company last year. There is no actuarial reduction because I left through redundancy

xylophone wrote: »

Is commutation offered ? If so, what is the factor?

I have been offered a £130k lump-sum with a £19.2k pension, which I think equates to a commutation factor of 22.5 or so.

xylophone wrote: »

Does your statement of benefits on leaving show pre and post 88 GMP?

Not sure. I can't see that included in the calculations I have been sent