DB pension

Missjayne

Good morning I have DB pension which I was going to cash in. My guaranteed transfer value has dropped 48k in two years. I am 57 and have to take it by the time I’m 60. The yearly pay out is not worth doing. Could anyone tell me why it has dropped so much. It dropped 16k 21-22 and 42k 22-23. Is there any chance it will go up and should I leave it in for a couple of years. 

Albermarle

Yes it is normal. Transfer values are loosely related to interest rates. Seems very unlikely the transfer value will go back to where it was.

Presume you are aware that transferring out of a DB scheme, is an expensive and quite long process?
Also it is unlikely to be a very good decision, especially with the recent drop in transfer values. Having a guaranteed pension income is generally a good thing to have.

Missjayne

My pension was a non contributory pension with my job. I left there in 1993 so what ever I get is a bonus but just wondered why it has gone down so much. If I were to take it yearly I would only get £1,007.76 a year. If I take a lump sum I could do something with it. I have to transfer it first I know. Just wondered why it has gone down. I was told it wasn’t linked to inflation. 

HappyHarry

Missjayne said:

My pension was a non contributory pension with my job. I left there in 1993 so what ever I get is a bonus but just wondered why it has gone down so much. If I were to take it yearly I would only get £1,007.76 a year. If I take a lump sum I could do something with it. I have to transfer it first I know. Just wondered why it has gone down. I was told it wasn’t linked to inflation. 

Are you sure you would only get £1,007 a year? Could it be that it was worth £1,007 a year in 1993 and you have had 30 years of inflation to be applied to that? 

daveyjp

If the annual pension really is only £1,000 a year I would be surprised the transfer value would be large enough to lose as much as £42k in a year.

It suggests the CETV calculation has a huge multiplier.

dunstonh

Could anyone tell me why it has dropped so much. 

CETVs were artificially high following the credit crunch. 
In simple terms, the calculation of the liabilities used gilt yields.   Gilt yields were extremely low following the credit crunch due to Quantitative Easing.  You may have heard that phrase mentioned on the news periodically.  It was also given the phrase printing money.    QE had to end at some point, and Governments hoped they could ease off it and not have an impact, or at least have the impact occur slowly over multiple years.    

Historically, whenever a country has printed money, it builds up inflation.  The more you print, the more inflation rises.  However, it didn't happen during the years following the credit crunch.  So, they kept on printing and effectively put off the pain.   Whilst they were printing money, gilt yields hit all time lows.      So, that pushed the CETVs up to record highs.      All it really did was push the pain of the credit crunch further down the road in the hope that things would improve and they can ease out slowly.

Then came Autumn 2021 and most of 2022 and the markets decided differently and decided to pretty much unwind the effects of printing money over the year.   We still may not have hit bottom. However, the low point was October 2022.

That unwinding caused Gilt yields to rise.   So, the calculation for CETVs meant that values fell.
CETVs are now back within their historical normal range. Although still at the upper end.  There is still scope for them to fall further if interest rates keep rising.

Is there any chance it will go up and should I leave it in for a couple of years. 

There is a chance anything can happen.  If its happened before, it can happen again.   However, the levels we saw had not been seen in the previous 300 years.      Unless Governments return to QE then its not going to happen.

Good morning I have DB pension which I was going to cash in

Whilst that may have been your plan, you would probably have found that extremely difficult to do.     Transferring a DB pension is statistically a bad thing to do in 9 out of 10 cases.    (it was closer to 6 in 10 whilst CETVs were artificially high).    You wanted to then cash in the DB pension after transferring it and that is even worse.       

. If I were to take it yearly I would only get £1,007.76 a year. 

You say the CETV has dropped around £48k.   So, that would likely have seen your peak CETV be around £110k.   It seems unlikely  that your income was just £1,007 a year on those values.     Have you had the income revalued to current money terms or were you working off an old benefit statement that had not been increased?  (the figure would increase annually - So, unless you have a recent figure, it wont be that amount).   Are you also taking into account the pension commencement lump sum?

xylophone

As explained above, CETV values have dropped - nevertheless, there appears to be some misunderstanding about the amount of annual pension you are due to receive at normal scheme retirement age.

Do you still have the scheme guide?

Do you have the statement of deferred benefits on leaving?

What does the guide have to say about increase in deferment and in payment?

What exactly does your SDBL show as to

pre 88 GMP

post 88 GMP

Excess?

Presumably this was a private sector occupational DB scheme rather than public sector?

Albermarle

Depending on the scheme rules, £1000 pa in 1993 could be worth around £2,500 pa today..

This would sort of match up with a peak CETV of around £100K

sheslookinhot

Missjayne said:

My pension was a non contributory pension with my job. I left there in 1993 so what ever I get is a bonus but just wondered why it has gone down so much. If I were to take it yearly I would only get £1,007.76 a year. If I take a lump sum I could do something with it. I have to transfer it first I know. Just wondered why it has gone down. I was told it wasn’t linked to inflation. 

Its linked to gilts. Gilts have been increasing so CETV goes down. Many have seen a reduction of hundreds of thousands of pounds in their CETV.

Nevergonnaretire

I've very recently just found an old DB pension myself which gave me the same conundrum.

The deferred benefit was something like £1300 per annum, the currently valuation was £2148 per annum and the transfer value was something like £60k.

I toyed with transferring it but given you have to get an IFA involved which would of course be chargeable, and that £2k a year will happily grow with inflation (mostly anyway) I decided to leave it there and just consider it 2k less I'll need to draw from my main DC pot when I retire. There's not much that's guaranteed so its nice to know that's there and wont be going down regardless of the market.

LHW99

Nevergonnaretire said:

I've very recently just found an old DB pension myself which gave me the same conundrum.

The deferred benefit was something like £1300 per annum, the currently valuation was £2148 per annum and the transfer value was something like £60k.

I toyed with transferring it but given you have to get an IFA involved which would of course be chargeable, and that £2k a year will happily grow with inflation (mostly anyway) I decided to leave it there and just consider it 2k less I'll need to draw from my main DC pot when I retire. There's not much that's guaranteed so its nice to know that's there and wont be going down regardless of the market.

And will likely go up by a certain % each year when in payment