Advice on moving DC pensions to DB pension

EsoTarek

Hi all,

I have some pension pots from previous employers that I am looking to consolidate. I have a defined contribution pension pot with Aviva from an old employer with about £15k in it which has an annual management charge of 1.05% 

I also have a Scottish Widows defined contribution pension pot from an old employer with about £1300 in it with an annual management charge of 0.7% 

I am looking to move both of these pots into my current employer's fund which is a defined benefit (final salary) scheme.

With regards to the Aviva pension, the transfer value would buy an additional pensionable service of 81 days and the transfer value would give me an estimated pension of £194.88 a year payable from age 65. When I retire, the pension will be based on my higher pensionable salary at the time (including all interim pay awards and promotions). If I left it with Aviva, as it stands, my pension plan could be worth £360 a year.

With regards to the Scottish Widows pension, the transfer value would buy an additional pensionable service of 7 days and the transfer value would give me an estimated pension of £16.84 a year payable from age 65. When I retire, the pension will be based on my higher pensionable salary at the time (including all interim pay awards and promotions). If I left it with Scottish Widows, as it stands, my pension plan could be worth £2 (low), £7 (middle) or £21 (higher) a year.

Neither the Aviva nor the Scottish Widows pension pots have a protected tax-free lump sum (just the standard 25% on both). I do not have the right to access my pensions before 55. There are no fund guarantees or bonuses and there is no protection included such as life cover, critical illness cover or waiver of premium.
I am 35 years old so won't be retiring for at least another 20 years.

There is no charge to transfer the pensions is, so with all of the above, is it worth it?

In the letter from my employer it says the transfer value may be more or less than your actual pensionable service of your previous scheme (less seems to be the case) but you should instead concentrate on their respective benefits. 

Would appreciate any thoughts and advice on this matter.

Thanks

Albermarle

Although I am not an expert, and the fact you are 30 years away from retirement makes the calculation more difficult, the extra pension on offer for the transfers does not look over generous.

Maybe you could look at it another way . Often it is said on this forum that the sweet spot in retirement is to have both DB and DC pensions . DB gives the guaranteed income and DC gives you more flexibility. Many will use a DC pot to fund the years between early retirement and the DB and state pension kicking in .

If you think your DB pension will generate a good income , then you could consider keeping one of the DC pensions and continue to fund it . Over say 25 years it should grow quite nicely especially with the aid of tax relief. 

You also have to consider whether the DB scheme will stay around for ever, as most in the Private sector have been closed down .

EsoTarek

Albermarle said:

Although I am not an expert, and the fact you are 30 years away from retirement makes the calculation more difficult, the extra pension on offer for the transfers does not look over generous.

Maybe you could look at it another way . Often it is said on this forum that the sweet spot in retirement is to have both DB and DC pensions . DB gives the guaranteed income and DC gives you more flexibility. Many will use a DC pot to fund the years between early retirement and the DB and state pension kicking in .

If you think your DB pension will generate a good income , then you could consider keeping one of the DC pensions and continue to fund it . Over say 25 years it should grow quite nicely especially with the aid of tax relief. 

You also have to consider whether the DB scheme will stay around for ever, as most in the Private sector have been closed down .

thank you for your reply, I am not looking to fund my old DC pots as I prefer to use any extra disposable income paying off my mortgage and reducing interest payments long term. I also recently started doing AVCs with my current employer. I work for TfL so hopefully it will remain a DB scheme.
Should also be noted that my DC pot funds are 100% invested in the HSBC global equity fund as it is the only shariah compliant fund, therefore I am also limited in terms of investment in that regard. There is a chance the value of the DC scheme can go down but from my understanding if I moved it to the DB scheme it can only go up?

EsoTarek

I also hope to retire between 55 - 60 

Terron

EsoTarek said:

Albermarle said:

Although I am not an expert, and the fact you are 30 years away from retirement makes the calculation more difficult, the extra pension on offer for the transfers does not look over generous.

Maybe you could look at it another way . Often it is said on this forum that the sweet spot in retirement is to have both DB and DC pensions . DB gives the guaranteed income and DC gives you more flexibility. Many will use a DC pot to fund the years between early retirement and the DB and state pension kicking in .

If you think your DB pension will generate a good income , then you could consider keeping one of the DC pensions and continue to fund it . Over say 25 years it should grow quite nicely especially with the aid of tax relief. 

You also have to consider whether the DB scheme will stay around for ever, as most in the Private sector have been closed down .

thank you for your reply, I am not looking to fund my old DC pots as I prefer to use any extra disposable income paying off my mortgage and reducing interest payments long term. I also recently started doing AVCs with my current employer. I work for TfL so hopefully it will remain a DB scheme.
Should also be noted that my DC pot funds are 100% invested in the HSBC global equity fund as it is the only shariah compliant fund, therefore I am also limited in terms of investment in that regard. There is a chance the value of the DC scheme can go down but from my understanding if I moved it to the DB scheme it can only go up?

If you move it to a DB scheme it will disappear. A DC scheme is a pot of money. A DB scheme is a promise to pay. 
The value of a DB scheme can go down if it does not promise full inflation indexing. The TfL scheme is inflation indexed but with a cap of 5%. Still it looks a very good scheme.

pjread

It is worth considering that you appear to have a DB pension that'll be payable from 65, but you want to retire at 55-60.  So it seems you need to consider how you'll fund that 5-10 year gap (generally, a DC pension or ISA would be possible answers).  You probably can take the DB earlier, but the reduction for early retirement may be significant.  

draiggoch

At the rate they are offering and the age that you are I would probably merge the DC pensions and keep them separate from the DB scheme as a means of retiring earlier. 

EsoTarek

Terron said:

If you move it to a DB scheme it will disappear. A DC scheme is a pot of money. A DB scheme is a promise to pay. The value of a DB scheme can go down if it does not promise full inflation indexing. The TfL scheme is inflation indexed but with a cap of 5%. Still it looks a very good scheme.

wasn't even aware of the inflation indexing, good to know, thanks

EsoTarek

some food for thought, seems the general consensus is to keep the DC pensions or to merge the DC pensions (in which case I should move the Aviva one into the SW one due to it having a lower annual management charge).
As I'm still at least 20 years away from early retirement I haven't given too much thought as circumstances can change, etc but in order to fill the gap I planned to just use savings and a have a flat which will give me some rental income. I'm hoping to be mortgage free in no more than 17 years.  

Albermarle

EsoTarek said:

Terron said:

If you move it to a DB scheme it will disappear. A DC scheme is a pot of money. A DB scheme is a promise to pay. The value of a DB scheme can go down if it does not promise full inflation indexing. The TfL scheme is inflation indexed but with a cap of 5%. Still it looks a very good scheme.

wasn't even aware of the inflation indexing, good to know, thanks

Inflation linking is important ( and expensive for the scheme )
Say for example that you start your pension at £10,000 pa today . If inflation is only an average  3% for ten years and the pension is not index linked, then after ten years your £10,000 can only buy goods worth £7,000 today 

but in order to fill the gap I planned to just use savings 
If you are saving for retirement , then a pension is better than other forms of accumulating money , due to the tax relief and because it is invested . In the long term keeping too much money in cash savings means you are losing out to inflation ( see above ) and potential investment growth.

Brie

Find out from the DB scheme where transferred in money goes.  I suspect it will go in to your AVC pot and I suspect that you may well be able to use that differently than your actual DB money so potentially it will be both a DB & DC scheme in one place. 

Also I would almost guarantee that the DB scheme will close at some point.  Likely first to new joiners but possibly also close to current members who will be transferred into a related DC only scheme.  My best guess would be that this will happen within the next 5 years so well before retirement early or otherwise.