CETV what to do with it ?

Perfo

Hello all, I've read the comments on here about CETV and see a lot are recommending not leaving a DB scheme. 
I'm 55 , normal retirement age 63. Been paying in to a DB scheme for 34 years and have a accrued a CETV of around 2,000,000.   My salary has nose dived so as I'm in  a DB if I stay to 63 I'll lose a lot of what I've paid in. However If I go now I will be heavily abated. 
My scheme is offering me 200K tax free lump sum and a pension of £30k something per year.  By simple calculation If I put this CETV in a standard bank account earning 3% interest I could draw down 85K per year and still have £750K left when I'm 85 years old.  Plus I would actual have the remaining in my estate rather than it disappearing. I am married and my wife would get 50% of my pension on my death with the DB scheme. However she would get 100% of the £85K if I put it in my bank account.   What am I missing here ? Surely a current account can out perform a DB scheme ?   
I know the 85K isn't index linked as the DB is but my needs will tailored off as we get older probably by more than inflation and we don't actually need 85K so the pot will be larger. 
I also know taking it out as cash would mean 600K in tax so not do able however if I could and put in 13 independent banks I'd also get £170K fsa guarantee for each account so no risk.
Thanks for reading 
PS are CETV's high or Low at the moment? 

dunstonh

 and have a accrued a CETV of around 2,000,000.  

CETVs have halved over the last two years.   When did you last get the CETV?

My salary has nose dived so as I'm in  a DB if I stay to 63 I'll lose a lot of what I've paid in. However If I go now I will be heavily abated. 

What is your pensionable salary based on?  e.g. average of the best three in the last 10 years?

My scheme is offering me 200K tax free lump sum and a pension of £30k something per year.  By simple calculation If I put this CETV in a standard bank account earning 3% interest I could draw down 85K per year and still have £750K left when I'm 85 years old. 
<snip>
 What am I missing here ? 

Have you factored indexation into it?
When did you last get a pension benefit statement as £2m seems very high for a £30k pension.
Is that £30k the current accrual (ie. benefits accrued to date) based on scheme age or a reduced figure for taking it early?

 Surely a current account can out perform a DB scheme ?   

Historically it hasn't most of the time.

I know the 85K isn't index linked as the DB is but my needs will tailored off as we get older probably by more than inflation and we don't actually need 85K so the pot will be larger. 

 Certainly, expensive holidays will taper away (probably in early 80s) but you would likely have eroded more than you think by the time you get to that point.

I also know taking it out as cash would mean 600K in tax so not do able however if I could and put in 13 independent banks I'd also get £170K fsa guarantee for each account so no risk.

The food standards agency gives no guarantee   You mean FSCS protection.      
You seem to be disregarding inflation risk.    

PS are CETV's high or Low at the moment? 

More than halved in the last 2 years and continuing to fall.

GSP

I may have missed it but have you factored in both yours and your wife’s state pension kicking in when you are 67? Currently £21-22k p.a. for the pair of you, so it could be c£30k by the time you both reach SP.

Marcon

Perfo said:

Hello all, I've read the comments on here about CETV and see a lot are recommending not leaving a DB scheme. 
I'm 55 , normal retirement age 63. Been paying in to a DB scheme for 34 years and have a accrued a CETV of around 2,000,000.   My salary has nose dived so as I'm in  a DB if I stay to 63 I'll lose a lot of what I've paid in. However If I go now I will be heavily abated. 

You could leave active membership of the scheme and then leave your pension to grow in deferment (ie increase regularly between now and the time you come to draw your benefits). Unlikely your employer would agree to pay pension contributions to another scheme, but could be worth it, depending on how much your salary has fallen (and assuming there's no chance it will increase again in time to 'rescue' the position).

sheslookinhot

What you have accrued when your earnings were high, should not normally be affected. This will be ring fenced and only the years at your reduced salary will negatively affect your pension.

Your scheme rules may state otherwise of course.

Marcon

sheslookinhot said:

What you have accrued when your earnings were high, should not normally be affected. This will be ring fenced and only the years at your reduced salary will negatively affect your pension.

Depends on the rules of the scheme, especially if this is a final salary scheme (the clue's in the name!). Most define "Pensionable Salary" and (crucially) "Final Pensionable Salary" in a way which relates to earnings in a period close to the point at which someone leaves active membership, and there is no mechanism in most schemes for 'ring fencing' as you suggest.

If a reduction in salary is because someone has changed from full time to part time hours, then they are protected because their pension is based on full time equivalent, and it is the period of pensionable service while they are part time which is, effectively, amended.

Perfo

First off thanks for all your helpful comments.  I hadn't clicked the notify me on reply option for this forum so didn't know I had replies.   I'm not really sure how to reply to each of you in a tidy manner :-) .
I had a pension calculation done a couple of months ago with a leave date of this November.  This showed I would get around £35K heavily abated pension and £200K lump sum. It also showed a pension pot of very near £1M.  I was told by a few at work that had asked for their CETV in previous years that the CETV was more than double the pension pot and possibly even up to three times. I've asked for a CETV  but this takes weeks if not months from our pension provider.  I prematurely started looking at my options based on advice got from the work colleagues rather than facts. I'm now lead to believe the CETV doesn't go on what the POT is but on loads of other factors which could mean a CETV considerably lower. This is of course very disappointing but I only have myself to blame.  I shall have to wait until I get the actual CETV and start again. 
My scheme uses the best three out of the last ten years to set the pension (index linked)  level. So even though I was paying in at a high rate for over 30 years and a very high rate for the last 20 the clock starts ticking from age 53.  My salary was decimated early this year when I was 54 so would only have one full year in at the high rate in the last ten if I retire at the normal age of 63.  IT is a 40/80th scheme so on retirement if you have 40 years in the scheme (which I would have)  I could expect around 50% of my salary as pension. However this salary is (as mentioned) three out of the last ten so a ridiculous example would be you are on a £10M a year salary for 30 years and £10k for the last 10 the pension pot would be huge but the pension would be £5K.

Perfo

dunstonh said:

The food standards agency gives no guarantee   You mean FSCS protection.      
You seem to be disregarding inflation risk.    

I do indeed mean the FSCS.. that comment made me LOL   thanks.   

Perfo

Marcon said:

Perfo said:

Hello all, I've read the comments on here about CETV and see a lot are recommending not leaving a DB scheme. 
I'm 55 , normal retirement age 63. Been paying in to a DB scheme for 34 years and have a accrued a CETV of around 2,000,000.   My salary has nose dived so as I'm in  a DB if I stay to 63 I'll lose a lot of what I've paid in. However If I go now I will be heavily abated. 

You could leave active membership of the scheme and then leave your pension to grow in deferment (ie increase regularly between now and the time you come to draw your benefits). Unlikely your employer would agree to pay pension contributions to another scheme, but could be worth it, depending on how much your salary has fallen (and assuming there's no chance it will increase again in time to 'rescue' the position).

Yes this is an option. I can leave this one and join a DC scheme and I believe the employer would pay in to the DC so this is certainly worth looking at. Thanks for the suggestion.  However as I've been so royally sha*ted my preference is to actually retire if at all possible. One kid just entering Uni and another going in a few years puts difficulties in the way... 

Perfo

I haven't directly factored in inflation risk but if I had £2M to invest even in just gilt edge or one year fixed interest bonds etc I believe I would earn more in interest than I need especially as I get older. So I was thinking if I could leave say 5% of the interest in the pot then compounding this every year may offset inflation ?   The pot could be almost gone by the time I'm 85 I'm not looking to protect the whole investment for eternity. ?But even if there's only £5 left I'd want it rather than the pension scheme having it away with it .. 
I also haven't factored state pension as I'm really looking at options that allow me to retire now ish. So great I can add maybe £30K a year in 12 years time but my figures would have to work now.. 
Thanks again to all whom commented. But it looks like I will have to stew in my own juice for however many weeks it takes to get the actual CETV before I do anything else. 

Dazed_and_C0nfused

I'm now lead to believe the CETV doesn't go on what the POT is

You don't have a pension pot.

You effectively have deferred salary payable as a pension.

The CETV is the schemes offer to get you off their books and you accept all the risk thereafter.

If colleagues CETV's were £1million then yours now is more likely to be lower than higher.