Pension tranfer - what would you do?

Cypruseast

I know this type of debate has probably been done to death but I am keen to get other's views on this matter.  Ok so the long and short of it is I am 44 yrs of age, I have two pensions - a DB pension (from a previous employer) and a DC pension (with current employer).  The scenarios are as per below:

DC Pension

- Contributing £13.75k per annum (about 22% of salary) - NB I have increased this amount from about 12% per annum over the past 9 months

- Current value £273k after some 12 yrs of contribution and growth

DB Pension

- Normal Retirement Date 31/01/41

- Start date 05/07/98

- Date of leaving the scheme 12/08/07

- Annual pension at date of leaving £7.75k per annum

- Estimated annual pension on normal retirement date of £10.4k per annum (31/01/41)

- Estimate annual pension on retirement date of 31/01/38 £9.0k

- Transfer Value (current estimate) £349.5k

Basically as we all know life has it's twists and turns and I find myself in the situation of having a new partner who I am due to marry next year.  My partner is more than 10 years younger than me and was not with me when I left my DB pension scheme.  According to the terms of the scheme a spouse would retail 2/3rds of my pension upon my death, but this reduces based on the two factors which ultimately will effect my spouse.  So, she will get a very significantly reduced spousal pension and added to that as far as I can see there are no lump sum benefits payable from the scheme if I die before taking my pension.

I expect to be gainfully employed for the next 17-18 yrs and would ideally like to retire in and around early 2038 when I will be nearly 63 yrs of age.    Other aspects are I have a child of 1, 10 and a step daughter whom is 11.

Based on the above I previously reviewed the option to transfer out my DB benefit payment to my current DC scheme (or other).  I felt that based on my personal situation or certainly the impact that it could have on my spouse and other dependents, that it may be in all of our interests to look at moving that pension to allow for hopefully some growth over the next 18 years but obviously given the 11 yr age gap and the pension scheme rules that my wife and dependents could benefit for a longer period of time from my pension (s) if outside of the DB scheme.  The UK life expectancy is say approx. 84 yrs of age for a man of my current age.  So by that stage assuming life doesn't change my wife to be is going to be 73 yrs of age with a life expectancy of a further 15yrs ahead of herself.  Based on appox £9k per annum and assuming I achieve my life expectancy I would release £138k of value from my pension and the rest would die with me, whereas I could release some £350k now to invest for the next 18yrs in a way that my wife would be able to access even after my death (assuming that comes first).

I did (eventually) find a company that was prepared to offer the necessary financial advice required as it was over 30K and complete the transfer approx 12 months ago for a reasonable rate.  However, very quickly prior to getting a locked in value at the then transfer rate of about £356k the transfer value reduced by £50k in a couple of weeks so I shelved the idea.  It has slowly been increasing over the past 12 months and is currently close to what it was a year ago so the question has arisen again on what to do - do I leave well enoigh alone and have the security of a DB pension that will die with me or take the cash and re-invest so my family can potentially benefit from a longer time frame from it....

So what would you do?

 

Dox

As you say, this has been done to death. Look back at some of the previous answers on this forum and then decide if you want an up to date report from your IFA.

Cypruseast

Dox said:

As you say, this has been done to death. Look back at some of the previous answers on this forum and then decide if you want an up to date report from your IFA.

It has and apologies for rehashing, however, everyone's personal situation is different and I feel that mine are definatlely that.  If my wife would avail of 2/3rds of my pension on my death then I probably wouldnt be here, however, I think this adds a different dimension and am keen to see if others agree or disagree.  If I read the other answers I'll probably see 80% of people saying keep the DB pension where it is but thats based on less complicated factors....

xylophone

far as I can see there are no lump sum benefits payable from the scheme if I die before taking my pension.

Are you sure of this?

What benefits are available to your children from the DB pension if you should die before you draw your pension?

Cypruseast

xylophone said:

far as I can see there are no lump sum benefits payable from the scheme if I die before taking my pension.

Are you sure of this?

What benefits are available to your children from the DB pension if you should die before you draw your pension?

Below is what is stated:

Albermarle

The Multiple of 33 is quite good without being spectacular .
The flaw in your argument is that you can not know how the 18 years of investing the £350K will turn out .
Plus if this goes less well than hoped then your larger ( by then ) DC pension will be similarly negatively affected, so a double whammy as you will have all your eggs in one basket so to speak.
A mixture of guaranteed income ( DB + SP) and a large SIPP is seen by many as the sweet spot/best of both worlds by many . 

Cypruseast

Albermarle said:

The Multiple of 33 is quite good without being spectacular .
The flaw in your argument is that you can not know how the 18 years of investing the £350K will turn out .
Plus if this goes less well than hoped then your larger ( by then ) DC pension will be similarly negatively affected, so a double whammy as you will have all your eggs in one basket so to speak.
A mixture of guaranteed income ( DB + SP) and a large SIPP is seen by many as the sweet spot/best of both worlds by many . 

Yep I get that and am concious of that aspect in regards to performance of markets etc.  I still to this day understand the rationale but find it baffling that a 33 multiplier is not a given.  Even if I was to achieve only 2.5% per annum growth in some very low risk fund/bond options after 18yrs the £350k is £550k...that becomes a multiplier of 60 on 2038 extimated pension value.  That will achieve something like a £25k per annum of a pension....I guess its the guarantee versus the risk.  

xylophone

Has your fiancee any pension provision of her own?
Have you checked your state pension position?
Has she?
https://www.google.com/search?q=state+pension+forecast+uk&oq=state&aqs=chrome.1.69i59l3j69i57j46j0j46l2.3910j0j15&sourceid=chrome&ie=UTF-8

Albermarle

growth in some very low risk fund/bond options after 18yrs the £350k is £550k...that becomes a multiplier of 60 on 2038 extimated pension value.

You are ignoring inflation . The £550K in 18 yrs will not be worth £550K at the prices of goods and services in 18 years time .

Your 2.5% growth will be swallowed up by inflation so in 18 years you will still have £350 K or thereabouts in todays money.

You need to increase the risk level of the investments to get ahead of inflation ( hopefully ) 

You estimated pension in 2038 is in todays money . By the time you reach 2038 it will be plus 18 years inflation .

Linton

Have you taken inflation fully into account?  Your estimated DB pension figures certainly dont.  It looks like the £10.4K is the value assuming no inflation - ie the increase from £7.75K to 10.4K would appear to correspond with the inflation between 2007 and now.  

Your 2.5% assumed annual investment growth is presumably 2.5% above inflation, which you certainly wont get with a safe bond fund.

The 84 male life expectancy you quote is based on the current numbers of people dying.  You will be reaching that age in 40 years time and will be part of a cohort that will have smoked significantly less, will be far less likely to have been employed in life-shortening conditions etc and so should be much healthier.  The cohort based life expectancy for a male aged 44 this year is 88 (2014 figures from ONS).  Dont forget there is a 50% chance of you exceeding the average - the tables shows a 25% chance of you reaching your mid 90s.

Cypruseast

Albermarle said:

growth in some very low risk fund/bond options after 18yrs the £350k is £550k...that becomes a multiplier of 60 on 2038 extimated pension value.

You are ignoring inflation . The £550K in 18 yrs will not be worth £550K at the prices of goods and services in 18 years time .

Your 2.5% growth will be swallowed up by inflation so in 18 years you will still have £350 K or thereabouts in todays money.

You need to increase the risk level of the investments to get ahead of inflation ( hopefully ) 

You estimated pension in 2038 is in todays money . By the time you reach 2038 it will be plus 18 years inflation .

Now that was defo the bit I was unsure of based on the figures provided in my pension website. I assumed that given the annual value from leaving the scheme was £7.7k that the figure of £10.5k took into effect all % increases applied over the years so that the latter figure was including any inflationary increases. I appreciate that any potential growth if I transfer and achieve the likes of only 2.5% will in effect be swallowed up by inflation. 

Does put a different spin on it.
My fiancée is a nurse and has been for approx. 9 years so will be on a reasonable NHS pension but defo not the schemes of yesteryear. She only works 28hrs a week and will inevitably be keen to retire earlier so we can hopefully enjoy some travelling and some time together without work getting in the way!! 

I will check our state pension status and get back on that one! 

Thanks