What would make you consider DB to DC transfer

Albermarle

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.

If you were to go back through this forum just for August, you would see multiple threads on this subject of DB transfers and the associated practical difficulties of transferring , some with over a hundred replies .
So suggest you put a couple of hours to do that and I think then you will be fully informed on the subject and the varying views on it .

Cypruseast

Albermarle said:

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.

If you were to go back through this forum just for August, you would see multiple threads on this subject of DB transfers and the associated practical difficulties of transferring , some with over a hundred replies .
So suggest you put a couple of hours to do that and I think then you will be fully informed on the subject and the varying views on it .

Yep there are load of threads but tbh the vast majority take the stance of not transferring and for the majority of people I understand and agree with that. But it’s not a one size fits all answer to everyone’s personal debate. I can see exactly where Carrspaints is coming from and the rationale for this internal wrangle. I guess that’s why I wanted to rattle that cage and see if others agree there are circumstances that mean a transfer makes more sense than just leaving it. 

I ultimately started this as I believe there are a number of key things that make this a worthwhile debate as the factors below (in no particular order) based upon personal circumstances do not always mean in my own humble opinion mean that it’s cut and dry:

1. CETV value
2. Current age and thus time in the market to invest.
3. Personal circumstances in relation to dependents/spouse and death benefits.
4. Other pension values
5. Flexibility
6. Inheritance planning
7. Desired age of retirement. 

 

Pablo7474

First point being you could leave your DB and access the DC early, so why do you need to transfer the DB as well?

You mention 5% returns over last few years. Why only 5%, do you have investment experience? Are you in default fund? Investments have had a long good run, they could go the other way, why take the risk. 

Average age might be 83, but you may live to 103, why take the risk?

Your wife may not be happy managing her own funds, what is her ATR and CFL? 

If you have other non Pension assets why not use these for income, then DB and leave existing DC upon your death.

Why do you need 25% of either or both funds?

These are just a few questions that spring to mind, there are others. Based on what you have said so far I cannot see a reason why an IFA would recommend it when you can meet your retirement objectives by keeping the DB! 

Daniel54

."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."

or

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.

One of these two comments from you in the previous page on this thread is incorrect, as they are contradictory.

You would need to check with the trustees, and maybe a share of of your DB was assigned to your ex wife, although it appears not .Either your current wife will receive benefits from the DB or not- which is a pretty crucial point

Usually spousal benefits in a DB scheme are based on the full annual index linked annual payment at crystallisation, before application of the PCLS.

Under a DC the inherited amount is permanently reduced if the 25% tax free lump sum is take.

There are arguments pro and con, but it strikes me you need to get a fuller grip on how your DB pension operates.

Cypruseast

It wasn’t me that made the second comment/statement - that was Carrspaints who made the second comment. I have a full grip (other than off the top of my dead I can’t remember exactly the scenario for dependents) on how my DB pension works…

Daniel54

Cypruseast said:

It wasn’t me that made the second comment/statement - that was Carrspaints who made the second comment. I have a full grip (other than off the top of my dead I can’t remember exactly the scenario for dependents) on how my DB pension works…

Apologies for confusing the two of you  and I appreciate this was your original thread.

But you really do need to check what your wife's entitlements are under your DB scheme.Are you sure she has none ?

carrspaints

Hi Pablo7474. A lot of whys there. I tried to make my post as clear as possible, but to clarify in order of your questions:

1. Why transfer? Because from what I can see, it offers a better return. My DB pension appears stuck in the mud. The pension value stated in yesterday's CETV is the same as it was in 2017. What if that trend remains the same for the next 9 years? Even if it doesn't, the ZERO increases over the past 3 years does not set a good precedent. My £12k p.a. DB pension is going to buy a lot less in 2030 than it will today. Surely it makes sense to accept a generous CETV and get that invested in a DC scheme?
2. Why transfer (again). Because I can only access my DB pension at 65. I wish to retire at 62. I shouldn't need the money, but if I do, I can access it.
   
3. DC pension risk Risk is understood. So why take the risk? Because the returns should be there. There is always risk, but if these pension schemes routinely saw that risk materialize, pensions would not be popular at all. If workers are obligated to pay into them, they would simply pay the bare minimum. It would be better to just stick your cash in a bank account with zero interest, with almost zero risk. Who would salary sacrifice if pension risk was that high? I'd stop immediately.
   
4. I stated 5% p.a. (i.e. compounded), not 5% total over the 3 years.
5. No, I have no investment experience. My DC pension (L&G) uses their default L&G PMC Multi-Asset 3
6. Yes, I may live to 103 (unlikely). I could also die a day before I turn 65. My wife could do the same. How far do you take risk??
   
7.  I've calculated what we would need for a comfortable retirement life per month and my cashed in DB + DC pension and current savings should see that well into our late 80s. It is unlikely we will be traveling the World on holidays in our 90s. Generally speaking, we are likely to spend less in our latter years than we would shortly after retirement, before we hit that rocking chair.
   
8. I want to retire at 62. That leaves me 5 years and 4 months to continue contributing to my DC pension. My current contribution is 50% of monthly pay (including company contribution). Based on my current pot and what I would contribute until 62, I would eat into some of my savings to get me through to 67. The DB CETV added to my DC pension should see a healthy pension pot that should grow (subject to some risk, of course)
9. Currently 25% of the DC pension pot is tax free. I don't have to take it all at once. There would be little sense right now given the low interest rates. But the option is there if it is needed.
   

You have raised interesting questions. If it is not a good idea to transfer out my DB, hopefully my advisor can explain why. Right now and even with your queries and the hours spent reading up, I just don't get it. Risk seems to assume people could live  >35 years past retirement. But the risk rarely assumes the opposite may happen. Risk seems to assume that stuck in mud DB pensions are a safer bet than a DC that  could provide handsome returns. Even if they were just mediocre, that is better than having a DB pension that remains the same in value 13 years later. (2017 - 2030)

Pablo7474

Your adviser will explain why although you will still have to pay the advice fee, how will you feel if you get charged to remain? 

In terms of my question, I am asking why transfer DB if you can use existing DC pension up until 65? You therefore don’t need to touch DB now.

I understood 5% p.a., that is very low, check out pretty much any market. 

You may drop dead tomorrow but from advice point of view the adviser has to assume you will live to at least normal life expectancy unless their is reason to believe otherwise. 

I haven’t answered all your points now but am just trying to help to avoid you paying for a recommendation that is not what you want. 

Cypruseast

Daniel54 said:

Cypruseast said:

It wasn’t me that made the second comment/statement - that was Carrspaints who made the second comment. I have a full grip (other than off the top of my dead I can’t remember exactly the scenario for dependents) on how my DB pension works…

Apologies for confusing the two of you  and I appreciate this was your original thread.

But you really do need to check what your wife's entitlements are under your DB scheme.Are you sure she has none ?

Yea she has none. As part of our negotiated settlement she forgo any benefit from my pensions. 

Cypruseast

Cypruseast said:

Daniel54 said:

Cypruseast said:

It wasn’t me that made the second comment/statement - that was Carrspaints who made the second comment. I have a full grip (other than off the top of my dead I can’t remember exactly the scenario for dependents) on how my DB pension works…

Apologies for confusing the two of you  and I appreciate this was your original thread.

But you really do need to check what your wife's entitlements are under your DB scheme.Are you sure she has none ?

Yea she has none. As part of our negotiated settlement she forgo any benefit from my pensions. 

And my second wife is defo not entitled to any benefits from my DB pension. I have already checked this out with the trustees.