Should I transfer out of DB scheme to buy annuity?

hyubh

reg091 said:

When I am 65 (currently 59) I will start to get paid from my employers scheme. I think this is a DB scheme (they closed it some years ago to new members). The numbers on that project a pension of £7,765, (less if I take a lump sum) or I could take a transfer value of £246,000.

What exactly are the scheme's pension increase rates? What is the split between GMP and excess? If you have a GMP, what is the revaluation method (i.e. fixed vs. full/S148 - despite the name, the former will likely be preferable)? What are your pensionable service dates? And what's the strength of the sponsoring employer?

Reason for asking - while reasoning about inflation proofing in a public sector DB scheme is pretty straighforward, there are a lot more variances on the private sector side, i.e. more scheme specifics need to be known first.

reg091

Thanks all for your input.
To answer some of the questions:

1. Yes, I have a state pension forecast which is how I know I have to get two more full years of contributions to qualify for the full £175. I have actually got 38 full years currently but some were contracted out.
2. I was simply looking for the best return for the modest pension pot I have in terms of cold hard cash monthly. An annuity is the only other type of pension I have heard of so I was looking at rates of payment from that and it is, simply, higher. (I get it: because the DB has the widows pension element and the yearly inflation increases (capped at 2.5%).
3. DB scheme does not allow access at a reduced rate before 65 unless there are exceptional circumstances.

I am just starting to look at options, get an understanding of how the whole pension thing works, and gather opinion. This was one avenue I thought worthy of investigating. The consensus here says not wise to do this so that is a good start.
Goes without saying I won't ultimately do anything without paying for qualified financial advice, but no harm in sounding out the good people here first. Many thanks for all your input.

MrStanners

Hi reg,

I have an alternative viewpoint from the "you're crazy to even think about an annuity" view.

This is from my own personal experience. I have transferred my own DB pension into a flat rate annuity.

As I see it a flat rate annuity provides more income now when we can enjoy it and it is guaranteed. As we get older expenditure typically declines so less income is needed in later retirement.  I wasn't offered a PIE that hugheskevi talks about to give a higher initial pension.

In my case the index linking in my DB pension consisted of 3 parts:

1. No inflation indexing, it was from a transferred-in personal pension.

2. Indexed and capped at 2.5% (the largest part of the pension).

2. Indexed and capped at 5%.

Therefore the DB pension would never completely rise with inflation.

And if inflation got very high e.g. 20%, then I was screwed either way.

I modelled different scenarios.

I took my 25% tax free and invested it roughly 60/40 equity/bonds, I assumed the return would match inflation.

I tried different values for inflation to see if the DB or flat rate annuity would give the most total return and the flat rate annuity gave the most until I reached my 90s.

I discussed with my wife, she has her own pension of similar value, and if I die she will get something from the annuity, can't remember the details exactly. She was happy with my decision.

I have two smaller DB pensions which I am planning to take as DB pensions.

So every case is unique.  My suggestion is to very carefully check the inflation proofing in your  pension, don't jump into any decision, and discuss with your wife.

But even the best laid plans can go wrong.  Due to Covid-19 I haven't spent as much as planned and even though my pension is less than my old salary I'm still saving money!

AlanP_2

A scheme not offering a reduced pension for taking it prior to Scheme Retirement Age sounds unusual, are you sure about that?