Pre-pension draw down homework.

Macklin_2

Good Morning/Afternoon.
I am 54 years old male, with 8 months till my 55th Birthday.
I have a deferred company pension, which I intend withdrawing and re-investing it elsewhere, after firstly using 25% of it.
My question is, is their any background work I could be doing, leading up to this time? 

Marcon

Macklin_2 said:

Good Morning/Afternoon.
I am 54 years old male, with 8 months till my 55th Birthday.
I have a deferred company pension, which I intend withdrawing and re-investing it elsewhere, after firstly using 25% of it.
My question is, is their any background work I could be doing, leading up to this time? 

What sort of company pension? If it's a DB scheme, or a DC scheme with safeguarded benefits/do you have an IFA lined up to provide the required financial advice where a transfer value is £30,000+? If you don't know/don't have one lined up, that's probably the first bit of homework. Do you have a receiving scheme ready to accept a transfer if the advice is not to transfer?

Macklin_2

Thanks for the reply. 
1. It's a final salary pension scheme.
2. No. I don't have an IFA as I was under the belief that I can't do anything before I am 55 without paying a big tax bill.
3. It is above 30k
My aim is to put something in place, with the hope of starting it at my birthday.

Thanks again.

Albermarle

Transferring out of a DB/final salary scheme is very expensive and difficult. There are many hurdles in place to deter most people, for whom it is deemed not be a sensible thing to do (to give up guaranteed income) 
An IFA fee of £5K to £10K is likely ( if you can find one to do it) and if they give a negative recommendation ( which is more likely than not) you have wasted your money.
The situation has got worse this year, as the transfer values offered by DB schemes has dropped significantly, making it even less likely to be a good idea.
If you type 'DB Transfer' into the search box at the top of the page, you will see many previous threads on the subject.

dunstonh

I have a deferred company pension, which I intend withdrawing and re-investing it elsewhere, after firstly using 25% of it.

Withdrawing usually means taking the money out.  Taking money out of the pension to invest elsewhere is usually a bad move unless it is within you personal allowance.  Is that the case with you?   And in your case, with it being definded benefit scheme, you would need an IFA to sign off on it.  And that is unlikely to be the case.

Your title says drawdown but defined benefit schemes do not offer drawdown.

2. No. I don't have an IFA as I was under the belief that I can't do anything before I am 55 without paying a big tax bill.

You cannot do it under 55.  The tax bill is the cost of doing something you are not allowed to do.

My aim is to put something in place, with the hope of starting it at my birthday.

What do you want to put in place?

LHW99

Are you still working? If so, you could draw the DB pension income from 55 (with reduction for early payment) and pay the income into a DC arrangement. This won't trigger the MPAA so won't affect new contributions to a work pension. On the other hand if this is a DB from your current work, you might not be able to take pension income while remaining a member of the scheme.

GSP

LHW99 said:

Are you still working? If so, you could draw the DB pension income from 55 (with reduction for early payment) and pay the income into a DC arrangement. This won't trigger the MPAA so won't affect new contributions to a work pension. On the other hand if this is a DB from your current work, you might not be able to take pension income while remaining a member of the scheme.

Yes I’d check for penalties for drawing a db pension early. I was down to draw mine at 60, but with circumstances looked to take it at 55 and was horrified they would take away 5% each year I took it early (so yes a reduction of 25%).
With the very good transfer value offered at the time (5 years ago), it was a no brainer to transfer out.

Dazed_and_C0nfused

GSP said:

LHW99 said:

Are you still working? If so, you could draw the DB pension income from 55 (with reduction for early payment) and pay the income into a DC arrangement. This won't trigger the MPAA so won't affect new contributions to a work pension. On the other hand if this is a DB from your current work, you might not be able to take pension income while remaining a member of the scheme.

Yes I’d check for penalties for drawing a db pension early. I was down to draw mine at 60, but with circumstances looked to take it at 55 and was horrified they would take away 5% each year I took it early (so yes a reduction of 25%).
With the very good transfer value offered at the time (5 years ago), it was a no brainer to transfer out.

There are rarely any penalties for taking a DB pension earlier than the normal pension age for the scheme.

There is an actuarial reduction to reflect the fact that you are asking for the pension to be paid for a longer period.  In your example you wanted it paying for an additional 5 years and that would mean a reduction of 25% for the privilege.   That isn't a penalty.

bostonerimus

Macklin_2 said:

Good Morning/Afternoon.
I am 54 years old male, with 8 months till my 55th Birthday.
I have a deferred company pension, which I intend withdrawing and re-investing it elsewhere, after firstly using 25% of it.
My question is, is their any background work I could be doing, leading up to this time? 

Have you done a budget? Do you understand the implications of giving up a DB pension? Do you have a CETV? Do you have an IFA? You have lots of homework to do.

gm0

I have no experience of DB/DC transfer.  From reading here it has become a hard and expensive road.  Your circumstances need to justify that it is genuinely in your interests.  Not just that you prefer an inheritable pot and to take the risk back on. 

I would be happy to have a mix with more DB and less DC but that was not my employment history. So the idea of trading all my pension from the one to the other does not appeal to me at all.  Others view it differently.  A mix probably would have required more soul searching and modeling but it did not arise for me.  It seems the FCA now take a cautious view given all they have done to discourage farming of these transactions for profit by unscrupulous intermediaries.  The loading of lifetime indemnity liabilities (insured at your mandatory advice cost) on to the more scrupulous ones and then putting a legal requirement on to force you to take advice.  British Steel scheme and others stand as examples as to why they did it.  Very bad behaviour has spoiled the bull run transfer party.  Platforms not wanting a retrospective misselling liability either has largely bolted an already slammed shut door - if advice says not to do it. Others have said there are plenty of threads from some very insistent clients on the board doing battle with this topic trying to find a way to do it meeting legal requirements and available in the market. 

Should you in the end seek to enter and emerge a few thousand pounds lighter from that dark maze - then for the subsequent DC drawdown planning - I would recommend the following additional home work focused on living with DC drawdown.  A lot of these topics and Questions will turn up in an adviser fact find and some are part of what advice would do for you if you use it to do a DC setup.

Budgeting Essential and Desired Income
Projecting an estimated pot at retirement based on the transfer value and any other pensions
Consider age, partners, major health issues to take a view on the length of plan (longevity risk to be covered) 55-95 or ?
Consider attitude to inheritance and depletion of capital - total, partial, % etc.
Consider Lifetime allowance issues
Estimate capital events and needs - property downsizing, children etc.
Calculate guaranteed income that remains available (State pensions, other DB) and for spouse
Assess risk capacity (quantitative view given essential income need and GI) and attitude (emotional)
Indentify other assets and contingencies as may exist
Consider tolerance for variable income and any required "floor" to DC drawdown income
Choose drawdown access methods and income calculation and tax planning
Set initial WR and indexation ideas based on the above factors
Make compatible asset allocation and investment choices with income and risk factors
Pick actual funds, trusts, etfs per asset allocation
Pick pension platform selection(s) to hold these cost effectively
Approach to TFLS - gifting, ISA recycling, early retirement consumption etc.
Transfers and setup, cashback offers
Setup rebalancing approach
Document setup, rebalancing and income and fund review activity for spouse/kids use

sandsy

Is this the bae airbus pension scheme that you contributed to for 31 years, as per this thread:

https://forums.moneysavingexpert.com/discussion/comment/78279484#Comment_78279484

Presumably, this the mainstay of your pension provision and will provide you with a guaranteed income for life? Are you saying you want to give up those guarantees for a transfer value from which you can take a tax free lump sum then regular withdrawals, but where you have to make your own investment decisions and manage the income pattern yourself instead? So effectively you carry the risk of how long the funds last?

Will you be carrying on working after 55?