Is my DB Pension effectively locked in against my wishes?

Prism

scottwinner3 said:

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. 

Those are not the events you really should be worrying about, as a 2 year crash and recovery is barely worth planning for. What could really effect your retirement is a 10 year double crash and recovery (2000-2010) or a huge inflationary plus crash period (1970s) or a massive 90% crash (US 1929) or any number of country specific financial crises. In all of those cases an element of DB pension or annuity would have been very useful.

Storcko14

I'd recommend reading some economic history to try and aid understanding of markets and human behaviours in times of market stress.  We stake a lot of our future wealth and happiness on them yet many are completely ignorant of how markets and macro economics actually work.  JK Galbraith's classic 'The Great Crash - 1929' and Calverley's 'Bubbles and How to Survive Them' (2004) would be a good start.

Aretnap

scottwinner3 said:

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.

I have no idea how you can make that comparison as a DB pension cannot earn interest, not can it depreciate even in a bad year. It just sits there year after year, gradually increasing with inflation or inflation and a bit, in line with the scheme rules.

Unless you are one of those people who gets a CETV every year and compares it with the performance of funds in your SIPP. But that would be a very silly and pointless thing to do because a CETV is not a measure of fund performance and has very little to do with the performance of the funds that back up your guaranteed income (and which is not your concern anyway as your income is guaranteed in spite of their performance).

scottwinner3 said:

In which case, that means my DB Pension pot, which I have paid into for the first 20 years of my working life is effectively locked in and I will never be able to decide where my investment goes!
I really cannot believe this is legal, that I am forced to keep my DB Pension where it is?

In one sense this is quite a bizarre question. You signed up for a job that came with a DB pension. Nobody ever promised you a pot of money that you could do what you liked with. You were promised a regular income after you reached retirement age, and the pension scheme will make good on that promise. Why on earth would it be illegal or outrageous to give you the thing that you were promised in the first place? 

If you wanted a pot of money rather than an income that badly, you did have the option of finding a job that came with a defined contribution scheme, or of opting out of your employer's scheme and paying into a personal pension instead. Both would probably have left you with inferior pensions, but more control over how they were invested, which is important to you.
 
That said though, if you are determined to transfer out, it is still eminently possible to do so. The requirement is just to take professional advice first to ensure that you fully understand the risks and the value of the things you are giving up.

If you still want to transfer it in spite of that advice you can, you'll just have nobody but yourself to blame if you realize in ten years that you switched to the stock market at the top of a tech bubble and are still down a decade on (look at 2000-2010 for comparison), or at the start of a decade of stagflation and geopolitical uncertainty (look at the 1970s), or at the start of another great depression (don't look at the 1930s, it's too depressing). Also look at the performance of the Japanese stock market from 1989 onwards for another antidote to the "stock market crashes always recover in 2 years" assumption.

scottwinner3

Thanks all again for your comments and recommendations.
I have been 'pulled up' several times by my statement that my SIPP has earnt more interest in good years, I realise that this was clearly poor wording, and I should have said 'gained more growth'. Apologies for that.
Also, the figures I were comparing were from my annual DB statement whereby the 'fund' performance of the DB has been disclosed. For example, some years the DB Pension fund grew by 2%, but my SIPP grew 20%, also, more recently, The DB Pension fund was negative growth but my SIPP still gained 4-5% growth.
I realise this is down to risk levels and choices of stocks/bonds etc, so no need to come after me on that basis!
I have no problem in admitting I posted my question with the intent of extracting my DB into my SIPP. I have come to realise I was probably cherry-picking a lot of the investing info I have read over the years, and realise I do need to read a lot more.
Thanks again everyone, top work!

Pat38493

scottwinner3 said:

Thanks all again for your comments and recommendations.
I have been 'pulled up' several times by my statement that my SIPP has earnt more interest in good years, I realise that this was clearly poor wording, and I should have said 'gained more growth'. Apologies for that.
Also, the figures I were comparing were from my annual DB statement whereby the 'fund' performance of the DB has been disclosed. For example, some years the DB Pension fund grew by 2%, but my SIPP grew 20%, also, more recently, The DB Pension fund was negative growth but my SIPP still gained 4-5% growth.
I realise this is down to risk levels and choices of stocks/bonds etc, so no need to come after me on that basis!
I have no problem in admitting I posted my question with the intent of extracting my DB into my SIPP. I have come to realise I was probably cherry-picking a lot of the investing info I have read over the years, and realise I do need to read a lot more.
Thanks again everyone, top work!

The fund performance of your DB pension scheme is irrelevant unless the scheme is so distressed that it might be forced into the pension protection fund.  Your DB benefits are guaranteed by the rules, so it does not matter what returns the money in the DB fund is making.  

For sure it's plausible that if you transferred away from the DB and invested the money, you would end up better off, but there is also probably a significant chance you will end up worse off and/or running out of money if you face bad market conditions in the early part of your retirement, and you have no way of knowing whether this will happen or not.

Hoenir

scottwinner3 said:

For example, some years the DB Pension fund grew by 2%, but my SIPP grew 20%, also, more recently, The DB Pension fund was negative growth but my SIPP still gained 4-5% growth.

A Defined Benefit Pension Scheme is ultimately funded by the Employer to provide the guaranteed benefits in accordance with the scheme rules to the employee. There is no pot of money as such that grows. Your growth % presumably relates to the fact that the DB pension will rise in line with a measurement related to inflation. There's no direct correlation between the rate of UK inflation and investment returns ( across numerous global markets). 

Dazed_and_C0nfused

scottwinner3 said:

Thanks all again for your comments and recommendations.
I have been 'pulled up' several times by my statement that my SIPP has earnt more interest in good years, I realise that this was clearly poor wording, and I should have said 'gained more growth'. Apologies for that.
Also, the figures I were comparing were from my annual DB statement whereby the 'fund' performance of the DB has been disclosed. For example, some years the DB Pension fund grew by 2%, but my SIPP grew 20%, also, more recently, The DB Pension fund was negative growth but my SIPP still gained 4-5% growth.
I realise this is down to risk levels and choices of stocks/bonds etc, so no need to come after me on that basis!
I have no problem in admitting I posted my question with the intent of extracting my DB into my SIPP. I have come to realise I was probably cherry-picking a lot of the investing info I have read over the years, and realise I do need to read a lot more.
Thanks again everyone, top work!

The fact that you are even looking at the performance of the underlying assets held by the DB scheme suggests you are still fundamentally misunderstanding what your DB pension really is.

It is more like deferred salary.  Where the money is invested is really not relevant to your pension.

You have accrued £X, usually based on lengthy of service and salary.  That will have some form of annual revaluation so over time it is intended to, to some degree, keep up with inflation.

Aretnap

Pat38493 said:

scottwinner3 said:

Thanks all again for your comments and recommendations.
I have been 'pulled up' several times by my statement that my SIPP has earnt more interest in good years, I realise that this was clearly poor wording, and I should have said 'gained more growth'. Apologies for that.
Also, the figures I were comparing were from my annual DB statement whereby the 'fund' performance of the DB has been disclosed. For example, some years the DB Pension fund grew by 2%, but my SIPP grew 20%, also, more recently, The DB Pension fund was negative growth but my SIPP still gained 4-5% growth.
I realise this is down to risk levels and choices of stocks/bonds etc, so no need to come after me on that basis!
I have no problem in admitting I posted my question with the intent of extracting my DB into my SIPP. I have come to realise I was probably cherry-picking a lot of the investing info I have read over the years, and realise I do need to read a lot more.
Thanks again everyone, top work!

The fund performance of your DB pension scheme is irrelevant unless the scheme is so distressed that it might be forced into the pension protection fund.  Your DB benefits are guaranteed by the rules, so it does not matter what returns the money in the DB fund is making.  

Also worth noting that the goals of the fund managers of a DB pension fund are completely different from the goals of an aggressive equity-based actively managed fund, or even the goals of a passive equity tracker fund. The DB pension fund isn't trying to make as much money as possible; it's trying to make ENOUGH money to pay the pensions that have been promised to its members, without taking more risk than is necessary to do that. So of course it's going to have a good percentage of its holdings in bonds and property, and it's not going to perform like an equity fund in either the short of the long term. If it did, the fund managers would be doing something wrong.

Marcon

Pat38493 said:

scottwinner3 said:

Thanks all again for your comments and recommendations.
I have been 'pulled up' several times by my statement that my SIPP has earnt more interest in good years, I realise that this was clearly poor wording, and I should have said 'gained more growth'. Apologies for that.
Also, the figures I were comparing were from my annual DB statement whereby the 'fund' performance of the DB has been disclosed. For example, some years the DB Pension fund grew by 2%, but my SIPP grew 20%, also, more recently, The DB Pension fund was negative growth but my SIPP still gained 4-5% growth.
I realise this is down to risk levels and choices of stocks/bonds etc, so no need to come after me on that basis!
I have no problem in admitting I posted my question with the intent of extracting my DB into my SIPP. I have come to realise I was probably cherry-picking a lot of the investing info I have read over the years, and realise I do need to read a lot more.
Thanks again everyone, top work!

The fund performance of your DB pension scheme is irrelevant unless the scheme is so distressed that it might be forced into the pension protection fund.  Your DB benefits are guaranteed by the rules, so it does not matter what returns the money in the DB fund is making.  

Just because a scheme is 'distressed' isn't going to make that happen; the employer would be required to put a 'recovery plan' in place to remedy matters. It would take an employer insolvency event for a scheme to be assessed for possible PPF admission. 

daveyjp

Aretnap said:

Pat38493 said:

scottwinner3 said:

Thanks all again for your comments and recommendations.
I have been 'pulled up' several times by my statement that my SIPP has earnt more interest in good years, I realise that this was clearly poor wording, and I should have said 'gained more growth'. Apologies for that.
Also, the figures I were comparing were from my annual DB statement whereby the 'fund' performance of the DB has been disclosed. For example, some years the DB Pension fund grew by 2%, but my SIPP grew 20%, also, more recently, The DB Pension fund was negative growth but my SIPP still gained 4-5% growth.
I realise this is down to risk levels and choices of stocks/bonds etc, so no need to come after me on that basis!
I have no problem in admitting I posted my question with the intent of extracting my DB into my SIPP. I have come to realise I was probably cherry-picking a lot of the investing info I have read over the years, and realise I do need to read a lot more.
Thanks again everyone, top work!

The fund performance of your DB pension scheme is irrelevant unless the scheme is so distressed that it might be forced into the pension protection fund.  Your DB benefits are guaranteed by the rules, so it does not matter what returns the money in the DB fund is making.  

Also worth noting that the goals of the fund managers of a DB pension fund are completely different from the goals of an aggressive equity-based actively managed fund, or even the goals of a passive equity tracker fund. The DB pension fund isn't trying to make as much money as possible; it's trying to make ENOUGH money to pay the pensions that have been promised to its members, without taking more risk than is necessary to do that. So of course it's going to have a good percentage of its holdings in bonds and property, and it's not going to perform like an equity fund in either the short of the long term. If it did, the fund managers would be doing something wrong.

Agree.  DB pension managers have to ensure they have funds to meet payout obligations over the next 20 years, but also have to consider they will have new members who may not be retiring for another 40 years.  As long as income is more than future expenditure all is good, 4-5% return could be more than acceptable to meet their principle obligation.