DB Pension's Pot Value?

robcol1305

I see so many articles about how much you need in your pension 'Pot' for retirement; I have a deferred DB pension, for sake of argument the statement says it's £2,500 p.a. - I could request the transfer value, but is there a way to best estimate it's equivalent Pot value? I have been using a 2.5% estimate i.e.  £2,500 is 2.5% thus Pot value = £100,000.  Anyone have a better suggestion? 

Albermarle

A DB pension has no pot value . The transfer value will vary according to financial conditions. They are at a relative high point at the moment . Typically something between 30X and 35X the annual pension , although can be more or less ( if the pension is not inflation linked for example ) .
Make sure you use an up to date pension forecast .

robcol1305

Yes, appreciate DB pension has no pot value, hence looking for the equivalent value. Let's put the question another way -  Based on on average annuity cost, pretend I am 65 and will live until average age for a male, single policy yadda yadda yadda, how much, on average would an annuity policy cost that pays £2,500 p.a.?  

Linton

robcol1305 said:

Yes, appreciate DB pension has no pot value, hence looking for the equivalent value. Let's put the question another way -  Based on on average annuity cost, pretend I am 65 and will live until average age for a male, single policy yadda yadda yadda, how much, on average would an annuity policy cost that pays £2,500 p.a.?  

Inflation linked: £90K 

Marcon

robcol1305 said:

I see so many articles about how much you need in your pension 'Pot' for retirement; I have a deferred DB pension, for sake of argument the statement says it's £2,500 p.a. - I could request the transfer value, but is there a way to best estimate it's equivalent Pot value? I have been using a 2.5% estimate i.e.  £2,500 is 2.5% thus Pot value = £100,000.  Anyone have a better suggestion? 

The transfer value is irrelevant. Many articles you are reading assume that all pension provision is DC, so fail to explain how to take DB benefits into account. Your starting point is to estimate how much cash you'll need in retirement (no, there isn't a golden formula for anyone!), reduce that by the estimated amount of your DB pension and state pension, and then look at how much DC provision you'll need to make up the shortfall. 

ratechaser

Is that £2500 in today's money? I have a deferred DB policy that is worth that (and definitely agree with Linton's ballpark transfer value) but the policy documentation states closer to £1900 as that was the date that I left the scheme

ZeroSum

At the bottom of my LGPS statement it tells me the % of LTA utilised. So value would be those multiplied.

As a rough calc, it also works out at about 20 x accrued benefits paid at 68 plus any lump sums (as average life expectancy is about 88)

But it's all meaningless really

Marcon

ratechaser said:

Is that £2500 in today's money? I have a deferred DB policy that is worth that (and definitely agree with Linton's ballpark transfer value) but the policy documentation states closer to £1900 as that was the date that I left the scheme

If your pension was £1,900 per annum at the time you left the scheme, it will revalue in deferment (the period between leaving active membership and accessing your deferred pension), so you won't know what it will be until you get there.

ratechaser

Marcon said:

ratechaser said:

Is that £2500 in today's money? I have a deferred DB policy that is worth that (and definitely agree with Linton's ballpark transfer value) but the policy documentation states closer to £1900 as that was the date that I left the scheme

If your pension was £1,900 per annum at the time you left the scheme, it will revalue in deferment (the period between leaving active membership and accessing your deferred pension), so you won't know what it will be until you get there.

Agreed, however the methodology for revaluation in deferment is set out in the scheme documentation, along with percentage limits. So even though I couldn't take it today, I have a reasonable idea of what it would be worth (unreduced) in current terms...

Sandtree

robcol1305 said:

Based on on average annuity cost, pretend I am 65 and will live until average age for a male, single policy yadda yadda yadda, how much, on average would an annuity policy cost that pays £2,500 p.a.?  

There are plenty of lifetime annuity calculators out there that you can put your details into and see what value is required to hit £2.5k per year. Medical conditions, lifestyle, postcode, guarantees/indexation etc will all make big differences.

TVAS

Why don't you make it easy for us to help you. Why didn't you simply tell us the transfer value, the pension when you left and the pension revalued on your transfer statement. We would have happily told you if the transfer value was fair, mean or stingy. 

Anyway you are asking the wrong question it is almost irrelevant what the transfer value is unless it is super super super generous. What is relevant is that you have a DB pension of £2,500 p.a. and if lets say it was now you would be happy to receive an income of 2500/12 = £208.33 gross guaranteed and increasing or would you rather have it in an ad hoc format but the amount being at risk, and probably not increasing? You won't know the answer until you are about to take benefits and the rest of your pension and non pension income assets are known. All you have to do is make sure the scheme have your address if you ever move before retirement.