Can i cash in a pension early?

shinytop

britishboy said:

Thanks all, and here are a few more details I got from a modeller we've been sent:
DB pension up to 31 March 2021   £11,906 PA.       
DB pension at age 65 (if scheme continued)     £28,765
DB pension at age 57 (with scheme closing in March 2021)     £11,798
DB pension at age 57 if it stayed open    £19,750

mark55man, the multiple Ive been quoted is 39 times the value, the same as my colleagues took earlier this year who actually retired, so am guessing the 39 times is a standard value at the moment.  Another workmate was offered 18 times the value for his DB pension earlier this year (with his old employer), which is why I am keen to transfer out.  My worry is the CETV value drops drastically, or even by a few times.

So if the scheme closes, at 57 you'll get about £12k per annum plus spouse benefits, RPI, etc., in today's money.  If you invest your £550k and make only 1-2% real return (above inflation) you'll have £650-750k or so in today's money at 57.  Am I missing something?  I know there is a risk you'd end up with less than £12k per annum but it's very small.  This would be borderline if the OP were 57 now but he's 42.  

jamesd

That's right but it's probably better to stay in until it closes, then transfer.

The 18x was probably public sector, your multiple is unlikely to drop significantly in the time remaining.

coyrls

britishboy said:

Hi everyone, spoke to a FA today who explained a little more to me.  He cant do the advice for transferring out of my DB pension, so spoke to someone else who he would refer me to (I think he said Grove?).  They provisionally said they would support it, but I'd obviously need to be out of my current DB pension to start the ball rolling.  He said that I could 'opt out' of the DB pension, instead of transferring out, so basically tel them I'm not going to contribute to it any more and leave the scheme.  Then, Grove would recommend a pension fund to invest it after a questionnaire to see what sort of investments and risk I want to take.  Does that sound right?

No it does not!  You will be giving up free money from your employer if you opt out of your DB pension.  Either you misunderstood or you are being taken for a ride

mark55man

It reads like you are being rushed and pushed into a decision by people who will overcharge you and put you in funds significantly beneficial to them (and less so to you) - but if you have made up your mind you should keep watching your basket very closely.  

I noticed you said FA rather than IFA, not sure if it was a slip of the keyboard, but FAs can only recommend products from whoever they are FAing for they are not independent

I concur with the poster who said your multiple is unlikely to decrease over a 6 month period when you could have been in the DB scheme.  And if the multiple does fall, well the worst that would happen is that you would be left with a larger guaranteed income for life - and you can cry all the way to the bank.  A decision which 95% of the posters on here wold agree with and 99% of IFAs would seem to advise you.  You need to listen to those numbers rather than £££££  

shinytop

jamesd said:

That's right but it's probably better to stay in until it closes, then transfer.

The 18x was probably public sector, your multiple is unlikely to drop significantly in the time remaining.

I agree.  When my DB scheme closed, my employer offered various incentives/sweeteners, including enhanced contributions to the new DC scheme and money for financial advice.  If you left the scheme you'd probably miss out on these. 

jimi_man

britishboy said:

Thanks shinytop - That's been my way of thinking, albeit hard for me to explain and put it into writing.  Can you see why I've asked the question on here?  (I know a high percentage still think im crazy...)

I'm not sure that anyone thinks you are crazy (I certainly don't), it's just that you've not provided any information about your circumstances for anyone to assess whether they think it's a good idea or not. As an example these are types of things that would point you towards making the transfer:

Pension scheme in poor condition/insolvent - you haven't mentioned this.
Significant health concerns that would lead to shortened life expectancy - or this.
Desire to leave inheritance - you have said that you don't have children, no mention of other family circumstances.
Flexibility - a valid reason. You didn't mention flexibility, just that you think you might get more money by transferring.

Some of the reasons not to transfer:

It's your main pension - ?
You value the certainty of a guaranteed pension and its benefits - ?
Inflation - ?
Investment risk -?

There are loads more, have a look at the FCA website which goes into it in more detail.

Obviously only you can answer the above. But interestingly you are quite concerned about the possibility of only getting a 37x transfer in six months time as opposed to a 39x now. That's a difference of around 5% - which could quite easily be a day's or a week's swing. That would point towards investment risk being a concern. 

You are 42 now, so in March 2021 it's worth £11900. Then at age 57 - 17 years time, it's worth the same, slightly less actually? I presume it goes up with inflation? And is it CPI/RPI?

I suppose the crux of it is, that if someone says to you that you should/shouldn't transfer without knowing any of your personal circumstances, then I'd suggest they can safely be ignored. It might be a good idea or it might not. The way it appears on here is that you are desperate to transfer, so much so that you are prepared to forgo the last five months contributions, to get your hands on the money, and the main reason is because of the multiple involved, however that's my perception from reading these posts. 

If it were me then I'd go (and pay) to speak to someone who knows about these matters and provide them with all my (honest) circumstances rather than provide very little detail and ask strangers on an internet forum. 

dunstonh

I have to agree with the other posts made.    We obviously do not have all the facts.  However, giving up another 5 months of membership (not employer contributions as that is not how it works) will reduce the CETV.    It will also potentially remove any incentives put in place through the closure and remove the possibility of a bulk transfer (which could be more beneficial than an individual transfer depending on the scheme).

One would hope the FAs that you spoke to have mentioned the negatives and explained them to you in a way you understand.  However, from what you have typed, it suggests they have not.  

euanlowe

If say, your final salary scheme is with Nationwide, then I'd say that's a good scheme and a good backer, not something I'd worry about. Obviously you have a better idea of your scheme sponsor than us.
Now saying that, I'd take the CETV at 38x, but after the closure to accruals. The thing you want to be watching regarding that going up and down (ceteris paribus), is annuity rates. You can google this and find a chart. That flows into the bigger question regarding government bond yields to which annuity rates are linked. If they go negative then you're making a terrible mistake taking the CETV. All these pension schemes will look worse but the CETV will rise. If bond yields go up then the smart thing is take the pension because the cetv will go down at same time as scheme safety increases.
I think what I'm trying to convey is lots of people are telling you cashing in is a bad decision, but what is really going on is you're discussing a punt on interest rates (and to a lesser extent your ability to manage your own money).