DB Pension transfer..a no brainer?

Diplodicus

Malthusian said:

Diplodicus said:

Much of the inflated fee is justified by citing risk insurance but, by recommending no transfer, the adviser is avoiding that risk.  

Not correct. A recommendation not to transfer is regulated financial advice and requires PI insurance same as a recommendation to transfer.

Correct. But not incompatible with:

Much of the inflated fee is justified by citing risk insurance but, by recommending no transfer, the adviser is avoiding that risk. 



. 

 

cfw1994

Malthusian said:

cfw1994 said:

@grocerjack - I would delve deeper into what medium risk funds your IFA has put you in…..sounds decidedly more low risk to me.

I often wonder if IFAs chose relatively low risk funds for clients - after all, it would be unconscionable for them to allow a client to run out of money, so in their shoes, I would play things safe 🧐

Research has consistently shown that people tend to overestimate their own risk profile, i.e. someone DIYing their investments will pick a higher risk fund than an advised client. The proof of this can be seen any time there is a market drop (big or small) and threads start appearing in the MSE forums (and elsewhere) along the lines of "Should I sell my investments until things are less volatile / uncertain (which will never happen)".

Other things being equal, a low risk investment is more likely to run out of money because it will grow more slowly. Higher growth doesn't help anyone however if you are out of the market as a result of being invested above your risk profile and panicking. Nor is a slight increase in spending ability worth sleepless nights.

FWIW, my DC pot is up over 22% since 05Jul20 (which itself was of course at the Covid dipping point).  Actually a bit more, since I started taking drawdown 2 months ago,  must figure out how to measure that more accurately…

An IRR calculator would do the job if you can be bothered plugging all the figures and dates in.

Maybe I am overestimating my risk profile...but given I absolutely understand the funds I invest in can be more volatile (rather than “more risk”), & given I have never considered selling investments due to broad market conditions (I agree things will always be uncertain😉), I suspect not.  I do revisit the holdings regularly, & tweak things a little: perhaps half a dozen times over the past 15-20 years.

Might look into IRR calculators,  Any you recommend?   I suspect it would be tricky posting all the data in: I already track things weekly as we are, I suspect that is enough for our needs.

Diplodicus

It is feasible to match the stated DB pension through dividend payments without even touching the principal in a SIPP.

That is if the op wants a low worry/low maintenance portfolio. A mixture of growth and yield stocks is my preference, and is working out very well, touch wood. 

C_Mababejive

Hi all,im back again and had time to read responses and ill pick up on a few points made;

The no brainer header was of course not meant as a serious comment but just a conversation starter. I have in front of me an advice pack from an IFA the last time i did a pass at this(Dec 2020).

The advice was not to transfer and the reasons given were;

No current clear retirement date or plan

No immediate need for income or capital (im still working !)

Recognises that i have investment knowledge (present and previous experience disclosed/discussed)

Advised to revisit the process when closer to retirement/have a plan.

Someone pointed out that i have raised this discussion before and thats true !

The IFA calculates a "transfer gap" of circa 480k i.e the value of buying the same rights as my DB pension would be circa £1,450,000 in the market place as compared to a tx value of circa £950,000.

Projected pension at 60 £24,379 with no TFLS

Obviously IFAs have to do their job and be seen to be dispensing sound advice. Their priority is to ensure that you have sufficient funds to live on in retirement,,and that,i believe, is the end of it for them.

My priority, right or wrong, is to have direct title to income generating capital which will make me financially better off in retirement.

I cant access my DB pension until i leave my employment, but i dont want to do that yet !

I could carry on working and getting paid, have circa £1m with my name on it and generating say £30,kpa with the usual caveats of not guaranteed,subject to markets ,costs etc.

I could also then stop paying into pension vehicles.

Another option might be, carry on working, retain the DB pension and continue to fuel the SIPP. This would generate capital,income and tax savings whilst avoiding LTA charges.

I could snuff it tomorrow and it would all rest with the pension trustees rather than my estate...

Some would say, well it wouldnt matter then !

There is also of course the exposure to additional taxes due to LTA which i havent fully explored or understood. Does anyone else think the LTA is too low in this modern era? What business is it of Government as to how much pension people have?

People say ,well you need less money in retirement. I say well surely you need the same at least ? You have more free time to do stuff. Im far from being in a zimmer frame and am still fit and active.

Am i just being greedy ?

Albermarle

cfw1994 said:

Malthusian said:

cfw1994 said:

@grocerjack - I would delve deeper into what medium risk funds your IFA has put you in…..sounds decidedly more low risk to me.

I often wonder if IFAs chose relatively low risk funds for clients - after all, it would be unconscionable for them to allow a client to run out of money, so in their shoes, I would play things safe 🧐

Research has consistently shown that people tend to overestimate their own risk profile, i.e. someone DIYing their investments will pick a higher risk fund than an advised client. The proof of this can be seen any time there is a market drop (big or small) and threads start appearing in the MSE forums (and elsewhere) along the lines of "Should I sell my investments until things are less volatile / uncertain (which will never happen)".

Other things being equal, a low risk investment is more likely to run out of money because it will grow more slowly. Higher growth doesn't help anyone however if you are out of the market as a result of being invested above your risk profile and panicking. Nor is a slight increase in spending ability worth sleepless nights.

FWIW, my DC pot is up over 22% since 05Jul20 (which itself was of course at the Covid dipping point).  Actually a bit more, since I started taking drawdown 2 months ago,  must figure out how to measure that more accurately…

An IRR calculator would do the job if you can be bothered plugging all the figures and dates in.

Maybe I am overestimating my risk profile...but given I absolutely understand the funds I invest in can be more volatile (rather than “more risk”), & given I have never considered selling investments due to broad market conditions (I agree things will always be uncertain😉), I suspect not.  I do revisit the holdings regularly, & tweak things a little: perhaps half a dozen times over the past 15-20 years.

Might look into IRR calculators,  Any you recommend?   I suspect it would be tricky posting all the data in: I already track things weekly as we are, I suspect that is enough for our needs.

I think there is a difference between a younger, less experienced DIY investor , who does invest above their risk profile and a DIY investor who is more mature and with some years of experience and self knowledge (which you/we hopefully have  ) 

Malthusian

cfw1994 said:

Might look into IRR calculators,  Any you recommend?   I suspect it would be tricky posting all the data in: I already track things weekly as we are, I suspect that is enough for our needs.

I prefer Excel personally, but if you're not au fait with Excel formulas, this online calculator seems reasonably user friendly.

Albermarle

Does anyone else think the LTA is too low in this modern era? What business is it of Government as to how much pension people have?

It does not really matter what you or I think, it is what it is and is unlikely to go away ( or increase for some years ).

The Government has part funded your pension via tax relief , especially generously for higher rate taxpayers. The LTA is there to limit the amount of tax relief benefit relatively wealthy people can take , to stop it being abused . 
Same reason for the £40K annual allowance .

Some posters have said the LTA is too blunt and too complicated an instrument, and could be better to reduce the annual allowance instead, or reduce the tax relief available in the first place.

Parking_Trouble

Is that transfer gap realistic? 
Does it really need £1.5m to have an equivalent £24k pension - presumably index linked, half pension for spouse?

'No clear retirement date or plan' That sounds right.

The OP probably doesn't need as much as he is paid now because still paying into a SIPP 
Is there a mortgage to pay off?

Carry on working. Take the DB pension. Fuel the SIPP until you stop work. I did that for a year before I finally got fed up working and retired. If the OP wants to start having a spend up then stop the SIPP contributions and enjoy all the extra money whilst still working.

Happy I took the DB pension for guaranteed income. Got a small SIPP and S$S ISA to play with.
Wife took good CETV offer on an old DB pension at 55 - 3 years ago and about to retire from part time NHS job. That's enough at the mercy of the markets.

Albermarle

Does it really need £1.5m to have an equivalent £24k pension - presumably index linked, half pension for spouse?

An all singing, all dancing annuity would cost in that region , although £1.5 million may be a bit on the high side. So looking at it that way you would be mad to give up the DB pension for less than a Million.

On the other side of course , you can say that even being very conservative you should be able to generate an income over £30K from a DC pot of nearly a Million . Some would say more would be relatively easy .

The issue is that annuities are particularly poor value at the moment , and index linked ones are particularly expensive ,so it is not really a very good comparator to use. 

Parking_Trouble

Things must have shifted in the past 2-3 years.

My CETV offer was £1m in exchange for £36k pa
Workmates thought I was mad not to take it.
Vast majority at the time were transferring out.
Some of them swapped £45k - £60k RPI linked pensions for up to £1.5m, presumably fully aware of LTA challenges further down the road.