DB Pension Transfer Advice

Thrugelmir

Decision_Time said:

"You really think DC benefits would be higher? Many DB members are non contributory and end up with half pay or a CETV circa 30-40 times. DC would be much less surely? "

But if the employer had to pay a similar contribution rate as they do for DB members then I'm sure DC would beat DB over the recent (and not so recent) past. Whether that will happen for the future is of course in the lap of the stock market gods.

DB schemes have been closing since 1997 due to the funding burden being too great though. A mixture of life expectancy, low stock market returns and political interference were the catalysts. Everything happens for a reason. 

QrizB

Pablo7474 said:

QrizB said:

Pablo7474 said:

You really think DC benefits would be higher? Many DB members are non contributory and end up with half pay or a CETV circa 30-40 times. DC would be much less surely?

When they closed the DB scheme the unions negotiated a 12% employer contribution to the replacement DC scheme.

Was this 12% only for employees who were members of the DB scheme previously, therefore did a new joiner get this? 

I think new joiners get it too (I'm not one so haven't paid attention to that part of the rules, sorry).

Decision_Time said:

"Also, where did 17% come from? "

I think the poster meant to say an employee contribution of 5% rather than an employer contribution, so: 12% (employer) + 5% (employee) = 17%.

Yes, exactly that. I'll edit my post to fix my error.

jimi_man

Terron said:

Malthusian said:

I have a pet theory that in 40 years' time, millennials' grandchildren will be looking enviously at their grandparents' defined contribution pension funds and moaning about the crappy "collective defined contribution" or "pension ISA" schemes they have to contribute to. You don't know what you got till it's gone, sonny.

But civil servants (and MPs) will still have their fully indexed DB pensions.

Career average now. Still DB, but less valuable.

Malthusian

Decision_Time said:

But if the employer had to pay a similar contribution rate as they do for DB members then I'm sure DC would beat DB over the recent (and not so recent) past. Whether that will happen for the future is of course in the lap of the stock market gods.

But the expectation is that DC would beat DB in the future because

1) no money spent on actuarial calculations and statutory reports, which can go into the DC pots

2) individual DC pensions can be and usually are invested on a higher risk, higher growth basis than DB schemes - no need to hold gilts to match other people's liabilities

(To repeat for clarity, the scenario here is that the employer pays into a DC pension everything they would have had to pay into a DB pension, so potentially well over 20% of salary, not the standard 5% employer / 5% employee.)

As you say there are no guarantees, but this is in the same sense as "there are no guarantees that a diversified stockmarket investment will beat cash over the long term".

Whether an individual is better off with their DB pension today than the CETV is as we've seen a very complex question dependent on their circumstances. But saying the answer is "no" is considered a missale until proven otherwise.

arty688

so for example Bill and Bob both start work at 20 and retire at 60 with a finishing salary of £50k

Bill has a DC pension Bob has a DB pension

Both contribute 10% to there pension but Bill company matches to 10%

Both are on average schemes who would be better off?

Terron

jimi_man said:

Terron said:

Malthusian said:

I have a pet theory that in 40 years' time, millennials' grandchildren will be looking enviously at their grandparents' defined contribution pension funds and moaning about the crappy "collective defined contribution" or "pension ISA" schemes they have to contribute to. You don't know what you got till it's gone, sonny.

But civil servants (and MPs) will still have their fully indexed DB pensions.

Career average now. Still DB, but less valuable.

Not entirely true as they get above inflation rises to the historical salaries. For high achievers probably actually less valuable, but likely more valuable for the low achievers. Less open to the abuse of a final year salary rise for those about to retire, though.

Terron

arty688 said:

so for example Bill and Bob both start work at 20 and retire at 60 with a finishing salary of £50k

Bill has a DC pension Bob has a DB pension

Both contribute 10% to there pension but Bill company matches to 10%

Both are on average schemes who would be better off?

10% - wow. I was on 5% until they wanted to outsource the scheme when they increased it to 6% as an incentive to transfer.

What sort of DB pension though - they aren't all the same. Private ones generally have capped index-linking, to 2.5% now IIRC.

It is not just the money, but also the risk. With DC pensions the pospective pensoner takes all the risks. Taking higher risks for potentially higher returns is an option, but that might go wrong.

With DB pensions the company handles the risks, though not all the inflation risk for many.

jamesd

Pablo7474 said:

You really think DC benefits would be higher? Many DB members are non contributory and end up with half pay or a CETV circa 30-40 times. DC would be much less surely?

Yes, so long as the total paid by the employer plus the employee is the same. If non-contributary that means same contribution from employer to DC.

Pablo7474 said:

Yes, but that wasn’t my point as that is meaningless. I am saying that people with DB are far better off as it cost them very little, they get a good pension, yet they still moan they can’t transfer it easily. It’s all take take take.

Further to this, the LTA even works better for them! 

If you say that "employees who pay much more into their pension get more valuable pensions" that's quite likely but it's not of much use in comparing whether DB or DC would pay more because it's about the effect of higher contributions, not DB or DC.

Historically the DB schemes have tended to have much higher employer contribution rates than DC schemes and that is likely to largely explain the value differences.

jamesd

Terron said:

Private ones generally have capped index-linking, to 2.5% now IIRC.

Median for DB is currently 5% cap according to the survey done by their regulator.

RoadToRiches

Terron said:

Less open to the abuse of a final year salary rise for those about to retire, though.

That was said to me as a reason why they did not promote me just before the scheme came to an end.