Is my DB Pension effectively locked in against my wishes?

Marcon

Moonwolf said:

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.

...and ill health isn't usually one of them, especially if you are very seriously ill and the DB scheme provides 'full commutation on grounds of serious ill health' (ie if your pension isn't in payment and your life expectancy is less than 12 months, you can take your whole lot out of the DB scheme as a tax free lump sum, however young you are - and survivor benefits aren't affected; those would still be payable). 

The other reason it's a bad idea is that if you transfer knowing you are ill (albeit with no projected life expectancy) and then die within 2 years, there's often a thumping tax penalty courtesy of HMRC's belief that doing so is some sort of tax avoidance wheeze...

Either way, specialist advice is crucial.

scottwinner3

Thanks all for the many responses, I will try and summarise some figures etc from requests above.
The company I worked at was Jaguar Land Rover, with the pension investments being outsourced to Scottish Widows.
As of today, the CETV is £133k and the yearly pension value would be £6k
My SIPP is with Hargreaves Lansdown, invested in a global tracker. averaging 15% per year over a 5 year rolling timeline, and similar over a 10 year timeline too.
Yes, the IFA I spoke to this week said it would be approx £5k for a formal review to approve a transfer.
I spoke with a H&L advisor when I turned 50, 3 years ago. He definitely said they would not consider transferring in a DB pension until I was 55, although a I realise Dunstonh has intimated I am mis-remembering. (sorry Dunstonh, I do value your opinion, and do resonate with a lot of your advice on all threads here, so am not trying to be antagonistic, I agree that comment is incorrect).
I do understand that the 55 yrs is when I can start drawing a pension and that theoretically a person could push on regardless with a transfer if they so wanted regardless of age.
Yes, I can also say the my CETV value was nearing £400k a few years ago. The drop in value was explained to me due to 'increases in interest rates', and yet here we are with interest rates being half what they were last year, and the CETV value keeps on dropping. I realise it will not be a direct correlation of interest rates and transfer values, and that other factors will be involved, but when I  (and several colleagues) have asked advisors why the CETV has more than halved, it is the simple 'interest rates' answer that is fed back.

Although many contributors have pointed out that I have no grasp of investing, it is my opinion, based on facts, that when there have been market crashes, the value of the markets are normally back to the same level within 2 years. Therefor, you lose nothing so long as you don't sell, and have some cash reserves to live off during that time. Sorry if that is too simple. I also feel that I would rather have that CETV in my SIPP that can go to me dependents when I finally shuffle off, rather than 50% of my pension being paid to my spouse, "at the pension providers discretion".

Thanks again for everyones' feedback, I look forward any more.
Finally, I could not find any threads on my predicament, although a couple of comments suggested there are plenty, could anyone provide a link or keywords that I should search for?

DRS1

Here is one
DB Transfer 'extortion' ?! — MoneySavingExpert Forum

Hoenir

scottwinner3 said:

My SIPP is with Hargreaves Lansdown, invested in a global tracker. averaging 15% per year over a 5 year rolling timeline, and similar over a 10 year timeline too.

Most importantly do you understand why? What has driven share prices upwards at such speed. 

Many investors manage to surf on an exceptional wave for a period of time in their lives. Waves peter out though. Choosing the right one to jump on next isn't always easy. Numbers on screens cannot be wiped away at a click. 

jimjames

scottwinner3 said:

Greetings All.
I have an old Defined Benefits (DB) Company Pension. I have been self employed now for 15 years, and my SIPP has always earnt more interest in good years, and depreciated less in bad years.

If your SIPP is earning interest then it really sounds like you haven't invested it very well and should have stock market based investments instead. As such a DB pension sounds like it would be a good idea to have as a stable, rising income as a buffer against your interest payments.

Marcon

scottwinner3 said:

 I also feel that I would rather have that CETV in my SIPP that can go to me dependents when I finally shuffle off, rather than 50% of my pension being paid to my spouse, "at the pension providers discretion".


Finally, I could not find any threads on my predicament, although a couple of comments suggested there are plenty, could anyone provide a link or keywords that I should search for?

If you are in a DB scheme and are married, then your spouse will get the pension promised under the rules of the DB scheme. Where does 'pension providers discretion' come into it?

On the other hand, if you transfer to a SIPP, then it IS down to the discretion of the pension provider who receives any remaining funds.

You aren't in a 'predicament'; you simply have a choice. My post of 20 February sets out how you can exercise that choice.

What more feedback do you need/expect? You've clearly made up your mind about what you want to do, so there seems little point in saying anything further.

dunstonh

My SIPP is with Hargreaves Lansdown, invested in a global tracker. averaging 15% per year over a 5 year rolling timeline, and similar over a 10 year timeline too.

It would be very irresponsible to assume that a 7 year boom in equities driven mostly by a highly volatile industry is the typical.    It's not typical.  

Yes, I can also say the my CETV value was nearing £400k a few years ago. The drop in value was explained to me due to 'increases in interest rates', and yet here we are with interest rates being half what they were last year, and the CETV value keeps on dropping. 

Its not based on interest rates. Its based on gilt yields.  Whilst interest rates are falling, gilt yields have been rising.   Gilt yields and interest rates often follow similar lines but they are not at the moment.

Although many contributors have pointed out that I have no grasp of investing, it is my opinion, based on facts, that when there have been market crashes, the value of the markets are normally back to the same level within 2 years.

That is wrong.  Whilst most drops recover within that period, that does not cover the less frequent loss periods.  For example, still being down 40% after 9 years if you invested in late 1999/early 2000.   In a typical retirement period of around 30-35 years, you are likely to see several large drops or longer period drops (i.e. not short sharp drops but declines over multiple years).   

Sorry if that is too simple. I also feel that I would rather have that CETV in my SIPP that can go to me dependents when I finally shuffle off, rather than 50% of my pension being paid to my spouse, "at the pension providers discretion".

The DB pension income would allow you to draw less on the DC pension.   So, your DC pension will be higher.  So, its not lost money.

Remember, you can still do it if you want to.  It doesn't matter what we say or how we feel or how you feel.  Ultimately, it is within your power to push it through the stages to get what you want.

Albermarle

Sorry if that is too simple. I also feel that I would rather have that CETV in my SIPP that can go to me dependents when I finally shuffle off, rather than 50% of my pension being paid to my spouse, "at the pension providers discretion".

If you have a DB scheme only, then this is more of a worry ( for some people).
However having a DB scheme and a DC scheme is seen my many as the sweet spot. For example you can invest the DC scheme more aggressively and ride out market drops more easily, when you have a guaranteed income coming in.
If you nominate a spouse as beneficiary, then you can be confident she will get the pension. The discretion only really ever comes into play, when there are more complex circumstances, such as no beneficiary and no close relatives, or ex wife of 20 years ago still named as beneficiary etc



Thanks again for everyones' feedback, I look forward any more.
Finally, I could not find any threads on my predicament, although a couple of comments suggested there are plenty, could anyone provide a link or keywords that I should search for?

In the search box type 'DB Transfer'.
Be aware most are from a few years ago, when CETVs were a lot higher, but the same issues prevailed.

MarkCarnage

As others have said, your wife would get the DB pension should you die before her.....usually it's 50% or 67% of the full pension. It's good practice to make sure that you have an expression of wish form completed, but I've never known a case where the pension hasn't been paid to the spouse even if there is no EoW. The trustee 'discretion' is principally there for other things. 
CETVs have fallen as gilt yields have risen as @dunstonh has said (not sure that short term interest rates have halved either, but that's not relevant)....however what really matters is that regardless of the CETV, you will still be paid the pension you are contractually entitled to. With a lower CETV now, it's more challenging to replace that guaranteed, and at least partially inflation linked, income. Better surely to be in a position with a guaranteed income from the DB and have to take less income from your SIPP. 
There is literally no comparison between the change in value of the CETV and change in value of your SIPP too...it's not even comparing apples and oranges, more like comparing apples with cats or something totally dissimilar! 

af1963

If you're sufficiently cynical, you can think of the CETV as the answer to the question: "How little can we get away with paying this person so they b*gger off and we don;t have to pay them a lifetime, possibly inflation linked, pension ".

You wouldn't expect it to be a bigger amount than what they currently expect to pay out if you stay a member, because that would mean the other members were subsidising you. So at best, you'll get roughly what they think the benefits are currently worth, maybe a bit less.

£133k to buy out a lifetime of £6k payments is a factor of about 22.  Not as bad as some, but not great if it has to last more than 22 years, or if the potential uncertainty of future income is an important factor.