should i take an old DB pension now or leave it?

sadexpunk

"you are still ignoring this point:"

i certainly dont think im ignoring it @MallyGirl, unless im unconciously just being a bit daft.  i have the gut feeling that i'll leave it, but i was just trying to compare growth rates.  firstly, is it a 5% loss each year if the pension doesnt actually grow 5% on average?  yes it has done the last 3 years but previous to that it was in the 1's and 2's.  so that 5% isnt guaranteed is it? 

"Your SIPP would have to grow by 5% plus CPI (or whatever your DB rules use) just to break even with the DB."

without looking back to refer, i think my SIPP has made 56% over the last 7 years.  thats why i was asking if im actually calculating it correctly.  if i divide 56% by 7 i get 8%.  so nearly double the growth of the pension unless my calcs are flawed?

thank you

FIREDreamer

sadexpunk said:

"you are still ignoring this point:"

i certainly dont think im ignoring it @MallyGirl, unless im unconciously just being a bit daft.  i have the gut feeling that i'll leave it, but i was just trying to compare growth rates.  firstly, is it a 5% loss each year if the pension doesnt actually grow 5% on average?  yes it has done the last 3 years but previous to that it was in the 1's and 2's.  so that 5% isnt guaranteed is it? 

"Your SIPP would have to grow by 5% plus CPI (or whatever your DB rules use) just to break even with the DB."

without looking back to refer, i think my SIPP has made 56% over the last 7 years.  thats why i was asking if im actually calculating it correctly.  if i divide 56% by 7 i get 8%.  so nearly double the growth of the pension unless my calcs are flawed?

thank you

1.56^(1/7) - 1 = 0.0655 so the annualised growth is 6.55% pa compounded

MallyGirl

that is over simplifying the maths. the growth will not have been linear. you could start 6 months earlier or 3 months later and get quite a different picture.
Yr 1 grows by 2%
yr 2 you have 102% of starting point and that grows by 5 % which leaves you at 107.1% of starting point 
yr 3 drops by 8 % which leaves you at 98.5% of starting point 
etc.

DB pensions never drop.

It isn't a 5% growth - it is not taking a 5% hit (which you would get by starting to take the pension a year early) , and that 5% hit being every year for the rest of your life.

FIREDreamer

MallyGirl said:

that is over simplifying the maths. the growth will not have been linear. you could start 6 months earlier or 3 months later and get quite a different picture.
Yr 1 grows by 2%
yr 2 you have 102% of starting point and that grows by 5 % which leaves you at 107.1% of starting point 
yr 3 drops by 8 % which leaves you at 98.5% of starting point 
etc.

DB pensions never drop.

It isn't a 5% growth - it is not taking a 5% hit (which you would get by starting to take the pension a year early) , and that 5% hit being every year for the rest of your life.

I assumed the growth would not be linear and worked out a single equivalent rate.

I cannot think of any investment in a pension that would grow linearly - a fixed rate bank or building society deposit account perhaps with interest compounded within the product, but only specialist expensive SIPPs would give access to those investments. Mainstream SIPPs do not, as far as I am aware.

MallyGirl

I was responding to OP but your post made it through first.

FIREDreamer

MallyGirl said:

I was responding to OP but your post made it through first.

No worries

Sarahspangles

sadexpunk said:

"you are still ignoring this point:"

i certainly dont think im ignoring it @MallyGirl, unless im unconciously just being a bit daft.  i have the gut feeling that i'll leave it, but i was just trying to compare growth rates.  firstly, is it a 5% loss each year if the pension doesnt actually grow 5% on average?  yes it has done the last 3 years but previous to that it was in the 1's and 2's.  so that 5% isnt guaranteed is it? 

"Your SIPP would have to grow by 5% plus CPI (or whatever your DB rules use) just to break even with the DB."

without looking back to refer, i think my SIPP has made 56% over the last 7 years.  thats why i was asking if im actually calculating it correctly.  if i divide 56% by 7 i get 8%.  so nearly double the growth of the pension unless my calcs are flawed?

thank you

It’s likely your pension is linked to inflation not investment performance (or at least directly, for your purposes). There will be a date at which a revaluation is made each year, based on some inflation related index like RPI or CPI. If you have different parts of your pension in different blocks, some of those may be capped and if so won’t keep pace with inflation. If you can access statements you can see what the risk of losing spending power is. But if you’re running at 5% ish that’s better than many schemes.

With a DB pension, there are investments. But ensuring there are enough investments to cover the pension being drawn down by pensioners is the scheme’s problem not yours. 

bjorn_toby_wilde

I’m not sure there is a way to accurately compare the two and it wouldn’t help you much if you could. I would forget about esoteric arguments about how to measure growth.

Looked at simply, your DB pension isn’t a pot that is growing, it’s a promise to pay you a yearly sum from the day you choose to take it. That sum will increase every year by either inflation or 5% if inflation is higher than that.

If you take it early there is a 5% penalty for every year. That means that if you took it and invested it elsewhere it would have to grow by inflation PLUS 5% every single year after to keep pace.

This year you would probably be up, but in 2022 you would have been well down.

As MallyGirl says. DB pensions never drop.  That’s the biggest benefit of them. Guaranteed income. Your SIPP could drop, and probably will at least once before you retire because it’s invested and investments are a rollercoaster.  Mostly up but occasionally down and sometimes down a lot.

sadexpunk

well it looks like the general concensus is to leave it alone then, so i'd be daft to come on here and ask for advice, then not take it.  just goes to show that what i thought was a rubbish pension vs a decent growth SIPP just isnt as clear cut.
decision made, it stays as is until im 65.

cant thank you enough for all of your vastly experienced help and advice.

cheers