DB and DC rules - who can help?

AndrewB22

If you both have DB pensions, it is worth investigating whether to transfer one of them into a DC pension, as you may find that the transfer value is enormous. DC pensions are more flexible and if you have enough income from the other DB pension, and in time the state pension and any savings you accumulate before actually retiring, you may conclude that you might be better off. That’s a really complex decision though and not at all one to take lightly. But I do think it is worth evaluating. 

madaboutspots

@AndrewB22 yes definitely. We had considered that. 

What would happen upon death of the other if we did that? Currently we both have provision in each DB for yearly amount for the other upon death. Does the entire DC move across to the living person?

xylophone

You are aware of the rules on transfer of a DB pension to a DC arrangement?

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/495377/pension-benefits-with-a-guarantee-factsheet-jan-2016.pdf

In view of the value of the benefits in your DB pensions,  the advice of a pension transfer specialist would be required.

If his advice was not to transfer, finding a pension provider to accept the transfer would not be easy.

Albermarle

madaboutspots said:

@AndrewB22 yes definitely. We had considered that. 

What would happen upon death of the other if we did that? Currently we both have provision in each DB for yearly amount for the other upon death. Does the entire DC move across to the living person?

Yes it does and this is one of the advantages of DC pensions . Also DC pension pots are not included in any inheritance tax calculations - they are separate from the estate.
As you seem quite well off , inheritance tax may well be an issue when the second partner dies . In simple terms the more you leave as a DC pension pot, and the less in your actual estate , the better. ( under current legislation )
This could simply mean not cashing in the current DC pots at all ( or just take the 25% tax free ) A much bigger move would be to try to transfer one of or both of the DB pensions to DC . As said above this is a big financial decision ( giving up guaranteed income for the vagaries of investing in financial markets ) and the mechanics can be difficult /almost impossible . 
However transferring one DB, and keeping one maybe worth thinking about, and would have a better chance of getting through the process. 

madaboutspots

Thank you all for the helpful comments/advice. I think we’ve decided for now we’ll do nothing with any of the pots as it’s not an urgent issue. We’re merrily paying the mortgage off and working still and paying into our govt backed DC.

We’ll book an apmt with an advisor and get all the paperwork together before we do that. We’ll also enquire what (BIG) IF we asked to convert either DB to DC what the offer would be so we can go fully armed with all info.

You’ve all taught us a few things and given us some peace of mind so genuinely - thank you all. 

Albermarle

and paying into our govt backed DC.

Presume you mean NEST? and that because it is publicly owned this makes you feel more comfortable? 

Just be aware that although it is ultimately a public body , this has no bearing on how the pension will perform . Just like any other pension , your money is actually invested in the financial markets and not in the pension itself as such .If the markets go down your investments in Nest will go down, just the same as with any other pension.

Some people switch out of NEST when they can due to the high charge on all contributions on all new contributions ( no other provider does this anymore ) and the relatively poor choice of investments.

As long as you use a mainstream pension provider, then there is no actual advantage/extra security to being in NEST compared to any other provider. 

gm0

When you have your info from your schemes together.  Have a read and I suggest you do the free PensionWise guidance call to refresh and make sure it's all clear and to answer questions you may have.  This will equip you better for any subsequent adviser discussions down that route

PensionWise aren't selling you anything.  What they do is not tainted by selling incentives.  But what they do is limited in scope.  Understanding options not choosing or implementing

An FA or better an IFA is selling you a service bounded by auditable regulated fact find and personal ethics.
With the best will in the world the two are not the same. 

The adviser will in nearly all cases recommend to you a "suitable" in the eyes of the regulator solution from the small selection they already sell patterned for different net worths and risk appetites. And nothing is especially wrong with that.  It's a service to match you up to goals and risk attitude and capacity and to sort that out for you - at a price.  You buy into it or you don't. 

If you don't - then you need to get on top of an extra level of investment management and tax planning detail to DIY confidently for your situation.  Some of us are happy to spend early retirement time on that. Others are not. Nobody is right.

The choices are

a) Learn it

b) Find someone (IFA) you can build a trust level with (personal recommendation is good - provided they deal with people of similar net worth to you).  If you are out of whack with what they do then the service or prices or level of attention will be off.  That's just incentives at work.

The guidance outfits MAS Pensionwise, PAS etc. will try to help you understand options properly but not help you choose or do calculations for you.  It helps. It's not "the answer" but it is free bar your time spent.

madaboutspots

Wow - thank you both! 

Yes NEST - I will speak to hubby as I’m sure we can suggest a different company for pensions than the one our (fairly useless) accountant picked. As they contribute I’m sure we need to agree to move all of us - as there’s only 3 employees and we’re 2 of them I’m sure we can get this done. 

Are there any performance or reputations tables that we can look at or any particular choices/details we should consider? 

As for the pension wise/IFA info - thank you! 👍
We’re definitely medium/low risk and incredibly unlikely to self manage. I just don’t think we have the right level of interest/energy for it. We currently have all of our current “live” acc in green/ethical as that fits better with our morals. 

Totally get what you’re saying about options v advice and similar client levels. Makes complete sense. 

One thing I feel unsure about is later life care. My P’s are/were paranoid about it and hoarded quite a bit of investments to cover the possibility. One’s now dead having not needed care. The other looks likely to be not long and unlikely to reach care stage. Seems like a waste of worry to me and definitely at the cost of choices while they “lived”. Hubby’s P’s are the opposite 1 x died young, the other is a fool and can’t/WON’T keep hold of money so has a miserable old penniless time and is dragging his feet to an unhealthy slow demise. 

We are quite determined to do neither of these! I just don’t really get my head around what sort of provision we should make for the care possibility without sacrificing our actual retirement. Any comments to help me along?

I would be inclined to leave cash (however much left) to charities. Have the house/contents as our “care plan” and the one adult child get what’s left if neither of us needs care. We work in funeral so acutely aware of how things tend to go towards the end and how young we could both go as well. 

An added consideration is adult child has water of BF who at 30 has never worked and “they’ve agreed” it’s the best option for him to live off her and not claim benefits for the foreseeable! So she has a good job but lacks the clarity to see the ride she’s being taken for. We live in hope ours sees the light but won’t leave more than a “sensible” amount so he can’t use it to lay about on. 

AndrewB22

On the subject of care in later life, and how to make financial provision for it, I can share my experience of caring for my mother, who has dementia and has lived in a care home for the last 8 years.  She has a full state pension and a widow’s civil service pension and these combined are about £18k pa post tax. Her care home costs are about £40k pa. We sold her house for £475k and invested in a roughly 60/40 equities/bonds portfolio of funds at interactive investor. The gains on that portfolio have so far more than covered the shortfall in her income. That has been lucky - the stock market has done really well these past 8 years - and I had expected her capital to be eroded.

Over time, the care home fees have risen faster than inflation, partly because of the rises in minimum wages. Her income shortfall was initially 50% of the care fees and that’s now edging towards 60%. 

Living in a care home for as long as 8 years is very unusual. For two members of a couple to need to live in care for any length of time is extremely unusual. A lot of couples struggle on looking after each other in circumstances where a single person would need to move into a care home. 

The most difficult financial scenario I can envisage is if one of you needs to be in a care home for a long time and the other is well and needs the family home.  Or where you both stay in the family home but have private carers either living in or one shifts to look after one or both of you.  That’s also unusual for any length of time, but not impossible.  In that case you (or whoever ends up managing your affairs) wouldn’t be able to use your capital from your home to defray your care expenses because the other partner still needs the family home. You’d need a stupendous amount of money to stay in the family home and pay for 24/7 care for one or both of you if it was to continue for years. 

The government is sort-of planning to bring in a form of state backed insurance that protects families against this sort of extreme expense but that might come with strings attached. If you wanted your partner to live at home but they needed nursing care for a long time, I can’t imagine the government would pay for that.  

Ultimately to be “fireproof” against every conceivable financial scenario requires a lot of money, or none. A lot, because to keep a normal lifestyle and the family home and long term care would require hundreds of thousands in capital. None, because the state will pay once you’ve exhausted all your savings. 

When my dad died, he needed 24/7 care for a short while so he could die at home and not in a hospital. In the end he only needed it for 10 days, but the doctors said while his death was imminent it could have taken up to “several months” for him to die. Having enough cash available to pay for that - around £15k per month - is something that made a huge difference to the end of his life.   

This is all a pretty depressing subject. If you had infinite savings you wouldn’t have to make any choices, and could enjoy a nice standard of living in retirement and keep back savings in case one or both of you need long term care. However, if you have to choose, I think it is worth planning for the realistic scenarios but recognising that the likelihood of very long term care is low and you have pensions and a house that can cushion the blow in pretty much any credible scenario. The very awful expensive scenarios will deplete all your capital and the care system will pay in the last resort.  

Which all leads me to feel that you have to run the numbers for your own circumstances and figure out what you would do in each scenario and whether you could “live with” each one. 

When I did that exercise for myself, having seen my mum’s experience, the need for capital for later life care was not as great as I feared. Most scenarios are covered by the capital in our home. The scenario where one of us needs care for a very long time and the other lives normally at home is unlikely, and would deplete our savings, but there might be options even then, like equity release; it’s very hard to plan for every situation now. 

In summary, I feel it is worth having at least £50k of funds for end of life, falling back on the family home. I believe that would cover a lot of scenarios. It wouldn’t cover them all, but few plans can mitigate every risk. 

[Is there a separate forum for eldercare financial planning?]

dunstonh

Yes NEST - I will speak to hubby as I’m sure we can suggest a different company for pensions than the one our (fairly useless) accountant picked. As they contribute I’m sure we need to agree to move all of us - as there’s only 3 employees and we’re 2 of them I’m sure we can get this done. 

I haven't followed the whole thread.  So, I apologise if I have missed something that covers this.

Yes NEST - I will speak to hubby as I’m sure we can suggest a different company for pensions than the one our (fairly useless) accountant picked. As they contribute I’m sure we need to agree to move all of us - as there’s only 3 employees and we’re 2 of them I’m sure we can get this done. 

Accountants are not authorised to make recommendations on pensions.   More likely it was a suggestion.   And to be honest, it is not a bad suggestion.   The mainstream providers were not interested in offering their products to small numbers of employees with small fund values.    So, the government set up NEST to handle that side of the market.    As it happened, about 3 providers decided they would offer services to those with a handful of employees.  So, NEST became unnecessary but the Government still set it up.     In reality, you have Now, Nest and Peoples Pension (and another whose name is on the tip of my tongue but cant remember it).    All are very similar basic options.   So, the accountant didn't do anything wrong.

If you didn't have someone on a contract of employment, you wouldn't need an auto-enrolment (AE) scheme.   Once you have a qualifying employee, then all directors/officers get pulled into auto-enrolment as well.  If the employee is non-qualifying for AE then no AE scheme is required and directors/partners can pay to any scheme they like.