Transfer of DB pension to SIPP - no brainer?

older_and_no_wiser

My partner (age 57) has a DB pension scheme from an old employer which looks like a no brainer for her to transfer into a DC SIPP. Am I right with my thoughts below? 

The pension benefits at date of leaving in 1997 is £2,400 a year - not index linked as far as we know. My partner thinks this will still be the annual pension she will get age 60.

The guaranteed transfer value as at March 2024 was £134,000.

This sounds like it makes more sense to transfer the guaranteed amount into a SIPP. Maybe the annual benefit of £2,400 is not up to date? I'll ask her to get an up to date quote on this. 

However, if she's getting £2,400 for, say, 30 years, then that's only approx £70k....much less than the transfer value. Of course there may be enhanced benefits of keeping the DB pension that she's not aware of. 

Middle_of_the_Road

 It's not normally recommended to give up a DB pension, and can be a complicated process. 

You will get more advice on the pension board.
https://forums.moneysavingexpert.com/categories/pensions-annuities-retirement-planning

https://www.moneyhelper.org.uk/en/pensions-and-retirement/building-your-retirement-pot/transferring-your-defined-benefit-pension#:~:text=Some schemes will let you,to start taking your pension.

Ayr_Rage

DB schemes do have transfers values.

You need to contact the scheme and get an updated prediction of the pension payable at the the scheme's normal retirement date, that should have received some increase over time.

You can also request a new CETV, which will have changed for certain.

One of the experts will be along but I believe that an IFA may need to be consulted if the CETV is above a certain level.

flaneurs_lobster

DB pensions can have a Cash Equivalent Transfer Value (CETV), is that what the OP's partner has received?

Seems odd that this was obtained but not a value for the annual pension if taken now, together with any tax free amount?

HappyHarry

It is very unlikely that the pension at date of leaving has not been increased. It is also very unlikely that in today’s climate a CETV of £134000 is being offered for a level pension of £2400pa.

You will need the advice of an authorised Pension Transfer Specialist in order to transfer this pension.
Before you look to employ one,  you should establish what the amount of pension being given up actually is.

Hoenir

The pension benefits at date of leaving in 1997 is £2,400 a year - not index linked as far as we know. 

Pointless speculating without first reading the Pension Scheme Rules. 

The numbers you've quoted suggest otherwise. The CETV being the amount required to purchase equivalent benefits on the open market. The pension scheme isn't going to hand out money willy nilly. 

phlebas192

An annual pension of £2.4k would have a current transfer value of less than £50k so it is very likely that the pension has been increased with at least an element of inflation indexing. Your partner really needs to find out both what her current pension projection is and today's transfer value (the former could be significantly higher, the latter could have reduced).

Since the transfer value will be more than £30k, she will need to pay for independent advice before she can transfer it to a SIPP. This is a legal requirement and will likely cost a few thousand pounds. The most likely outcome is that this advice will be that she should not transfer the pension. If she is insistent on making the transfer then it is still possible although not straightforward - there are various threads on the  https://forums.moneysavingexpert.com/categories/pensions-annuities-retirement-planning board which detail the steps she will need to take.

Bottom line is that there is a very good reason why DB pensions are talked about as "gold plated". There are exceptions, but for the vast majority of people they are a "very good thing".

Dazed_and_C0nfused

older_and_no_wiser said:

My partner (age 57) has a DB pension scheme from an old employer which looks like a no brainer for her to transfer into a DC SIPP. Am I right with my thoughts below? 

The pension benefits at date of leaving in 1997 is £2,400 a year - not index linked as far as we know. My partner thinks this will still be the annual pension she will get age 60.

The guaranteed transfer value as at March 2024 was £134,000.

This sounds like it makes more sense to transfer the guaranteed amount into a SIPP. Maybe the annual benefit of £2,400 is not up to date? I'll ask her to get an up to date quote on this. 

However, if she's getting £2,400 for, say, 30 years, then that's only approx £70k....much less than the transfer value. Of course there may be enhanced benefits of keeping the DB pension that she's not aware of. 

There is absolutely no point in giving this any further consideration until you have obtained details of the current value of the pension i.e. the £2,400 accrued by 1997 could well be a pension of double that by now.

You also need to check if there is a standard (tax free) Pension Commencement Lump Sum (PCLS) that will be paid alongside the pension.  Not all DB schemes have this but plenty do.

And then you need an upto date CETV.  Don't be surprised if the £134k has dropped to well below £100k now.

And finally the costs are likely to to mid four figures to go through the process of being able to transfer to a DC pension.

Keep_pedalling

It is unlikely that there is zero form of indexing your partner should check out the scheme rules. It is also likely that the transfer value today is far lower than it was.

dunstonh

My partner (age 57) has a DB pension scheme from an old employer which looks like a no brainer for her to transfer into a DC SIPP.

Before we start, you need to consider the following:
1 - only around 1 in 10 people with a DB pension are suitable for transferring
2 - CETVs are about 60% lower than their peak in 2021.

The pension benefits at date of leaving in 1997 is £2,400 a year - not index linked as far as we know. My partner thinks this will still be the annual pension she will get age 60.

The indexation position would need to be known.  Given the CETV, its likely that some indexation is taking place.

it is commonplace not to be updated each year with the indexation if you are no longer an active member of the scheme.  However, it will be going on behind the scenes and available upon request or up to the lead in to taking benefits.

The guaranteed transfer value as at March 2024 was £134,000.

It won't be that now.  CETVs have continued to fall since then.

xylophone

The pension benefits at date of leaving in 1997 is £2,400 a year 

Does she have a statement of deferred benefits on leaving service?

If so, what is shown re GMP/excess?

Does she have a scheme booklet?

What does it have to say about how GMP/excess revalue in deferment?

What is normal scheme pension age?

Is there an automatic tax free lump sum offered when the pension comes into payment?

Otherwise, what is the commutation factor?

How does the pension (GMP/excess) escalate in payment?

With regard to transfer out, in view of the value of the safeguarded benefits see

https://assets.publishing.service.gov.uk/media/5a80b577ed915d74e33fbf54/pension-benefits-with-a-guarantee-factsheet-jan-2016.pdf

The advice of a Pension Transfer Specialist (think four figures) would be required.