DB to DC transfer critical illness

Moonwolf

I’ve just been diagnosed with my second cancer, malignant melanoma this time. The five year survival is not terrible but neither is it good.  In normal circumstances I would never think about transferring a DB to DC scheme but I’m wondering if it is worth investigating.

I’m 55.

I have three DB pensions.
1: Pays from 60: NHS 1995 frozen in the late 1990s. £4,600 pa, 3x lump sum, 50% spouse.
2: Pays from 60: Private company £4,800, no lump sum without commutation, 50% spouse.
3: Pays from 65: NHS 2015 with ERRBO, currently £8K pa, 1/3 spouse, still growing.

£300k DC pot.

I already have enough years for full new state pension.

Spouse is 14 years plus a few months older than me.
Their pensions including old state pension add up to £19k and I would get £2,600 pension.

Mortgage left is about £10K now. I was planning to go between 58 and 60.

We have no expectation of inheritance but have no dependants (it is complicated and the true picture doesn’t change this plan)

Originally I had expected to live to 90, it seems unlikely I’ll live past 75 now.

I wondering could I keep the NHS pensions but transfer the other.

On the second pension, 

If I transferred it and then spent all the DC pots but survived, we would still have combined pensions of about £40K and either single survivor would have about £24K so not destitute.

I’m guessing the second pension above would have a transfer value between £150k and £200k.

If I die before 60 spouse gets return of contributions, the transfer is considerably more than that.

Although the pension is generous given the increased risk of a short lifespan and the spouse would even be able to get an annuity that pays more than £2.4k a year from the likely transfer value.

It feels that it might be sensible to seek a transfer in this specific situation, is it worth pursuing. Might an IFA recommend it?

Marcon

Moonwolf said:

I’ve just been diagnosed with my second cancer, malignant melanoma this time. The five year survival is not terrible but neither is it good.  In normal circumstances I would never think about transferring a DB to DC scheme but I’m wondering if it is worth investigating.

I’m 55.

I have three DB pensions.
1: Pays from 60: NHS 1995 frozen in the late 1990s. £4,600 pa, 3x lump sum, 50% spouse.
2: Pays from 60: Private company £4,800, no lump sum without commutation, 50% spouse.
3: Pays from 65: NHS 2015 with ERRBO, currently £8K pa, 1/3 spouse, still growing.

£300k DC pot.

I already have enough years for full new state pension.

Spouse is 14 years plus a few months older than me.
Their pensions including old state pension add up to £19k and I would get £2,600 pension.

Mortgage left is about £10K now. I was planning to go between 58 and 60.

We have no expectation of inheritance but have no dependants (it is complicated and the true picture doesn’t change this plan)

Originally I had expected to live to 90, it seems unlikely I’ll live past 75 now.

I wondering could I keep the NHS pensions but transfer the other.

On the second pension, 

If I transferred it and then spent all the DC pots but survived, we would still have combined pensions of about £40K and either single survivor would have about £24K so not destitute.

I’m guessing the second pension above would have a transfer value between £150k and £200k.

If I die before 60 spouse gets return of contributions, the transfer is considerably more than that.

Although the pension is generous given the increased risk of a short lifespan and the spouse would even be able to get an annuity that pays more than £2.4k a year from the likely transfer value.

It feels that it might be sensible to seek a transfer in this specific situation, is it worth pursuing. Might an IFA recommend it?

I am sorry - not the news you wanted to hear.

You won't be able to transfer the NHS pensions to a DC arrangement (not allowed to do so where the benefits have been built up in an unfunded public sector scheme such as the NHS), but the private pension may well be worth investigating.

Whether an IFA would recommend it is impossible to answer, but you could always ask for some preliminary thoughts before committing yourself to anything. It may be that you need to get what is known as 'abridged advice' This is a shorter and cheaper version of the full advice process - it can only give one of two results: a recommendation not to transfer; or that the full advice process is needed before a a final recommendation can be given. The latter would be needed to satisfy the trustees of the DB scheme before they could agree to pay over any transfer (which is presumably well over £30,000, given the size of the potential pension).

squirrelpie

Sorry to hear of your medical problems, and I wish you the best of luck with them.

Not an expert but a couple of thoughts:

(1) It may be worth investigating whether it's possible to have #2 paid earlier because of your illness

(2) The first step with regards transferring is probably to request a CETV so you at least know what you're considering.

jamesd

Yes, it's likely that you will find an IFA wiling to recommend a transfer of the second pension. This is because you have a medical condition that is likely to significantly reduce your life below age 75 and the FCA indicates that this is a strong factor in favour of transferring. The minimal payment if you die vs the transfer value and spousal benefits available also tends to support the transfer in your situation. Having ample money from other pensions after the transfer also tends to be more in favour than against, since there's minimal risk of poverty or relying on means tested benefits.

Because your spouse has already reached state pension age there is also the option of them deferring claiming their state pension. This causes it to increase by 5.8% per year of deferral, plus the normal increases while deferring. You can start to defer once even after claiming it. That can quite rapidly get them the equivalent of the full spousal benefit under number 2 DB plan, with only a little of the transfer value money used to do it.

For DC pensions only, like the DC you get if you transfer DB 2, if you are told that you have no more than one year to live you can withdraw the whole pension pot free of tax at any age. If you die before age 75 the nominated beneficiaries can inherit the pension pot and withdraw from it as they wish, again free of tax, at any age. They can also pass anything remaining on to others in a successor pension that keeps the same any age free of tax withdrawing. Death from age 75 results in the pension being taxed as income when each chunk is withdrawn.

When seeking an adviser for transfer advice be sure to early in the discussion tell them about the health issues and that there's plenty of other income even after a transfer, since this indicates to them that they are quite likely to be able to recommend a transfer.

Malthusian

(2) The first step with regards transferring is probably to request a CETV so you at least know what you're considering.

I would be very cautious before doing that as you could easily fall into a trap that has caught a lot of people before you. Once you have a CETV a three month clock starts ticking. If you decide you want to look into it further and it takes you say a month to find an adviser willing to advise, the adviser now has two months to request information from the ceding scheme (they will almost certainly need more than the CETV and any other info you received), do fact-finding, run the analysis, issue the information and get the signed paperwork back to the scheme. (If of course a transfer is suitable.) This is a very tight timescale.

If the three month clock runs out, you will have to request a new CETV. This may increase costs as the adviser will have to re-run the analysis. The new CETV may not be as good as the first one. The scheme will have the right to charge you for a second CETV, and could even refuse to provide one at all until twelve months has passed since the first.

So personally I would find a willing adviser first and then leave them to request the CETV. They should be willing to do this as part of the initial fact-finding process before a fee is incurred, leaving you free to back out if it clearly isn't worth it.

[Deleted User]

When I transferred to a SIPP, the IFA had to push back my assessment as those with critical illness went to the front of the queue (and rightly so)

Moonwolf

Follow-up.

I spoke to a financial advisor who agreed to consider looking into supporting a supporting a transfer in my circumstances.

I then requested a CETV which took over two months to arrive, The CETV was 30x.

In the meantime I also had a second operation and received the good news that everything is clear. It looks like the 5 year survival rate for my age and stage is 95%, better than I originally understood. Also my initial fears simply from getting the diagnosis have retreated somewhat.

As a result I’ve decided not to go further with the transfer and not to try and retire immediately, but thanks everyone for the advice.

Goose_Grass

I am very happy to hear your good news, @Moonwolf !

I'm sure this was a very scary experience.  I've just had a family member go from remission to relapse, and it's got us all back on high-alert. But hopefully the information and thought taken about your pensions will still be beneficial in your improved context.

Good luck!