DB Valuation vs Pension

Pat38493

Hello all,

I have recently got a CETV and also a pension predictions for my DB scheme for if I retire at age 57, and also at 65.

Based on the information they sent and multiplying the annual salary they gave in today's money by the years, if I retire at 65 I would have to live to 92 years old to get the same money at the current CETV.

If I retire at and take those benefits at 57, I would have to live to almost 100.

Is this a valid (but I'm sure simplified) way to look at it?

Also - I am thinking that most likely, I would not want to have the same amount of money per year in my 90s that I want in my 60s - maybe I want to spend more money earlier when I am more active and in good health.

Further, I do think that if I die whilst in receipt of that pension, it will disappear whereas if I cashed it in, whatever was left would pass to my family?

Based on this, if I was taking the decision right now today, I would be tempted to cash in my DB scheme, but is this a valid way of looking at it?

However I'm thinking it doesn't make sense to do anything like this until you actually want to take money from the scheme because at the moment the risk of large market decreases is not mine.

I would also have to take into account LTA issues so it would get more complicated from that also.

Albermarle

You need to search the forum for 'DB transfer ' it is getting difficult to actually do this even if you want to . eg
DB Transfer — MoneySavingExpert Forum

Have you taken into account in your calculation that your DB pension will almost certainly increase with inflation every year.
In theory if the CETV was invested correctly it should do the same , but it is not guaranteed.

I would also have to take into account LTA issues so it would get more complicated from that also.
This would normally  tip the balance away from transferring 

However I'm thinking it doesn't make sense to do anything like this until you actually want to take money from the scheme because at the moment the risk of large market decreases is not mine.
Be aware that the CETv offered can change significantly over time.

QrizB

Pat38493 said:

Based on the information they sent and multiplying the annual salary they gave in today's money by the years, if I retire at 65 I would have to live to 92 years old to get the same money at the current CETV.
If I retire at and take those benefits at 57, I would have to live to almost 100.
Is this a valid (but I'm sure simplified) way to look at it?

As Albermarle says, it overlooks inflation. Looking at your second example, you're looking at a period of 42-43 years. According to the BoE inflation calculator, £10 in 1980 would buy goods worth £45.63 today.

You might think you can invest it in such a way that inflation isn't going to be a problem, but then you're running the risk that you'll fail.

Albermarle

 £10 in 1980 would buy goods worth £45.63 today.

Presume you meant £100 

OP - another thread has just been revived 

Chances of a positive DB to DC transfer recommendation? — MoneySavingExpert Forum

squirrelpie

Albermarle said:

 £10 in 1980 would buy goods worth £45.63 today.

Presume you meant £100 

Inflation makes things worth less than they were. QrizB had it the right way round.

QrizB

It would probably have been clearer to have written "You would need £45.63 today to buy the same goods you could have bought for £10 in 1980".

The benefit of hindsight!

dunstonh

Based on the information they sent and multiplying the annual salary they gave in today's money by the years, if I retire at 65 I would have to live to 92 years old to get the same money at the current CETV.

So, in reality, its more likely to be your late 70s, as the breakeven point.

If I retire at and take those benefits at 57, I would have to live to almost 100.

No.

You are not factoring in the annual increase on the pension.  That will make a big difference over the decades.  Remember when you would fill your car up for under £10 a tank.  And a house cost £20,000.

Pat38493

QrizB said:

Pat38493 said:

Based on the information they sent and multiplying the annual salary they gave in today's money by the years, if I retire at 65 I would have to live to 92 years old to get the same money at the current CETV.
If I retire at and take those benefits at 57, I would have to live to almost 100.
Is this a valid (but I'm sure simplified) way to look at it?

As Albermarle says, it overlooks inflation. Looking at your second example, you're looking at a period of 42-43 years. According to the BoE inflation calculator, £10 in 1980 would buy goods worth £45.63 today.

You might think you can invest it in such a way that inflation isn't going to be a problem, but then you're running the risk that you'll fail.

Thanks for the replies.

Well yes I was aware that inflation would be a factor, but at a very rough level, I assumed that I would be able to invest the money and manage it in such a way that inflation would be a wash, but of course I understand this is not guaranteed.

LTA - LTA issues could for sure tip the balance but I guess LTA might increase in future so I guess I will review it again in a few years.

The other big attraction for me is being able to leave the money to someone else if I die earlier than expected.

I am aware of the other threads and I’m aware that you might not even be allowed to transfer it unless a qualified financial advisor gives a recommendation to do so.

By the way having read the other thread, where someone said there is zero chance of a transfer being approved - is it really zero or are there some edge cases - for example, if you had a terminal illness and had only a short time to live, this would be a major factor there.

Thrugelmir

Pat38493 said:

QrizB said:

Pat38493 said:

Based on the information they sent and multiplying the annual salary they gave in today's money by the years, if I retire at 65 I would have to live to 92 years old to get the same money at the current CETV.
If I retire at and take those benefits at 57, I would have to live to almost 100.
Is this a valid (but I'm sure simplified) way to look at it?

As Albermarle says, it overlooks inflation. Looking at your second example, you're looking at a period of 42-43 years. According to the BoE inflation calculator, £10 in 1980 would buy goods worth £45.63 today.

You might think you can invest it in such a way that inflation isn't going to be a problem, but then you're running the risk that you'll fail.

Well yes I was aware that inflation would be a factor, but at a very rough level, I assumed that I would be able to invest the money and manage it in such a way that inflation would be a wash, but of course I understand this is not guaranteed.

Would you be comfortable managing your own portfolio into your 80's and possibly 90's?  The greater the level of outside assistance the lower the return will be. 

Albermarle

By the way having read the other thread, where someone said there is zero chance of a transfer being approved - is it really zero or are there some edge cases - for example, if you had a terminal illness and had only a short time to live, this would be a major factor there.

As far as I understand it is still possible to get a positive recommendation without being at deaths door, and some people are still successful. I think it helps if you have other sources of guaranteed income , such as another DB pension, and that you can demonstrate some knowledge and track record of investing. Also it seems more likely to be successful if you are closer to retirement age and seem a sensible sort of person. 

OldBeanz

My shares have gone down 8% this year. With a DB pension you do not need to worry about any volatility in markets.