DB to DB Transfer

DreamingofGreece

Hello, I am new to MSE and the pension forum and wondered if anyone could please help me to understand a DB to DB transfer?

I have worked for various Universities in a low level administrative capacity since 2001 and have always had a DB pension.  When I left one University to join another I have always just left my pension where it was to become a deferred pension.  I have pensions with Lancashire County Council (which is final salary and I can access unreduced from age 60), Merseyside Pension Fund (which is final salary and I can access unreduced from age 65), University of Manchester Superannuation Scheme (which is a combination of final salary and CARE and I can access unreduced from age 65) and I have recently re-joined Merseyside Pension Fund (which is CARE and I can access unreduced from my State Pension Age, which is likely to be 68).  I have kept this latest pension separate from my previous Merseyside Pension Fund pension.

I don't know if you need all that information but wanted to add some context.

I have enquired about transferring my University of Manchester Superannuation Scheme (UMSS) pension to my current Merseyside Pension Fund (MPF) and have recently received the following information:

UMSS CETV
Deferred pension at 24 June 2021: £2,631.28
Deferred lump sum at 24 June 2021: £7,893.84
Post 97 Pension:£96,881.51
Post 97 Lump Sum: £9,286.13
Total Transfer Value: £106,167.63
Member's contributions plus interest included in the above transfer value: £17,315.79

MPF have confirmed that the transfer from UMSS will potentially purchase the below pension benefits:
CARE Pension Account: £9,151.25
CARE Spouses Pension: £2,802.57
All above figures are payable per annum, and unreduced from your State Pension Age.

As I have always just left my pensions as deferred I've never considered transferring before so I'm not sure if this is a "good deal" or not.  To my untrained eye it looks like a no brainer swapping £2,631.28 per annum for £9,151.25 per annum but I'm sure it's not this simple (for example, I know that I would be able to access the UMSS pension unreduced at 65 and my latest MPF pension would only be accessible unreduced at State Pension Age (likely age 68).

I'm sorry for the long first post but wondered if anyone could help me to understand whether this seems like a good deal or point me in the direction of locating an independent financial advisor.

Thank you very much for any assistance you can give.

gtat

I made a similar DB to DB transfer recently. I would suggest waiting for input from some of the more knowledgeable posters on the forum, but your quote does look good to me. It's worth considering age of access, survivor benefits, whether they are index linked etc too.

I don't think you need an IFA unless you are looking for investment advice.

DreamingofGreece

Thanks for your reply gtat, much appreciated.

I thought the quote looked good but wasn't sure if I was missing something obvious so wanted a 'sanity' check by someone more experienced before making a decision.

The letter I received from MPF listed a number of things to consider such as age of retirement, rate of increase applied, retirement grant, spouse's benefits, early payment of benefits due to ill health etc. so I do need to look at these in greater detail.

The only reason for mentioning an IFA was that the letter suggests that I may wish to contact an IFA for professional advice before making a decision on the transfer. I definitely don't need investment advice as I don't have any investments 😊

hyubh

DreamingofGreece said:

As I have always just left my pensions as deferred I've never considered transferring before so I'm not sure if this is a "good deal" or not.  To my untrained eye it looks like a no brainer swapping £2,631.28 per annum for £9,151.25 per annum but I'm sure it's not this simple (for example, I know that I would be able to access the UMSS pension unreduced at 65 and my latest MPF pension would only be accessible unreduced at State Pension Age (likely age 68).

I'm sorry for the long first post but wondered if anyone could help me to understand whether this seems like a good deal or point me in the direction of locating an independent financial advisor.

Per current government policy for the LGPS, MPF will have calculated the transfer in credit with factors based on the 'SCAPE' discount rate used for costing schemes like NHS, Teachers, etc. Aside from being nothing to do with how MPF's actuary will value liabilities for employer rates and other things, this systematically undervalues LGPS benefits compared to how most private sector schemes will now value their benefits for transfer purposes. For someone looking to transfer out, this will result in a lower CETV than otherwise, for a transfer in like yourself, a higher pension credit than otherwise.

That said, the transfer in credit has a slightly higher normal pension age than your deferred UMSS pension, and no standard lump sum. And if you wanted a lump sum from it, the commutation rate is poor (12/1). However, even allowing for that, if you commuted for the same lump sum as the UMSS one, the residual pension would still be way higher. Further, you would be exchanging benefits in a very safe scheme for benefits in an extremely safe one. So yes, I'd say it is a very good deal.

PS - you might want to consider transferring/aggregating your previous LGPS benefits (LCC and MPF) too. Any transfer/aggregation would be separate; given I assume the gap between each previous pension becoming deferred and rejoining MPF is more than 5 years, the transfer in would be similar in form to potential one from UMSS, so purchasing additional pension to go alongside your regular CARE pension, rather than like-for-like service. If you don't value the lower ages you can take those previous pensions unreduced (particularly the LCC one, since there won't be any special increase if you took it between 61 and 65), that might be worthwhile.

DreamingofGreece

Thanks so much for your comprehensive and easy to understand reply hyubh.  

I had already asked about transferring my LCC pension (which I contributed to from 2001-2006) but the figures were nowhere near as attractive as the UMSS pension transfer (which I contributed to from 2010-2020) , so I initially thought I must have misunderstood the UMSS transfer details.  I've decided to leave my LCC pension where it is as the additional (small) pension income will come in useful from age 60.

I will however ask about the previous MPF pension (which I contributed to from 2006-2010) to see whether that is worth doing so thanks for the suggestion.

I don't think I will particularly need any lump sums from my pension (my husband has a combination of DB and DC pensions and we will have the mortgage paid off when we are age 49) so I am more than happy to forgo the standard lump sum from UMSS.

Thanks again for the really helpful insight you provided. 

AlanP_2

Depending on how much "spare" cash you have you could look at the AVC option offered alongside the main LGPS scheme.

You say you don't particularly need a lump sum but even so getting tax relief on what you contribute to the AVC and then being able to take it out tax free at the same time as main benefits has a lot of attraction. 

DreamingofGreece

Thanks for alerting me to the AVC option AlanP_2. I don't have much "spare" cash at the moment as we are saving for a small extension scheduled to be built next year (plus I like my holidays to Greece 😊) but it is certainly something to consider.

I don't currently earn enough to pay tax (I work part-time and can't see myself ever going back to full-time hours now I've escaped the full-time mind set). I would also like to retire a couple of years earlier than state pension age and will need to build up additional "finances" to bridge the gap to state pension age. I'm not sure what the "most efficient" way to do this would be. I was thinking of a S&S ISA but am happy to be guided otherwise. I'm currently 47, our only debt (mortgage) will be paid by age 49 so should have a good few years of "spare" money to put towards retiring a bit earlier - pending any unforeseen circumstances. 

Dazed_and_C0nfused

A SIPP or personal pension will definitely beat the ISA for a bringing pension.

You will get 25% added to your contribution (relief at source method of contributing) and could potentially avoid paying any tax when withdrawing it all.

For example (assuming you earn at least £5,000) 

You could  contribute £4,000/year to a relief at source pension which becomes £5,000 with the tax relief added.

You do that for 6 years giving you a fund of £30,000.

You can withdraw £15,000 per year without paying any tax.  £3,750 TFLS and £11,250 taxable pension income.  If married you can also apply for Marriage Allowance and save your spouse £252 in tax each year.

All of the above ignores any investment returns and scheme costs and assumes you take the pension out in two tax years where you have no other taxable income. 

Pension is a clear winner if you get tax relief on the way in and can take if all out without paying any tax.

DreamingofGreece

Thank you so much for your insight Dazed_and_C0nfused. I should be in a position to contribute to a SIPP once the extension is built and paid for early next year so will look for advice at that point regarding how to find the best one for me (I've always had DB pensions so haven't really given much thought to other types of pension).

I currently earn just over £10k per annum. Is there a limit as to how much I could put into a SIPP (I also contribute to a DB pension)?

With regards to the Marriage Allowance, my husband is a higher rate tax payer (but doesn't pay higher rate tax as his pension contributions bring him below the threshold). Therefore, I think I can still apply for the Marriage Allowance?

Thinking about it, would it be more efficient for my husband to increase his DC pension contribution further (he currently pays 14% into the pension and his employer pays a maximum 12%) rather than open a separate SIPP for me? We are hoping he will be able to cease full-time work at age 60 (he is a shift worker) and then work on a part-time basis until we can both retire a few years before state pension age.

Sorry for all the questions, I hadn't really given much thought to pensions (other than to make sure I was contributing to one) and the possibility of retiring a bit earlier until recently. 

Albermarle

so will look for advice at that point regarding how to find the best one for me (I've always had DB pensions so haven't really given much thought to other types of pension).

It is easier to choose and open a new pension than you probably think . At the level of contributions you are probably talking about, you will find that financial advisors are generally not interested, and you do not really need one anyway .

Just be clear in your mind that the pension itself is just an administrative entity that deals with your contributions , withdrawals, tax etc . Your money is actually in investments within the pension. A lot of people new to this area get the two things confused.

Picking the right investment(s) is more important than picking any particular pension provider.

I currently earn just over £10k per annum. Is there a limit as to how much I could put into a SIPP (I also contribute to a DB pension)?

Normally you could add £10K gross to a SIPP . This means you would add £8K and the pension provider would add £2K tax relief. This still applies even if you have not actually paid any tax . However I am not sure how the DB contributions might affect this .

Thinking about it, would it be more efficient for my husband to increase his DC pension contribution further (he currently pays 14% into the pension and his employer pays a maximum 12%) rather than open a separate SIPP for me?

Probably not . The reason is that it is usually better for both partners to have a pension fund, so they can both make full use of their personal tax allowances when they retire . An exception to this can be  if your husband is paying any 40% tax now after his current contributions ?

AlanP_2

If you are a non-taxpayer due to p/t earnings then the AVC is not the option to choose. Your contributions would reduce your taxable salary (hence saving you tax) but as you are already below personal taxation level there is no benefit to you.

Using a Relief at Source (RAS) scheme would be much better as Dazed and Confused suggested.


£10k salary => Deduct your LGPS contributions => Contribute up to 80% of remainder.

Simple figures:

£10k less £1k LGPS (will be less than this in reality) leaves £9k that could be paid in to a pension.

Open a RAS pension (any of those on offer to DIY investors from the likes of Fidelity, A J Bell, Vanguard and others) and choose your investments.

Pay in 80% of £9k (£7200)

Provider claims tax relief on your behalf and HMRC contribute £1800 to your pension pot even though you have not paid any tax.