What would make you consider DB to DC transfer

carrspaints

Thanks Pablo7474. I do appreciate your feedback. Perhaps I am looking at this too simplistically. I'll provide precise info to support my thoughts.

• My DB pension CETV is showing my Total Pension Plan @ £10,999.14 p.a.
• My DB pension CETV plan shows "discretionary increase to pension over past 3 years" as 0%
• My DB pension CETV states Increases to the Plan pension once it is being paid increases in line with price inflation or 2.5% a year, whichever is lower.
• My DB pension CETV states spouses pension will be £5,499.57 for "Death before or after retirement". I.e., half my pension.
  
• My DB pension CETV states a guaranteed transfer value of £339,641.90
  

So why transfer my existing DB if I can exist on my DC until 65? Based on the above, I will end up with a paltry £916.00/month from this DB pension at 65. Adding the £339,641.90 CETV to my existing DC pot today brings me to £422,710.00. Add my 50% salary sacrifice over the next 5 years & 4 months brings that total to £567,856.00. That excludes any DC pension investment returns during that time.

Now if I keep my DB pension, my DC pension at 62 will be £228,146.00, which includes contributions for the next 5 years & 4 months, but excludes any DC pension investment returns or losses.

So keeping things as they are, I would get £916.00/month from my DB pension and £950.00 from my DC pension (assuming no returns or losses on DC pension investment). That is not a lot, £1,866/month to the age of 85 (after which the  DC pension is exhausted) . If DB CETV is transferred, that £567,856.00 should grow way past £600k.That works out at >£30k/annum. Put another way, if I were to draw down £1,866.00 from my DC pension, that would get me to at least 92, assuming I started drawing down at 65.  BTW, I was wrong on the current DC investment fund return, it has returned 21.97% over the past 3 years.

Another factor is my wife would only get half of my DB pension if a died. Under a DC pension, if I die before 75, she inherits the entire pot, tax free. She would pay tax on that pot if I died after 75. The way I see this, the advantages to transferring out of DB into DC makes a whole lot of sense. This is not about grabbing a lot of DB cash and splashing out. It is about making the most of pensions I have worked way too hard for, with significant salary sacrifice that is ongoing.

Albermarle

Not wanting to get into another DB transfer discussion per se but probably worth pointing out the following.

A man  who has reached 55/60 will on average live until they are 84/85. If you are in good health , well educated and with no money worries you are likely to live longer than average and a good chance you will live until your Nineties.
If you take £30K annually from a pot of £600K , there is a risk that the pot will run out, or more likely there will not be a lot left to pass on . It depends on how well the pot is managed, how kind markets will be and how flexible the income taken can be from year to year.

Notepad_Phil

I think you need to check with your trustees on how exactly your pension is increased prior to retirement as the more usual route is for the pensionable salary to be increased by inflation (possibly capped to a maximum %) rather than by discretionary increases from the company.

I think the discretionary increases you see may be the additional amount that the company has decided to make in addition to the capped inflationary amount, and given that inflation is low they've probably not needed to cap the amount anyway.

zagfles

Notepad_Phil said:

I think you need to check with your trustees on how exactly your pension is increased prior to retirement as the more usual route is for the pensionable salary to be increased by inflation (possibly capped to a maximum %) rather than by discretionary increases from the company.

I think the discretionary increases you see may be the additional amount that the company has decided to make in addition to the capped inflationary amount, and given that inflation is low they've probably not needed to cap the amount anyway.

Yes, there is legal requirement to increase deferred DB pensions, see https://www.barnett-waddingham.co.uk/comment-insight/blog/revaluation-for-early-leavers/

carrspaints

Thanks everyone. The CETV states this:

Increases to the deferred pension before the benefit is paid:

The Plan pension built up after 6 April 2009 is increased by price inflation up to 2.5% for each year between the date of leaving the Plan and NRD.

Increases to the Plan pension once it is being paid:

Plan pension built up between 6 April 1997 and 6 April 2006 - Increased in line with price inflation or 5% a year, whichever is lower.

Plan pension built up between 6 April 2006 and 6 April 2009 - Increased in line with price inflation or 2.5% a year, whichever is lower.

Plan pension built up after 6 April 2009 Increased in line with price inflation or 2.5% a year, whichever is lower.

zagfles

carrspaints said:

Thanks everyone. The CETV states this:

Increases to the deferred pension before the benefit is paid:

The Plan pension built up after 6 April 2009 is increased by price inflation up to 2.5% for each year between the date of leaving the Plan and NRD.

Increases to the Plan pension once it is being paid:

Plan pension built up between 6 April 1997 and 6 April 2006 - Increased in line with price inflation or 5% a year, whichever is lower.

Plan pension built up between 6 April 2006 and 6 April 2009 - Increased in line with price inflation or 2.5% a year, whichever is lower.

Plan pension built up after 6 April 2009 Increased in line with price inflation or 2.5% a year, whichever is lower.

Those looks like statutory minimums, but it should also say deferred pension is increased by inflation up to 5% for pre 2009 service.

carrspaints

Nowhere in the document is that stated.

Some on the forum have suggested my DB pension is increasing each year with inflation. If that is so, why is my CETV showing a an annual pension that is the same, to the penny, as it was in 2017? And if it has increased with inflation, what is the point of a CETV if the new value is not stated? You won't know if the offer they have made to transfer out is actually good or not.

Everything I am reading just tells me that pursuing a DB transfer is a waste of energy and time. I can't find any comments that suggest it's a good idea - and I still can't figure out why, other than DB is guaranteed income for life and DC is a gamble. Perhaps I should stop my salary sacrifice into my DC and just get salary taxed and stick in my bank.

QrizB

@carrspaints I think you need to ask your DB pension provider these questions. If it isn't written in any of their documents, but it's a statutory minimum, you could assume that it;s being paid but the only way to be sure is to ask them.

sandsy

carrspaints said:

Nowhere in the document is that stated.

Some on the forum have suggested my DB pension is increasing each year with inflation. If that is so, why is my CETV showing a an annual pension that is the same, to the penny, as it was in 2017? And if it has increased with inflation, what is the point of a CETV if the new value is not stated? You won't know if the offer they have made to transfer out is actually good or not.

Everything I am reading just tells me that pursing a DB transfer is a waste of energy and time. I can't find any comments that suggest it's a good idea - and I still can't figure out why, other than DB is guaranteed income for life and DC is a gamble. Perhaps I should stop my salary sacrifice into my DC and just get salary taxed and stick in my bank.

Your deferred pension is definitely increasing. But some trustees simply refuse to give updated figures. I left my DB scheme in 1997 and they never updated the figure until I was old enough to request an early retirement quote, earlier this year. So it made it appear as if it hadn't changed for over 20 years. If you took advice, an adviser would calculate the current and forecast figures and compare it with the level of income you might generate from the transfer value.

zagfles

carrspaints said:

Nowhere in the document is that stated.

Some on the forum have suggested my DB pension is increasing each year with inflation. If that is so, why is my CETV showing a an annual pension that is the same, to the penny, as it was in 2017? And if it has increased with inflation, what is the point of a CETV if the new value is not stated? You won't know if the offer they have made to transfer out is actually good or not.

Everything I am reading just tells me that pursing a DB transfer is a waste of energy and time. I can't find any comments that suggest it's a good idea - and I still can't figure out why, other than DB is guaranteed income for life and DC is a gamble. Perhaps I should stop my salary sacrifice into my DC and just get salary taxed and stick in my bank.

How is a CETV showing an "annual pension"? That makes no sense. You seem to be confused about what a CETV is, it's the "cash equivalent transfer value". It's a lump sum for transferring to a DC scheme, not an annual pension.

You need a quote for the value of your DB pension now, that should and has to by law increase with (capped) inflation. If it isn't, ask the scheme for an up to date quote. This is assuming this isn't a very old DB scheme, I think if you left in the mid 80's before statutory inflation protection came in they don't have to increase it in deferment.

Are you sure you're not looking at "pension at leaving"? That will be the pension before inflation increases, and that won't change.

On your last paragraph what has your sal sac to your DC scheme got to do with whether you transfer the DB or not? Unless you'll have LTA issues?