Financial Advice for Cashing in a DB Pension

Blumonday

We are planning ahead to retire and ideally would like to cash in two small defined benefit pension pots. One currently has a cash in value of £35k and the other £55k. We are fortunate to have two remaining defined benefit pension pots elsewhere that will be our future security, so would like to use these smaller pots so we can delay drawing on our main pensions for a few years. The problem is that because both pots are over £30k we will need an independent advisor to approve the cash in. I am told that IFA's charge a percentage (often 1 to 3%) on your overall pension pots. Assuming that they will include our larger DB pensions then this will wipe out a chunk of what we are looking to cash in. Do they all work like this and is there any way around it? Is there any way for them to just look at the pots we want to cash in - I assume not as they will need assurance that we have other income to rely on? We are both qualified accountants but I assume that won't count for anything or provide any alternative approach? Thanks for any advice!

Dazed_and_C0nfused

Blumonday said:

We are planning ahead to retire and ideally would like to cash in two small defined benefit pension pots. One currently has a cash in value of £35k and the other £55k. We are fortunate to have two remaining defined benefit pension pots elsewhere that will be our future security, so would like to use these smaller pots so we can delay drawing on our main pensions for a few years. The problem is that because both pots are over £30k we will need an independent advisor to approve the cash in. I am told that IFA's charge a percentage (often 1 to 3%) on your overall pension pots. Assuming that they will include our larger DB pensions then this will wipe out a chunk of what we are looking to cash in. Do they all work like this and is there any way around it? Is there any way for them to just look at the pots we want to cash in - I assume not as they will need assurance that we have other income to rely on? We are both qualified accountants but I assume that won't count for anything or provide any alternative approach? Thanks for any advice!

As these are DB pensions there are no "pots" for you to cash in.

The pension schemes may offer you a one off payment to avoid having to pay you the annual pension you are entitled to but why do you think that is a good choice from financial perspective?

If you search for "DB transfers" you will lots of similar threads covering the exact same ground.

Marcon

Blumonday said:

We are planning ahead to retire and ideally would like to cash in two small defined benefit pension pots. One currently has a cash in value of £35k and the other £55k. We are fortunate to have two remaining defined benefit pension pots elsewhere that will be our future security, so would like to use these smaller pots so we can delay drawing on our main pensions for a few years. The problem is that because both pots are over £30k we will need an independent advisor to approve the cash in. I am told that IFA's charge a percentage (often 1 to 3%) on your overall pension pots. Assuming that they will include our larger DB pensions then this will wipe out a chunk of what we are looking to cash in. Do they all work like this and is there any way around it? Is there any way for them to just look at the pots we want to cash in - I assume not as they will need assurance that we have other income to rely on? 

A prime example of why you shouldn't believe all you're told...!

Expect to pay upwards of £5K for each DB scheme for which you are seeking advice - which is obviously a hefty nibble out of each of them, and a very high proportion of the smaller one.

You won't be able to cash them in directly, but will first have to transfer them to a pension provider which will accept the transfer. If your adviser recommends that you do so, fine - but unlikely. Stakeholder pensions are the only type of pension which must accept a transfer from any UK registered pension scheme, but you'll still need to have received advice before the ceding scheme can pay over the transfer.

Blumonday said:

We are both qualified accountants but I assume that won't count for anything or provide any alternative approach? 

I'm afraid you are right on that score. The adviser is still hidebound by FCA restrictions.

Blumonday

Taking our main pension pots early has a 9% penalty each year which will lose us more income than cashing in these plans and living off them for a few years. We've modelled it all out - like I say we are both qualified accountants - and believe it is the best option for our current plans. I will have a search on DB transfers thanks.

Marcon

Blumonday said:

Taking our main pension pots early has a 9% penalty each year which will lose us more income than cashing in these plans and living off them for a few years. We've modelled it all out - like I say we are both qualified accountants - and believe it is the best option for our current plans. I will have a search on DB transfers thanks.

9% each year is exceptionally high. Is that actually enshrined in the Trust Deed & Rules? If not, I'd be writing to the trustees and asking them when they last reviewed their early retirement factors and how such a big reduction can still offer members fair value.  

Dazed_and_C0nfused

Blumonday said:

Taking our main pension pots early has a 9% penalty each year which will lose us more income than cashing in these plans and living off them for a few years. We've modelled it all out - like I say we are both qualified accountants - and believe it is the best option for our current plans. I will have a search on DB transfers thanks.

DB schemes rarely have any penalty for taking the pension before normal pension age so it's worth double checking that.

They will usually have a reduction for taking it early, simply because you are asking for it to be paid for a longer period.  But there usually isn't a penalty.

Marcon

Dazed_and_C0nfused said:

Blumonday said:

Taking our main pension pots early has a 9% penalty each year which will lose us more income than cashing in these plans and living off them for a few years. We've modelled it all out - like I say we are both qualified accountants - and believe it is the best option for our current plans. I will have a search on DB transfers thanks.

DB schemes rarely have any penalty for taking the pension before normal pension age so it's worth double checking that.

They will usually have a reduction for taking it early, simply because you are asking for it to be paid for a longer period.  But there usually isn't a penalty.

Sounds like semantics - people often use the word 'penalty' because that's how it feels to them. The fact they are getting their money sooner than expected, and for longer, still doesn't always feel 'quite right'.

Blumonday

Marcon said:

Blumonday said:

Taking our main pension pots early has a 9% penalty each year which will lose us more income than cashing in these plans and living off them for a few years. We've modelled it all out - like I say we are both qualified accountants - and believe it is the best option for our current plans. I will have a search on DB transfers thanks.

9% each year is exceptionally high. Is that actually enshrined in the Trust Deed & Rules? If not, I'd be writing to the trustees and asking them when they last reviewed their early retirement factors and how such a big reduction can still offer members fair value.  

That's over two pension schemes - one is 4% penalty and one 5%.

Dazed_and_C0nfused

Blumonday said:

Marcon said:

Blumonday said:

Taking our main pension pots early has a 9% penalty each year which will lose us more income than cashing in these plans and living off them for a few years. We've modelled it all out - like I say we are both qualified accountants - and believe it is the best option for our current plans. I will have a search on DB transfers thanks.

9% each year is exceptionally high. Is that actually enshrined in the Trust Deed & Rules? If not, I'd be writing to the trustees and asking them when they last reviewed their early retirement factors and how such a big reduction can still offer members fair value.  

That's over two pension schemes - one is 4% penalty and one 5%.

So not 9% by any stretch of the imagination.

TheSpectator

So what are these tansfer valuesof £35k and £55k paying out as an actual pension. Do they come with a lump sum?

Blumonday

Dazed_and_C0nfused said:

Blumonday said:

Taking our main pension pots early has a 9% penalty each year which will lose us more income than cashing in these plans and living off them for a few years. We've modelled it all out - like I say we are both qualified accountants - and believe it is the best option for our current plans. I will have a search on DB transfers thanks.

DB schemes rarely have any penalty for taking the pension before normal pension age so it's worth double checking that.

They will usually have a reduction for taking it early, simply because you are asking for it to be paid for a longer period.  But there usually isn't a penalty.

It's just my terminology - I am referring to the reduction in benefits by taking the pension earlier than the set age.