Defined benefits Pension v Investment

JustinEvans9964

Hi,
Just wondering what your thoughts are on this. I have recently discovered that I have an old pension. It is a defined benefits pension, and in truth is pretty much a part pension as I wasn't in the scheme that long before leaving the company. I am 56 at the moment and after a recent conversation with the agents the pension would provide me with around £3k annually from 65 onwards. As an alternative I could take it now for around £1900 annually, or circa £10k lump sum and £1580 annually. It has a transfer value of £70k.
My thoughts are that (and I am going to make some assumptions) assuming I live until 90 that would mean I would get £3k at 25 years (£75k total). Given that the transfer value as of now is only £5k short of that would I actually be better off transferring it all into my current work place pension (where I assume it would generate more than £5k interest over the next 10 or 11 years); or alternatively transfer it across to my WPP, draw down my tax free lump sum from it and invest in my current S&S ISA (VLS 60). Or transfer all of it across to a SIPP. Don't actually know too much about SIPPs to be honest.
I just seem to think that transferring out to invest looks like the best option.

Thanks

Albermarle

You are missing two important issues.
The DB pension will almost certainly ( although you need to check ) increase with inflation each year . So in 25 years that £3K would be say £5K . So any alternative investment would also have to at least keep up with inflation at the same rate .

To transfer out of a DB pension is an expensive and not hassle free process ( see numerous threads on the subject on this forum) . At the end of the process you will receive a positive or negative recommendation to transfer . The most likely answer is negative . In fact you can still then  transfer but most pension providers ( including almost certainly your current works pension) will not accept the transfer . 
The reason for all these difficulties is that following various issues in the past with DB transfers , the regulator has clamped down . 

xylophone

When (years from/to)  were you a member of the DB pension scheme?


Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

Your current pension is a DC Scheme?

dunstonh

 As an alternative I could take it now for around £1900 annually, or circa £10k lump sum and £1580 annually. It has a transfer value of £70k.

And what is the reduction for taking it earlier than scheme age?  (figures around 5% for each year taken early are not uncommon)

My thoughts are that (and I am going to make some assumptions) assuming I live until 90 that would mean I would get £3k at 25 years (£75k total).

Why have you ignored indexation?

Given that the transfer value as of now is only £5k short of that would I actually be better off transferring it all into my current work place pension (where I assume it would generate more than £5k interest over the next 10 or 11 years); 

There is no chance of you generating £5000 interest on £75k any time soon.  I suspect you dont mean that.

Will your workplace take a DB pension transfer without an IFA signing off on it? (probably wont)

or alternatively transfer it across to my WPP, draw down my tax free lump sum from it and invest in my current S&S ISA (VLS 60). 

What objective of yours would that achieve? - at the moment you are listing some solutions (not all) that may or may not be viable but we dont know what you are looking to achieve.     

Statistically and historically, 9 out of 10 people are best leaving the DB scheme where it is.   Its a bit less than that currently but the sentiment remains similar.    You cant transfer a DB scheme with a CETV of £75k without an IFA being involved.   That will cost around £3500-5000.    

1813

Id like to know how much my db would pay at a certain age but you can only speculate, not know for sure.

dunstonh

1813 said:

Id like to know how much my db would pay at a certain age but you can only speculate, not know for sure.

No speculation required.  The pension benefit statement will tell you.  Active members get one each year.   Deferred members get one on leaving but you can request an up-to-date one if they haven't had one for a while.

LHW99

And if you have a spouse / civil partner OP, then a DB pension will usually pay a reduced pension for the rest of that person's life after you pass away.

JustinEvans9964

Hi all. As always thanks for the input. Given the comments I will sit on it and allow it to mature rather than transfer out.
Cheers all

Albermarle

JustinEvans9964 said:

Hi all. As always thanks for the input. Given the comments I will sit on it and allow it to mature rather than transfer out.
Cheers all

There is no need to wait until you are 65, or whatever the normal retirement age is. If you take it early it usually equates to a reduction of 4 to 5% pa. As you will get the pension for longer it usually works out equal.