DB PENSION TRANSFER,LTA, Why is it beneficial to draw your SIPP/DC Pension First and not the SIPP/DC

danlondonuk

I have a DB pension,DC pension Aviva, AVC's & SIPP,   I am considering transferring out the Final Salary DB scheme as the CETV is high and should I pre-decease my Partner I would want them to inherit the whole pot not just a small survivors pension. My priority as I am now no longer working at age 54 is to maximise a tax fee income from various pots from age 55,  however the CETV Transfer out would push me quite a lot over the LTA,although the LTA penalty does not kick in until funds over are drawn.

I recall reading quite sometime ago that it is best to keep the DB pension but draw from the DC/SIPP Pots first ? However can not recall why ?
I fully understand all the usual arguments of the benefits of a DB Scheme / guaranteed income/ CPI linked 5% maximum pension increase,

I am assuming that by accessing  the DC/SIPP first this will reduce the values against the LTA ,  leave it untouched to 60 or even 65 as the values grow and instead draw off the SIPP & DC scheme as this will reduce the values as measured against the LTA.

Can someone knowledgable explain the benefit of leaving the DB pension untouched , leave the AVC's to grow in the scheme untouched but instead draw the SIPP/DC pensions at 55 or when needed after 55,

Once these pots are used up then draw the DB pension as it has been untouched and will have grown draw it or consider at that stage transferring out possibly with the same or even higher CETV Value at that time as I will be older.

Current Values.
Pension from DB Scheme at 55 - £18,550 at age 60 £19,202.00 per annum ( HMRC pot  value x 20 at age 55 £371,000 at age 60 £384,040)
Surviving Partner Benefits £9000 per annum 
CETV 2021 £706,000
AVC'S POT £170,000
DC AVIVA FUND £75000
SIPP- £500,000

Albermarle

It might all be a bit theoretical as it is actually quite difficult to transfer out of a DB pension . You really need a positive recommendation from a IFA who is a pension transfer specialist .
There are numerous threads  on the forum about issues with the process involved in trying to transfer out of a DB pension.
Type 'DB transfer ' in the search box .

danlondonuk

I have spoken with several IFA'S and yes it is possible to transfer out if one has enough alternative funds/investments 

NedS

Until you have decided whether or not to transfer your DB, it is hard to comment on how best to mitigate exceeding the LTA. I wouldn't transfer in your position though - you have a fantastic mix of guaranteed income combined with flexible DC funds. Sounds like the perfect balance for a stress-free retirement to me.

Marcon

danlondonuk said:

I recall reading quite sometime ago that it is best to keep the DB pension but draw from the DC/SIPP Pots first ? However can not recall why ?

Once these pots are used up then draw the DB pension as it has been untouched and will have grown draw it or consider at that stage transferring out possibly with the same or even higher CETV Value at that time as I will be older.

Current Values.
Pension from DB Scheme at 55 - £18,550 at age 60 £19,202.00 per annum ( HMRC pot  value x 20 at age 55 £371,000 at age 60 £384,040)
Surviving Partner Benefits £9000 per annum 
CETV 2021 £706,000
AVC'S POT £170,000
DC AVIVA FUND £75000
SIPP- £500,000

For LTA purposes, multiply your expected DB pension by 20 and add on to that any tax free cash. That will invariably give a much lower figure than if you transfer out to a DC arrangement. Try it on the figures you've given above and you'll see just how much!

danlondonuk

Marcon said:

danlondonuk said:

I recall reading quite sometime ago that it is best to keep the DB pension but draw from the DC/SIPP Pots first ? However can not recall why ?

Once these pots are used up then draw the DB pension as it has been untouched and will have grown draw it or consider at that stage transferring out possibly with the same or even higher CETV Value at that time as I will be older.

Current Values.
Pension from DB Scheme at 55 - £18,550 at age 60 £19,202.00 per annum ( HMRC pot  value x 20 at age 55 £371,000 at age 60 £384,040)
Surviving Partner Benefits £9000 per annum 
CETV 2021 £706,000
AVC'S POT £170,000
DC AVIVA FUND £75000
SIPP- £500,000

For LTA purposes, multiply your expected DB pension by 20 and add on to that any tax free cash. That will invariably give a much lower figure than if you transfer out to a DC arrangement. Try it on the figures you've given above and you'll see just how much!

Yes I realise that DBx20 (370K) +AVC+SIPP+DC AVIVA  is 1,124,000   over LTA  50,900
                           CETV(706) +AVC+SIPP+DC AVIVA is        1,460,000  over LTS  386,900
the point being is it better to draw the DC/SIPP and let the DB continue to grow as, the attraction to transfer out is high CETV
to drawdown on and leaves the point for the surviving partner/family etc rather than just a low pension 

MK62

danlondonuk said:

I have spoken with several IFA'S and yes it is possible to transfer out if one has enough alternative funds/investments 

..."possible" and "good idea" aren't necessarily the same thing though......

As to your figures - Pension from DB Scheme at 55 - £18,550 at age 60 £19,202.00 per annum - to me, there seems little point delaying taking your DB pension for 5 years, just to get a 3.5% uplift.....if my maths is correct, you'd be 100 before you broke even, and that's assuming CPI runs at 5% or above for the next 45 years......if it's less, you'd be even older.

I understand the attraction of the CETV, but a chunk of that will end up in HMRC's pocket in the form of an extra LTA charge so you'd need to factor that in........from your figures that extra charge looks to be £84k, effectively reducing your CETV to £622k.......so the question is, at 55, do you swap £18.5k pa for life, with a 9k partner pension, for £622k.......at 55, it looks a bit borderline to me.

af1963

If you take the CETV (assuming you're able to), the whole amount of your pension will be a set of DC types of scheme, and once that happens I can't see any reason why taking one part of that rather than another would make any difference.

If you don't convert the DB scheme, the next questions are when to take it, and whether to take any tax free sum available.  As MK62 says above, taking it at 55 gains you 5 years of pre-60 payments at £18550, followed by an unknown number of years when you get £652 pa less than you would have got by waiting to claim it and living off your DC/SIPP instead.- that's about 30 years of payments before you make up the difference. (And the 'extra' cash you'd get by waiting will mostly arrive when you're older and maybe less able to enjoy it ?)

Whether it's worth taking a tax free lump sum from the DB depends partly on the rate at which you can convert regular pension to lump sum. It's a way to convert some of the value to cash which could be inherited without giving up the full DB, and to get it tax free, but conversion rates for this can sometimes be quite low.

Also - I wouldn't dismiss the potential £9K survivors' pension as 'small'.  If they inherited it at 65, a similar annuity would cost over £300K to buy.  And if you've chosen to live off the DB, that means you'd have spent less from the DC/SIPP and there would be more left to inherit from there.