Transfer from DB to DC recommendation

maupertius

I'm still 25 years away from retirement age and I have most of my pension in a Defined Contribution (DC) scheme. However, I do have a small pot from a previous job (£3k lump sum, £1.2k/year benefit) in a Defined Benefit (DB) scheme. Can somebody with some experience on pension (I have none) shine some lights on the pro and cons of transferring? The only reason I would do the transfer is to have everything in one place to minimise red tape, as I tend to change address frequently and don't exclude the possibility of moving abroad before retirement age.

wjr4

You’re considering giving up a guaranteed income for life as you change address a lot? Wow. 

GrubbyGirl_2

My advice - don't do it.  DC schemes aren't a patch on a DB scheme so you stand to lose a lot

maupertius

wjr4 said:

You’re considering giving up a guaranteed income for life as you change address a lot? Wow. 

Well, that's £100/month income, so not a huge amount. Unless that's supposed to increase with inflation/market performance? I'm not too familiar with DB

OldScientist

While I would agree that keeping a DB pension is almost always a good idea, there is some nuance to consider

1) If the DB pension is in some 'unfunded' public sector schemes it cannot be transferred except to another DB pension.
2) Is the payment is fully inflation protected (i.e., the £1.2k payment will go up with inflation in deferral and in payment)? If so, then it is almost certainly best to leave it where it is.
3) If the payment is inflation capped (probably at either 2.5% or 5%) then this is less clear cut since with a 2.5% cap, the real value of your DB pension would have been degraded by inflation over the last couple of years and this may happen again over the next 25 years.
4) Is the DB scheme you are in well funded and unlikely to end up in the pension protection fund (where it will be inflation capped at 2.5%)?
5) Is the pension CETV more or less than £30k? It is easier to transfer if below £30k than above (there are a number of threads on both on these boards).

maupertius

OldScientist said:

While I would agree that keeping a DB pension is almost always a good idea, there is some nuance to consider

1) If the DB pension is in some 'unfunded' public sector schemes it cannot be transferred except to another DB pension.
2) Is the payment is fully inflation protected (i.e., the £1.2k payment will go up with inflation in deferral and in payment)? If so, then it is almost certainly best to leave it where it is.
3) If the payment is inflation capped (probably at either 2.5% or 5%) then this is less clear cut since with a 2.5% cap, the real value of your DB pension would have been degraded by inflation over the last couple of years and this may happen again over the next 25 years.
4) Is the DB scheme you are in well funded and unlikely to end up in the pension protection fund (where it will be inflation capped at 2.5%)?
5) Is the pension CETV more or less than £30k? It is easier to transfer if below £30k than above (there are a number of threads on both on these boards).

Very informative. I will look into that. Pension scheme is USS and CETV is £12k

gm0

If you mainly have DC pensions.  Then you will need to sort out how that can work best for the retirement you want (with any partner) based on the amount of household expenses covered by guaranteed income - not the stockmarket - so SP and DB for the most part and any buffer in accessible assets in the DC pots.

You will discover that a decent source of index linked guaranteed income is a fine thing.  Just plug it into the overall asset allocation as safer assets - a ladder of index linked bonds effectively. 

It affects the overall risk to your target income in a positive way - with no effort on your part. 

It's not a big deal at 12k. / 1.2k but helpful nonetheless.

As others have said indexation terms are the dominant fact here.

Dazed_and_C0nfused

maupertius said:

wjr4 said:

You’re considering giving up a guaranteed income for life as you change address a lot? Wow. 

Well, that's £100/month income, so not a huge amount. Unless that's supposed to increase with inflation/market performance? I'm not too familiar with DB

From your perspective you don't have a pension "pot" and there is no performance.

You are entitled to a pension in accordance with the scheme rules.  As a deferred member this is usually increased by an element of inflation proofing.  Often CPI in public sector schemes sometimes less than CPI or CPI but capped at say 5% in some schemes.

If your figures are correct then keeping the £1.2k/year and a one off £3k would seem the prudent option.

xylophone

https://www.uss.co.uk/for-members/leaving-or-already-left/your-pension-after-leaving

LHW99

1.2k x 10 = £12k, so taking the CETV is equivalent to 10 years income. If you put it in a DC pension, it could make more than that by the time you retire. Of course it might not, because DC depends on the market. Japan's stockmarket is a case in point, hasn't done a lot for maybe 20 years.

If you keep it, it will grow by whatever the terms say, and with SP will increase the amount of guaranteed income you have as a base. I believe you would need closer to £25k to get a £1200 annual income if you went to buy one (no expert, but there are calculators on the web).

Universidad

maupertius said:

£3k lump sum, £1.2k/year benefit... Pension scheme is USS and CETV is £12k

OK, so just to play devil's advocate I'm going to assume that you earned this pension pre-2011, and that you can take the benefits unreduced at 63.5.

Straight away on retirement you get 3K.

It takes you just 7.5 years to get the remaining 9K out.

If you live to 71 you've received more than 12K from the scheme.

Do you think you will live that long? Most people would.

If you live to a pretty average 84, you would take out nearly 28K (in real terms(ish))

Of course this is very simple maths, if you transfer it to a DC pot that should (but might not) grow above inflation over enough time, whereas USS will never exceed inflation, and may even devalue in high inflation years. 

But that is a heck of a gap to close over something that's a guaranteed income.