Cash out of DB Pension?

Delicouslydelicious

Hi, I know the logic is to keep Defined Benefit (DB) pensions, but I am going to ask anyway, and maybe you can see why:

- Paid into a UK work DB pension in the late 1990's for three years.

- Employee contributions were £3000 pounds total.

- Pension increases in line with RPI to a max of 5%

- Expected pension payout per year is £1100 

Before I realised it was DB i asked for the transfer value, and they have now told me the transfer value is: £35,000

Now it is commonly accepted to keep DB schemes - but that means they pay me £1000 per year, but if I cash out I will have £35k to add into my SIPP.

That seems like a big chunk of cash and I am tempted to cash out... and would welcome any thoughts from the hive mind.

Simply doing the maths means they expect me to live 35 years after retirement?

Reg_Smeeton

Delicouslydelicious said:

- Pension increases in line with RPI to a max of 5%

Simply doing the maths means they expect me to live 35 years after retirement?

Only if you ignore the annual RPI revaluation that you have already identified

MallyGirl

and if you ignore the £5k plus it would cost for the advice to transfer - with no guarantee that you would get a yes

Pat38493

You may know this already but if the CETV value is more than £30K, you have to get financial advice to transfer out and the advice will cost you several thousand pounds, and may still yield a negative recommendation.  If the recommendation is negative, you will find it hard to get a provider who will accept the transfer.

Linton

Delicouslydelicious said:

Hi, I know the logic is to keep Defined Benefit (DB) pensions, but I am going to ask anyway, and maybe you can see why:

- Paid into a UK work DB pension in the late 1990's for three years.

- Employee contributions were £3000 pounds total.

- Pension increases in line with RPI to a max of 5%

- Expected pension payout per year is £1100 

Before I realised it was DB i asked for the transfer value, and they have now told me the transfer value is: £35,000

Now it is commonly accepted to keep DB schemes - but that means they pay me £1000 per year, but if I cash out I will have £35k to add into my SIPP.

That seems like a big chunk of cash and I am tempted to cash out... and would welcome any thoughts from the hive mind.

Simply doing the maths means they expect me to live 35 years after retirement?

1) Your simple maths is wrong because you have not taken inflation increases into account
2) Your figure of £35K CETV for £1.1K income seems very generous since CETVs have fallen dramatically.  A 32 multiple is more like figures from before the large increase in interest rates.  If your CETV value was stated more than a year or so ago it is likely to be very wrong.
3) Is the £1.1K pension figure right? - Are you taking into account that it is increasing with inflation every year from when you left the scheme until you take it?
4) If the CETV is more than £30K you will need to receive and pay for IFA advice.   Unless youi have a strong case, eg short life expectancy, the advice is likely to be negatiive.

 If your pension comes from civil service, military, NHS etc it is likely that you cant take the cash anyway,

xylophone

- Paid into a UK work DB pension in the late 1990's for three years.

Which tax years exactly?

What is shown on your statement of benefits on leaving service?

What does the scheme guide have to say concerning increases in deferment and in payment?

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

dunstonh

Before I realised it was DB i asked for the transfer value, and they have now told me the transfer value is: £35,000

How old is that CETV?   They fell again last week, although some of the less "live" systems may take a bit longer to show that drop.  They are about half or worse the value they were at the end of 2021.

Now it is commonly accepted to keep DB schemes - but that means they pay me £1000 per year, but if I cash out I will have £35k to add into my SIPP.

Is that £1000 a recent figure or a historic figure that hasn't been updated recently?
And you have ignore the annual increases.

That seems like a big chunk of cash and I am tempted to cash out... and would welcome any thoughts from the hive mind.

I don't see any valid justification in your post.  So, I cannot see any financial adviser saying it is suitable to transfer the pension based on the limited information so far.   And because of FCA rules, contingency charging is not allowed.  This means you are liable for the adviser fee whether the advice is transfer out or to stay in the pension.

RogerPensionGuy

Pat38493 said:

You may know this already but if the CETV value is more than £30K, you have to get financial advice to transfer out and the advice will cost you several thousand pounds, and may still yield a negative recommendation.  If the recommendation is negative, you will find it hard to get a provider who will accept the transfer.

This post here reminds me of an experience I had with an independent financial advisor about 7 or 8 years ago.

We went over transferring of of a DB scheme with a CETV of about 700K I think. 

He was very happy to facilitate the transfer with him as my advisor and a platform he suggested.

Think it was an upfront 3% charge on all the CETV and an ongoing 2% charge PA, so pretty much a 5% charge to do it.

I was contemplating moving the DB CETV to a DC I had so I asked him to provide a letter/evidence for me?

He then basically said if I didn't use his full services he would only provide evidence that transferring out of a DB was not in my best interest and therefore my DB provider would not a CETV to my low cost DC scheme!

It was a very enlightening experience for me.

For information I never CETV'd all or partiality out of the DB scheme and still currently feel happy I didn't. 

dunstonh

He then basically said if I didn't use his full services he would only provide evidence that transferring out of a DB was not in my best interest and therefore my DB provider would not a CETV to my low cost DC scheme!

That is a strange thing for an IFA but was quite normal for an FA.    Maybe it was just a silly individual or maybe it wasn't a real IFA.  It wouldn't have been allowed post 2012.

Marcon

Pat38493 said:

You may know this already but if the CETV value is more than £30K, you have to get financial advice to transfer out and the advice will cost you several thousand pounds, and may still yield a negative recommendation.  If the recommendation is negative, you will find it hard to get a provider who will accept the transfer.

I thought we'd put this long-running misunderstanding to bed long ago! Advice is still needed where the transfer is at least £30K, if the scheme has 'safeguarded rights' (and a DB scheme certainly does).

A stakeholder pension has to accept any transfer from a UK registered pension scheme, whatever the advice says about the wisdom of transferring. 

MallyGirl said:

and if you ignore the £5k plus it would cost for the advice to transfer - with no guarantee that you would get a yes

Doesn't matter if it's yes or no; a determined member can still proceed, however foolish it would be to do so. Transfer to a stakeholder, and then on to a SIPP (which would be a DC to DC transfer, so no further advice needed).

Marcon

RogerPensionGuy said:

Pat38493 said:

You may know this already but if the CETV value is more than £30K, you have to get financial advice to transfer out and the advice will cost you several thousand pounds, and may still yield a negative recommendation.  If the recommendation is negative, you will find it hard to get a provider who will accept the transfer.

This post here reminds me of an experience I had with an independent financial advisor about 7 or 8 years ago.

We went over transferring of of a DB scheme with a CETV of about 700K I think. 

He was very happy to facilitate the transfer with him as my advisor and a platform he suggested.

Think it was an upfront 3% charge on all the CETV and an ongoing 2% charge PA, so pretty much a 5% charge to do it.

I was contemplating moving the DB CETV to a DC I had so I asked him to provide a letter/evidence for me?

He then basically said if I didn't use his full services he would only provide evidence that transferring out of a DB was not in my best interest and therefore my DB provider would not a CETV to my low cost DC scheme!

The DB scheme only needs to confirm that you have received advice; they won't be interesting in knowing what the advice was/whether you are following it. The receiving scheme is where the barrier could come if the advice is not to transfer - but not if it's a stakeholder, which has to accept the transfer.