Small DB Pot...what to do?

peterpiper88

Thanks everyone - this is great info and I’ll be sure to feed it back to him. 

From what I’ve read, it does seem that the value is low. But I guessed that wasn’t a negotiable figure? It’s with Imperial Tobacco who bought up one of his old employers and continued the scheme. He was only with the company for a couple of years back in the early 80’s. 

I’ll check with him on the pension forecast point. 

Seems to me like his best bet is to retire from his DC pension in 2 years as planned, then sometime in that 3 year period before he gets his state pension he could transfer out of DB to a SIPP and drawdown some/all of the money. 

xylophone

He was only with the company for a couple of years back in the early 80’s. 

Then assuming that the scheme was  contracted out ( very likely)  part of the pension (possibly quite a high proportion) will be pre 88 GMP which will not increase once in payment.

peterpiper88

xylophone said:

He was only with the company for a couple of years back in the early 80’s. 

Then assuming that the scheme was  contracted out ( very likely)  part of the pension (possibly quite a high proportion) will be pre 88 GMP which will not increase once in payment.

Just so I’m understanding correctly - this means it won’t increase with inflation as previously mentioned?

thanks for you help! 

xylophone

When a company pension scheme was "contracted out" of State Earnings Related Pension Scheme, it had to guarantee to provide a pension as least as great as the employee would have accrued under SERPS had he remained contracted in.

This was known as the Guaranteed Minimum Pension.

It seems from what you have said that your father was a member of the scheme in the early eighties and left before 1988.

He may find among his old papers a statement of deferred benefits on leaving the scheme -this would show his GMP on leaving and any excess over GMP.
See
https://www.barnett-waddingham.co.uk/comment-insight/blog/revaluation-for-early-leavers/

Once the pension comes into payment at age 65, the scheme has no obligation to pay any inflation linked increase on that part of the pension representing pre 88 GMP.

Your father can check his precise situation with the scheme administrator.

peterpiper88

Thanks again all!

Spoke to my Dad tonight and fed this back - really helpful. 

One point I hadn’t mentioned is that his current work pension is a final salary Teachers Pension. From looking at this, it looks like this is also a DB scheme and so the MPAA wouldn’t impact this if he drew down over 25% from a SIPP. Is that correct?

xylophone

One point I hadn’t mentioned is that his current work pension is a final salary Teachers Pension. From looking at this, it looks like this is also a DB scheme and so the MPAA wouldn’t impact this if he drew down over 25% from a SIPP. Is that correct?

See  https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/money-purchase-annual-allowance/

What about DB?

Accrual under defined benefits schemes is not tested against the money purchase annual allowance, but will be included in the test of total contributions against the annual allowance/tapered annual allowance: