Has anyone regretted transferring out of a defined benefit (gold plated) pension or vice versa ?

Albermarle

DBdoobydoo said:

Not all DB pension schemes are gold plated. I have been drawing mine since 2013 when I received £10,236 & this year  I will receive £10,808 ie an increase of just 5.5%. To even match the low 1.6% average per annum inflation over the last nine years my pension would need to be £11,590. I didn't appreciate that my pension was not adequately index linked before I started drawing it otherwise I would certainly have considered transferring out.

However due to the poor index linking your CETV offer would have been lower.

So that means this year (10% inflation) everyone with one of these pensions will be 7% poorer for the rest of their lives. It could well be a similar outcome for at least the next few years.

Anyone with a DC pension, will currently be over 20% down in value, some more, and this could also persist for a few years. Hopefully not, but keeping up even with lower inflation is probably going to be a struggle for a while.

DairyQueen

arnoldy said:

DBdoobydoo said:

Not all DB pension schemes are gold plated. I have been drawing mine since 2013 when I received £10,236 & this year  I will receive £10,808 ie an increase of just 5.5%. To even match the low 1.6% average per annum inflation over the last nine years my pension would need to be £11,590. I didn't appreciate that my pension was not adequately index linked before I started drawing it otherwise I would certainly have considered transferring out.

For reference FTSE All Share TR = 78% over the period. Apart from the odd outlier private sector DBs are NOT inflation proof, the vast majority will have caps at 0%, 3% and 5%, with a typical pension deferred or in payment having a blended cap of circa 3%. So that means this year (10% inflation) everyone with one of these pensions will be 7% poorer for the rest of their lives. It could well be a similar outcome for at least the next few years.

The only gold plated pensions are the Government ones, no worries about health of fund, inflation lined and a different world.

Thanks for reminding me of this additional factor. The limited inflation-proofing also carried some weight in my decision to transfer.

Membership of any DB scheme is valuable but, as you say, private sector inflation-proofing is frequently a sting in the tail.  Often it requires a trawl deep within scheme rules and pension legislation to discover that increases are either discretionary (for non-GMP - aka 'the excess'), or subject to rules and algorithms determined by successive governments over the decades (for GMP).

When the second state pension was abolished the government also abandoned its commitment to fully inflation-proof GMP accrued on private sector DBs for those retiring on the nSP. The responsibility for inflationary increases had been shared with the schemes (post-88), or was entirely the government's responsibility (pre-88), and is paid as an additional element of the state pension for those who retired under oSP. 

No such abandonment occurred within the public sector and GMP inflationary increases for all pensions in payments are 100% paid by the scheme (read 'taxpayer'). 

My DB included max 3% post-88 GMP payable by the scheme. Inflation-proofing above this would have been zero as I will be a nSP recipient. My 'excess' would have received discretionary increases although the benefit statement I received on leaving stated that it would be inflation-proofed up to 'max 5%'. No surprises that the trustees had opted to freeze increases on the excess for many years prior to my transfer. 

OTOH, the GMP element had increased substantially above inflation whilst deferred thanks to government rules. The CETV was therefore higher than it would otherwise have been. 

DairyQueen

Sandtree said:

DairyQueen said:
Reasons for recommendation:
- Reduced life expectancy

One of those situations where its hard to decide which is the positive and negative scenarios @dairyqueen

You state your transfer was beneficial because of reduce life expectancy but how do your sums stack up if you vastly outlive your expected lifespan? Say by 20 years in unexpected good health?

Depending on scheme rules, personal circumstances there are a minority where it is recommended but that doesn't mean none dont go on to regret the decision. 

Put it this way...I won't be suing my advisor if I live longer than expected .

I didn't suggest that regret isn't a factor in many transfers. As I stated, I'm a rare exception - a guaranteed income for life is less valuable to me than to most. My transfer also coincided with an era of unusually elevated CETVs. Lucky timing.

To the contrary, many people who transferred were simply dazzled by the numbers. They rarely considered the downside and the risks. My decision was well-informed. The markets could have tumbled within a short period of transferring but we planned with that in mind. The portfolio needs to be managed but we have other investments which require similar consideration.

We didn't need the guaranteed income (that was key) and had the markets crashed early on we would have left the portfolio untouched until a recovery, which may/may not have occurred before I died. 

I received £132k and forwent £4,200p.a. with limited inflationary increases but 50% spouse's pension. That £132k has now grown significantly thanks to kind market conditions. I began drawdown in April and am still fit enough to enjoy it. Luck again.

There are a few people for whom transferring is the best decision and I have the (mis)fortune to be one but I have yet to see another such example on this forum.