What would make you consider DB to DC transfer

Pablo7474

I think it was a different world five years ago, it seems a lot has changed since then. 

Prism

arnoldy said:

Pablo7474 said:

Arnoldy, what is your point with this? What someone thinks about inflation is not a good enough reason to transfer out of a DB and take all the risks involved with investing and managing your own pension. Good luck on finding an adviser to sign off on this! 

Apologies I was trying to answer the question "what would make you consider DB to DC transfer"

If you are worried about inflation (something you have no control over) it might be one of the reasons to transfer out of a DB pension, which is usually not inflation linked - whereas history tells us that that stock market investments, property and land etc generally do.

History also tells us that the most damaging thing to a DC pension is inflation. The 4% 'rule' is based on a 1968/1969 retiree who unknowingly was about to see a steady increase in inflation over the next 20 years or so. Pretty much everything got hammered and nothing really kept up with inflation except for gold and cash at the time.

Back then though interest rates got high too which helped a lot for those with plenty of cash to roll into the next short term bond or savings account. If high inflation was to happen again I think that a DB pension, even capped at a low percentage, will still likely be a safer place to be.

RoadToRiches

Cus said:

I was recommended to transfer, and I was in my early 40's.

Must have been easier back then. Know I had trouble as I am not 55, but I am over 50. Was told by the one I went with I had to put through a compelling case, a reason why before they would continue looking at it. They also told me they would not take on any case if you are under 50.

carrspaints

I am 56 and considering retirement at 62. I am debt & mortgage free and in good health. I have 2 pensions; a DB pension that has been frozen since October 2017 and a DC pension I currently pay into.

I have requested and received my CETV from my DB pension scheme. The CETV being offered is equivalent to 31 x my annual pension. That same document shows that there has been zero inflationary increase applied to the frozen pension for 2017, 2018 & 2019. Having spent days researching the pros & cons of transferring my DB pension to DC pension, I am struggling to find any major benefit in remaining in the DB pension. I can only draw on this pension at 65 and if they continue to apply 0% inflationary escalation to this for the remaining 9 years, the buying/spending power of my pension will be greatly reduced. My views are

1. Transfer the DB CETV into my DC pension where it can (hopefully) gain some ROI. My DC pension has delivered a return of approximately 5%/annum since 2017. I understand there is risk, DC pension values can go up & down.
   
2. If the assumed life expectancy of a male in the UK is 85 and the DB pension is offering me 31 times my annual pension to leave, it is hard to justify not taking it. Based on living to 85, if I stick with my DB pension income, the pension scheme would pay out approximately 65% of what they are offering under CETV.
   
3. Once DB & DC funds are merged, I can take 25% tax free and if I really needed to, I could start drawing down on my DC pension at 62. I can't touch my DB pension until 65. However, that 25% tax free amount coupled with my current savings means we can live comfotably without touching the DC pension until 67 plus, when State pensions have kicked in.
   
4. Under the DB pension, if I die, my wife gets 50% of the pension. Under the DC pension, my understanding is that that she will have access to the remaining pension funds, or the money can be passed down as inheritance.

Everywhere I have read strongly recommends NOT cashing in a DB pension. Yes, it is guaranteed for life, yes my wife will get 50% of it should I die, but based on above, I feel the benefits of transferring out vastly outweigh the benefits of sticking with the DB pension. Four major drivers for me are (1) Seemingly no inflationary increase happening with my DB pension (2) Invested in DC, the CETV could provide a better return. (3) A good CETV offer from my DB pension provider (4) Am not restricted to 65 before I can start taking pension.

Does anyone have any thoughts on the pros & cons in this scenario? I will be, of course, seeking qualified professional guidance, which is a requirement anyway before transferring out of DB if value is >£30k.

Prism

carrspaints said:

I am 56 and considering retirement at 62. I am debt & mortgage free and in good health. I have 2 pensions; a DB pension that has been frozen since October 2017 and a DC pension I currently pay into.

I have requested and received my CETV from my DB pension scheme. The CETV being offered is equivalent to 31 x my annual pension. That same document shows that there has been zero inflationary increase applied to the frozen pension for 2017, 2018 & 2019. Having spent days researching the pros & cons of transferring my DB pension to DC pension, I am struggling to find any major benefit in remaining in the DB pension. I can only draw on this pension at 65 and if they continue to apply 0% inflationary escalation to this for the remaining 9 years, the buying/spending power of my pension will be greatly reduced. My views are

1. Transfer the DB CETV into my DC pension where it can (hopefully) gain some ROI. My DC pension has delivered a return of approximately 5%/annum since 2017. I understand there is risk, DC pension values can go up & down.
   
2. If the assumed life expectancy of a male in the UK is 85 and the DB pension is offering me 31 times my annual pension to leave, it is hard to justify not taking it. Based on living to 85, if I stick with my DB pension income, the pension scheme would pay out approximately 65% of what they are offering under CETV.
   
3. Once DB & DC funds are merged, I can take 25% tax free and if I really needed to, I could start drawing down on my DC pension at 62. I can't touch my DB pension until 65. However, that 25% tax free amount coupled with my current savings means we can live comfotably without touching the DC pension until 67 plus, when State pensions have kicked in.
   
4. Under the DB pension, if I die, my wife gets 50% of the pension. Under the DC pension, my understanding is that that she will have access to the remaining pension funds, or the money can be passed down as inheritance.

Everywhere I have read strongly recommends NOT cashing in a DB pension. Yes, it is guaranteed for life, yes my wife will get 50% of it should I die, but based on above, I feel the benefits of transferring out vastly outweigh the benefits of sticking with the DB pension. Four major drivers for me are (1) Seemingly no inflationary increase happening with my DB pension (2) Invested in DC, the CETV could provide a better return. (3) A good CETV offer from my DB pension provider (4) Am not restricted to 65 before I can start taking pension.

Does anyone have any thoughts on the pros & cons in this scenario? I will be, of course, seeking qualified professional guidance, which is a requirement anyway before transferring out of DB if value is >£30k.

I would say its pretty rare for pension statements to display the inflation increases. Our old DB pension has displayed exactly the same yearly payment value every year for the last 10. It has been increasing in value each year but this will only be calculated at commencement of the pension.

Cypruseast

Thanks to all the posts. I was keen to stir up the debate a little as I know and understand the defacto stance is generally to always maintain a DB pension. However, I do believe there are circumstances that mean it’s not always beneficial to do so. To me the following are rationale that are worth considering that are making me consider:

1. Transfer value of x38 current final annual pension value (this is the value as shown now and will appreciate in line with rpi of course) current tv of £380k

2 45 years old, so have time to invest and potentially grow the amount I transfer so that it delivers more return than the DB potentially will. Obvs could lose it all too, but the stats are against that. I know someone questioned the why now, but I’d never consider transferring at 60, but to me it makes more sense to transfer early when offered a good transfer value and have time to potentially grow the amount. 

3. DC pension of £450k, contributing approx £22k per annum between personal and work contribs. So all things being equal it is likely to grow to a fairly substantial amount on its own. 

4.  A 11yr age gap between myself and my wife so she is likely to outlive me by some distance. More flexible inheritance options with DC pensions. 

5. My DB pension will not offer any spousal payments to my wife as this pension in its entirety was built up prior to me meeting her when I was married to my first wife - so it dies with me. Statically she will be 67 years of age and on average should expect to live an extra 15years . Possibly some dependent support but pretty sure it’s very limited too.

5. Desire to retire in my late 50’s and overall flexibility of a DC pension has its benefits. 

That’s my thoughts and what’s making me give some thought…
 

carrspaints

Thanks Prism. I didn't realize that. This could slightly complicate a decision to transfer out, since I have no idea what the pension value has increase to since 2017. If the DB provider doesn't provide the current value of your pension, it is difficult to then know if the CETV offered is good or not. I do know the average ROI on my DC pension and I highly doubt any inflationary rise my DB provider is applying would be anywhere near that. Let's assume my DB pension in 2017 was 12k p.a., but they are offering me £372k to transfer out, it still seems better to invest that £372k into the DC pension and get 5% p.a. compounded. Again, I understand pension values can fall.

I should also add that my CETV clearly states "Discretionary increases granted over the last three years". Key word here is discretionary. It then goes on to list the years with 0% next to each. The way I read that is exactly as stated. The pension value is unchanged from 2017.

QrizB

carrspaints said:

Thanks Prism. I didn't realize that. This could slightly complicate a decision to transfer out, since I have no idea what the pension value has increase to since 2017. If the DB provider doesn't provide the current value of your pension, it is difficult to then know if the CETV offered is good or not.

My DB scheme closed a few years ago but the scheme has a website where members can log in and get predicted pension values for any retirement date from age 55 to 75. Does yours offer anything like this?

carrspaints

QrizB, When I log in and go to My Pension, it states Deferred Benefits - Effective date 30/09/2017 and the value, which is the same pension value as stated in the CETV I received yesterday. There is nowhere on the pension Site that provides forecast or predicted pension values.

Prism

carrspaints said:

Thanks Prism. I didn't realize that. This could slightly complicate a decision to transfer out, since I have no idea what the pension value has increase to since 2017. If the DB provider doesn't provide the current value of your pension, it is difficult to then know if the CETV offered is good or not. I do know the average ROI on my DC pension and I highly doubt any inflationary rise my DB provider is applying would be anywhere near that. Let's assume my DB pension in 2017 was 12k p.a., but they are offering me £372k to transfer out, it still seems better to invest that £372k into the DC pension and get 5% p.a. compounded. Again, I understand pension values can fall.

I should also add that my CETV clearly states "Discretionary increases granted over the last three years". Key word here is discretionary. It then goes on to list the years with 0% next to each. The way I read that is exactly as stated. The pension value is unchanged from 2017.

Well in our case its something we can calculate as the pension states that it increases in line with RPI each year and those increases can be obtained from the ONS website.