Is my DB Pension effectively locked in against my wishes?

Marcon

I've just looked at the number of misunderstandings in your previous thread https://forums.moneysavingexpert.com/discussion/5799671/sipps-diversity-risk-strategy-ok#latest particularly in relation to the impact you think the change to a CARE scheme will have on your (already deferred) pension.

Please make sure you understand what you are giving up before you steam on regardless - and don't be surprised if the CETV now is less than the £200K you were quoted in 2018.

Moonwolf

Marcon said:

I've just looked at the number of misunderstandings in your previous thread https://forums.moneysavingexpert.com/discussion/5799671/sipps-diversity-risk-strategy-ok#latest particularly in relation to the impact you think the change to a CARE scheme will have on your (already deferred) pension.

Please make sure you understand what you are giving up before you steam on regardless - and don't be surprised if the CETV now is less than the £200K you were quoted in 2018.

That is an interesting thread as I don't think the OP has understood the CPI cap either.  Reading between the lines, the new CARE scheme is CPI, capped at 2.5% but as the OP was contributing for twenty years then the old one was either uncapped or capped at 5% to 2009 and 2.5% after that, rates that should apply to benefits already accrued. 

I think the regulations actually state "Deferred pension rights accrued since 1 January 1986 must be revalued in line with prices. This is capped at 5% for service to 5 April 2009 and at 2.5% for service after this." 

I thought as well that while the pension is deferred the cap is an average cap so the recent 10% could be included if the average remains below the cap.

Marcon

Moonwolf said:

Marcon said:

I've just looked at the number of misunderstandings in your previous thread https://forums.moneysavingexpert.com/discussion/5799671/sipps-diversity-risk-strategy-ok#latest particularly in relation to the impact you think the change to a CARE scheme will have on your (already deferred) pension.

Please make sure you understand what you are giving up before you steam on regardless - and don't be surprised if the CETV now is less than the £200K you were quoted in 2018.

That is an interesting thread as I don't think the OP has understood the CPI cap either.  Reading between the lines, the new CARE scheme is CPI, capped at 2.5% but as the OP was contributing for twenty years then the old one was either uncapped or capped at 5% to 2009 and 2.5% after that, rates that should apply to benefits already accrued. 

I think the regulations actually state "Deferred pension rights accrued since 1 January 1986 must be revalued in line with prices. This is capped at 5% for service to 5 April 2009 and at 2.5% for service after this." 

I thought as well that while the pension is deferred the cap is an average cap so the recent 10% could be included if the average remains below the cap.

I don't think OP has actually absorbed much about the scheme except the ££££££££ a CETV provides - which puts them firmly in the majority! So many people are dazzled by the £££££££ (entirely understandably) that any finer points just go straight out of the window...

MarkCarnage

So many people are dazzled by the £££££££ 

If that was 2018 it's probably £££ now.....but you're right, there is a tendency for the big number (or not so big now!) to overwhelm rational thought. 

It's concerning that there are some people who have absolutely no concept of the key differences between DB and DC schemes. Possibly even more worrying are those who see a significant reduction in CETV in recent years and panic, thinking they need to get it out now before it goes to zero! It does make you understand why there are significant hurdles to doing transfers. 

pterri

I’ve no intention of ever giving up my DB, I wonder if people are misunderstanding the CETV? My yearly pension statement give a calculation for LTA purposes, essentially 20x the accrued DB pension. That may seem attractive (not to me to be clear) but that isn’t what the CETV payout would be? 

Marcon

MarkCarnage said:

So many people are dazzled by the £££££££ 

If that was 2018 it's probably £££ now.....but you're right, there is a tendency for the big number (or not so big now!) to overwhelm rational thought. 

It's concerning that there are some people who have absolutely no concept of the key differences between DB and DC schemes. Possibly even more worrying are those who see a significant reduction in CETV in recent years and panic, thinking they need to get it out now before it goes to zero! It does make you understand why there are significant hurdles to doing transfers. 

But to many people even ££ is going to look like a huge number. Very few DB scheme members have the faintest idea how much it costs to provide their benefits, and it's no surprise that when you see something with more noughts than you ever envisaged (sometimes worth as much as your house!), you can't ever imagine running out of that sort of money...

The number of people posting here, who have been anxiously asking their scheme for a CETV each year (for no good purpose, if the truth be told) and then as you say going into a panic when they see the number has gone down, tells its own unhappy tale about the lack of understanding. This thread has to be one of the starkest reminders of that sorry fact (and posted by someone who says they did 'some lengthy research': https://forums.moneysavingexpert.com/discussion/6589106/pension-discussion/p1

Marcon

pterri said:

I’ve no intention of ever giving up my DB, I wonder if people are misunderstanding the CETV? My yearly pension statement give a calculation for LTA purposes, essentially 20x the accrued DB pension. That may seem attractive (not to me to be clear) but that isn’t what the CETV payout would be? 

It isn't. The 20x is just what HMRC decided would be used as the basis for valuing a DB pension for LTA purposes. It bears little relationship to the cost to the scheme of providing your benefits, and is particularly wide of the mark the older you get.

While the LTA was still alive and well(!), many people who transferred from a DB scheme were surprised to find that what was comfortably within the LTA suddenly became much closer/in excess of it, because DC schemes were valued for LTA purposes at their 'actual' fund value.

JoeCrystal

Marcon said:

While the LTA was still alive and well(!), many people who transferred from a DB scheme were surprised to find that what was comfortably within the LTA suddenly became much closer/in excess of it, because DC schemes were valued for LTA purposes at their 'actual' fund value.

Its calculation is still amazingly generous, considering the multiplier has not been updated for a few decades, as far as I know! 

NoMore

pterri said:

I’ve no intention of ever giving up my DB, I wonder if people are misunderstanding the CETV? My yearly pension statement give a calculation for LTA purposes, essentially 20x the accrued DB pension. That may seem attractive (not to me to be clear) but that isn’t what the CETV payout would be? 

Nope, CETV can be much bigger than that multiple. I had a CETV of £1m on a pension of £28k p.a, a few years ago (basically at the peak), which is nearly twice the LTA calc (560k). I never even considered taking it as I do understand the value of a guaranteed inflation proofed income. Easy to see some people seeing that and thinking that they've won the lottery.

Moonwolf

I nearly transferred one when I had a wobble after my second cancer diagnosis. It would have been just one of three DB pensions, it would have left me with two other DB pensions plus state pension. It was about maximising cash for my partner and bringing forward my retirement.

Initial advice was that it might be recommended and worth investigating, but get the CETV.  The CETV was rubbish and the cancer wasn’t advanced as I first thought so I didn’t go through with it - but there are niche cases where it might be a good idea.