DB transfer

tiernsee

I’m going To seek financial advice but would welcome any thoughts from the very savvy gurus on here. I have a number of old pensions, two DB public sector schemes and one company DB scheme. It is the latter I’ve been looking at, the current projected sum at 65 is £4K pa and the CETV has just come back at £214k. I am thinking of moving it to my current DC scheme subject to advice. Any thoughts, views or questions I should ask? Thanks 

badmemory

So your DB scheme is looking at dumping liabilities!  Why would that be?  Think you may be likely to get an ill health pension but still live to be 100.  Dumping the company but no-one wants it with the DB pensions hanging round its neck.  Be cynical, remember they are not your friends & do NOT have your interests at heart.  When looking for financial advice remember the most important word is independent

DairyQueen

Make sure that you understand exactly what benefits you will be foregoing if you transfer. DB schemes differ in their generosity:
- Is the pension index-linked when in payment. If so, by what rate? Is there a ceiling?
- Is there a GMP component? If so, the indexation may vary for these parts of the pension.
It's not unusual for indexation to be zero on some/all components when in payment. 
- Do you have a spouse? Dependents? What %age would they receive if you predecease them? 
- Do you have health issues likely to impact your life expectancy?
- How do you feel about investment risk? The risk will become 100% yours - currently 100% with the company.
- The CETV multiplier looks good and that is also a factor to consider. Below 20 is poor. 20-30 is mediocre. 30+ is reasonable. 40+ is generous.
- How much income will you need in retirement? What %age of your guaranteed income is represented by this pension? 
- Are you likely to be affected by the Lifetime Allowance? 

The answers to these types of questions will indicate whether transferring is in your best interests.

Search this forum as there are 100s of threads on this subject. Also, search online in order to better understand the risks and potential rewards/losses and the attitude of the regulator.

The default position for the PTS (IFA Pension Technical Specialist) will be to advise against but you may be one of the exceptions. There are good reasons for this. It's worth understanding the factors that weigh in favour of transferring. Don't be dazzled by the large sums on offer. Don't balk at the cost of the advice. This is a high-risk IFA transaction and will be priced accordingly. The advisor is a valuable source of information. You will be paying for the correct advice and not for an endorsement to transfer. 

I received a positive recommendation and transferred a couple of years ago but my circumstances are unusual. For most people it's better to stay with the DB pension and the attitude of the regulator supports this.

Albermarle

Are you sure that the £4K pa is not the figure you were given when you left the company? If it was it will most likely have increased with inflation  ( probably by RPI) in the meantime . If this is the case you need to find out the latest figure ( or you can work it out yourself by googling historic inflation rates) 
The reason I ask is that if the £4kpa is the correct figure then this seems  a very generous offer. Have a look at this link as well.
https://www.royallondon.com/siteassets/site-docs/media-centre/good-with-your-money-guides/five-good-reasons-good-with-your-money-guide-2018-edition.pdf

SonOf

tiernsee said:

........., the current projected sum at 65 is £4K pa and the CETV has just come back at £214k............

Is that £4k the latest figure updated to todays terms after you left active membership or the last value when you left?      This is important as DB schemes generally do not update the figure after you leave until you ask them as you wish to take the benefits.   So, you may not be looking at accurate figures (or you may be)
Also, is that £4k before tax free cash is paid or after tax free cash?  (that could make a significant difference too).

tiernsee

Thanks for all these useful comments, I knew it was worth asking. Booked a consultation with an IFA and have added to my increasing list of questions. The £4k was at time of leaving, which was 2002. I've tried to find a calculator to see what the effect inflation would have had but no luck, if anyone has a link to a tool that would be great. I know you can commutate some of the pension to tax free cash so this figure is before that, so I understand by this that if I took a lump sum the pension would be lower.

Final question, which is on my list, but someone here may know. If I do transfer how does this work with the maximum sum of £40k pa? Would I get taxed on the transfer and would I be able to keep paying into my current work pension?

Thanks

Thrugelmir

tiernsee said:

 The £4k was at time of leaving, which was 2002. I've tried to find a calculator to see what the effect inflation would have had but no luck, if anyone has a link to a tool that would be great. 

Whether it's uprated in line with CPI or RPI makes a difference. 

AlanP_2

tiernsee said:

Final question, which is on my list, but someone here may know. If I do transfer how does this work with the maximum sum of £40k pa? Would I get taxed on the transfer and would I be able to keep paying into my current work pension?

Thanks

As you aren't paying new money in to a pension the £40k AA doesn't come in to it (you are moving £s from one pension provider to another) and there is nothing to stop you contributing to other pensions assuming you have relevant Income and AA headroom to cover them.

Albermarle

If it  is RPI ( and probably from 2002 it will be ) £4K in 2002 would be worth over £6500 today .
This brings the Multiple compared to the CETV , down from over 50 to a more typical 30 .
So much more of a difficult decision .

eskbanker

tiernsee said:

I've tried to find a calculator to see what the effect inflation would have had but no luck, if anyone has a link to a tool that would be great.

Googling 'inflation calculator' brings back a number of sites, which show that RPI increased by about 65-70% since 2002 (depending on when in 2002 of course), while the CPI increase was closer to 45%.

Thrugelmir

How many years until you draw your pension? If the figure is say £6,500 compound it by 2.5% annually to gauge what sort of figure it could be by then,