Should I transfer into DB pension?

chelseablue

I joined the police last year and so am in the police officer pension scheme. It is no longer final salary, but a CARE defined benefit scheme.

I am 39 and retirement age with them is 60. 

Within the first year of joining I can transfer in any previous pensions and am going round in circles trying to work out if I should or not? 

I currently have a pension pot of £105,000 from previous jobs and the police pension administrators have said if I transfer it to them this would 'buy' me £6,000 a year of pension when I retire. 
For context my last statement I had from L&G said my pot would provide me a yearly pension of £2,500 assuming the pot grows to an estimated 145k by 2048 (when I'm 65)

Any advice or thoughts on the above would be appreciated before I drive myself mad 

Dazed_and_C0nfused

Would it really buy you £6,000 when you retire or would it buy you £6,000 at today's value with this being updated each year for the next 21 years by whatever inflation proofing the police CARE pension scheme uses?

chelseablue

Good point and I have just phoned them to ask. The quote is in todays value and whatever I transfer will be uplifted every year in line with CPI plus 1.25% 

tacpot12

Transfering in would appear to be a no-brainer. I very much doubt your existing pension scheme will uplift your deferred pension by CPI+1.25%, but that is what you need to check. 

The compounding of the +1.25% will turn your £6,000 pa (in todays money) into more than £7,700 pa (in todays money).    

Linton

DC pension pot statements tend to be rather pessimistic, especially following the rise in bond rates over the past few months which will make annuities more attractive. Also the values are at current prices so will increase with inflation.  Howeve £6000/year which I assume will increase in the long term with inflation is a very good offer and it has the great advantage of being guaranteed.

One factor which could be relevent in other circumstances is that a separate DC pension could be used to finance early retirement.  Hower in your case with a pension being payable at 60 that is far less of a consideration.

Another factor in some cases is life shortening ill health.  However I would assume that again is not a known issue in your case with a job as a police officer.

The only other factor I can think of is inheritance.  Should your police pension be more than sufficient to meet all your conceivable needs in retirement the DC pension pot has the advantage of being outside inheritance tax and could be inherited completely free of any tax deduction should you die before 75.

So unless there are any special circumstances buying the extra years looks like a very good deal.

MX5huggy

Presuming it’s CPI uprated each year and you can take it at 60 without reduction (I believe it’s a yes to both) then IMHO it’s a deal and you should take the offer. 

It’s removing all risk at a good price.

Having both DB and DC pension is the perfect solution in many ways, but if you take the one time only offer, you can then build up your DC pot again. 

jimi_man

Just be aware that if you leave the police before the age of 55 then the date you can take the pension changes to 67 and so early payment will require reduction from then. So potentially 12 years to take it at 55 rather than five. 

ewaste

I'd certainly transfer and make use of AVCs as well to maximise the benefit of being a scheme member. @jimi_man makes an important and often overlooked or forgotten point regarding the PPS 2015 scheme.

woolly_wombat

I would definitely transfer your previous pension because the terms are so generous.

If you are concerned about the possibility of leaving early and possibly having to fund a gap prior to claiming your state pension then consider paying into a SIPP so you can draw down from that for a few years. I wouldn’t bother with AVCs.

chelseablue

woolly_wombat said:

I would definitely transfer your previous pension because the terms are so generous.

If you are concerned about the possibility of leaving early and possibly having to fund a gap prior to claiming your state pension then consider paying into a SIPP so you can draw down from that for a few years. I wouldn’t bother with AVCs.

Thank you. I currently pay into a S&S ISA, would I be ok carrying on with that or transferring it to a SIPP? 

Albermarle

chelseablue said:

woolly_wombat said:

I would definitely transfer your previous pension because the terms are so generous.

If you are concerned about the possibility of leaving early and possibly having to fund a gap prior to claiming your state pension then consider paying into a SIPP so you can draw down from that for a few years. I wouldn’t bother with AVCs.

Thank you. I currently pay into a S&S ISA, would I be ok carrying on with that or transferring it to a SIPP? 

In simple terms (assuming that the same investments were in both), the SIPP has a tax advantage ( minimum 6.25% but can be more) but the money can not be accessed before age 57.