Last minute indecision about taking defined benefits pension

Carefulspender1

I retire in July and apart from my state pension, all I will have as income is a very small amount from a defined benefit pension scheme that I had with an employer many years ago. My initial decision was to take a monthly income of £160 plus the 25% tax free lump sum of £15k up front and I've put that request in motion with their pension administration company. However I'm starting to think I've made the wrong decision and should have instead transferred the full value of around £65000 to a Hargreaves Lansdown cash account.

The reason for my thinking is that my partner retires in 5 years time and will then have the state pension as well. When that happens we will be far better off than we have been for the past few years and be able to live a reasonable life - no luxuries but then we never have had any! All I need is to subsidise my income for the next 5 years until they retire, at which point I would then only draw down uncrystalised lump sums as needed for household repairs etc. I've worked out that I would still have a considerable amount of the transfer value left as an emergency fund to do this in the HL account.

I did take some unofficial advice from an IFA friend of the family last year who as I would expect said it always pays to keep a DB pension in the original scheme but in my situation I'm starting to think having access to lump sums would be better for me. I've already signed a form with the pensions administrator but as I haven't been paid anything yet I'm assuming I can stop the process and change my mind. 

A friend who took an annuity from a work pension now regrets it deeply and wishes they had taken a lump sum so this has added to my indecision. Another factor is that I do have COPD and so don't expect to live into my 90's let alone all the other health issues that can happen as we age.

Can anyone here give me some advice regarding what I am proposing? Is this last minute change a foolish course of action or is it something people are doing nowadays in these more challenging financial times? Any advice or thoughts would be much appreciated. Many thanks.

Sarahspangles

The main issue is that transferring a defined benefit pension into a personal pension or SIPP requires you to have received financial advice, you would need to budget at least £2k-3k for that.

If you do think your life expectancy is short, it’s worth looking at the DB’s benefits for your partner if he/she loses you. Many DB pensions pay grants and spouse pensions.

Remember you can pay £2,880 into a personal pension/SIPP even if you have no income and receive a tax relief top up of £720. It’s a way of boosting return on savings. If you draw it down in a year you’re not receiving enough income to use your personal allowance, you can draw it tax free.

p00hsticks

Are you sure that that transfer is still an option ? As you are within  a year of the normal retirement age, I don't think the pension scheme is obligated to permit a transfer out. 

Also when did you get that £65k value ? 
If it was a while ago it may have dropped significantly since then. 

If it hasn't dropped to below £30k then you will need to pay for financial advice before attempting a transfer, which will cost many £1000's, and unless they advise the transfer you wont be able to transfer directly to your HL account - there have been multiple threads regarding transferring out of a DB pension on this board. 

cfw1994

It *feels* to me like your original decision is probably the right one.  DB schemes usually rise well with inflation (maybe check).

Also….having signed things, it *might* well be too late to stop the wheels of the pension company from grinding through 🤷‍♂️

FYI, my MIL had COPD from the early 1970s….& only passed away a couple of years ago, in her mid-80s….take it easy, & good luck 👍

Carefulspender1

Sarahspangles said:

The main issue is that transferring a defined benefit pension into a personal pension or SIPP requires you to have received financial advice, you would need to budget at least £2k-3k for that.

If you do think your life expectancy is short, it’s worth looking at the DB’s benefits for your partner if he/she loses you. Many DB pensions pay grants and spouse pensions.

Remember you can pay £2,880 into a personal pension/SIPP even if you have no income and receive a tax relief top up of £720. It’s a way of boosting return on savings. If you draw it down in a year you’re not receiving enough income to use your personal allowance, you can draw it tax free.

Thanks Sarah - there is an even smaller monthly payment to my partner but that's all. With regards to your final paragraph, I'm sorry but I don't understand. Do you mean that I use some of the lump sum from the DB pension to contribute to a SIPP and then draw it down again a year later?

Carefulspender1

p00hsticks said:

Are you sure that that transfer is still an option ? As you are within  a year of the normal retirement age, I don't think the pension scheme is obligated to permit a transfer out. 

Also when did you get that £65k value ? 
If it was a while ago it may have dropped significantly since then. 

If it hasn't dropped to below £30k then you will need to pay for financial advice before attempting a transfer, which will cost many £1000's, and unless they advise the transfer you wont be able to transfer directly to your HL account - there have been multiple threads regarding transferring out of a DB pension on this board. 

Thank you for your reply p00hsticks. I'd have to check with the scheme managers re transferring the pension out now - I actually got the transfer value quote in July 2022 so do you think it will have dropped significantly in that time? Also I have started to go through the other threads but haven't found anything about not being able to transfer to my HL account - if I'm not allowed to do that what do I have to do? Thank you for taking the time to look at this. I find it all really confusing.

Carefulspender1

cfw1994 said:

It *feels* to me like your original decision is probably the right one.  DB schemes usually rise well with inflation (maybe check).

Also….having signed things, it *might* well be too late to stop the wheels of the pension company from grinding through 🤷‍♂️

FYI, my MIL had COPD from the early 1970s….& only passed away a couple of years ago, in her mid-80s….take it easy, & good luck 👍

Thank you for your thoughtful comment cfw1994, it's really appreciated.  I think I might be having a last minute wobble of indecision because of what a couple of people have said to me. I know that once the money goes through I can't change it so I thought I better just get some sort of affirmation or otherwise on what I'm doing.

The monthly payments go up by 3% a year as it stands, so just under inflation...maybe it would be a good idea to find out if I can change things now as I'll be worrying unnecessarily if I can't change my decision anyway.🙄

It sounds like your MIL looked after herself well - I hope I can do the same! 😊

Marcon

Carefulspender1 said:

cfw1994 said:

It *feels* to me like your original decision is probably the right one.  DB schemes usually rise well with inflation (maybe check).

Also….having signed things, it *might* well be too late to stop the wheels of the pension company from grinding through 🤷‍♂️

FYI, my MIL had COPD from the early 1970s….& only passed away a couple of years ago, in her mid-80s….take it easy, & good luck 👍

Thank you for your thoughtful comment cfw1994, it's really appreciated.  I think I might be having a last minute wobble of indecision because of what a couple of people have said to me. I know that once the money goes through I can't change it so I thought I better just get some sort of affirmation or otherwise on what I'm doing.

The monthly payments go up by 3% a year as it stands, so just under inflation...maybe it would be a good idea to find out if I can change things now as I'll be worrying unnecessarily if I can't change my decision anyway.🙄

It sounds like your MIL looked after herself well - I hope I can do the same! 😊

Those famous '....a couple of people...' - we all have 'friends' like that, and although frequently well meaning, they are equally frequently hopelessly ill informed, or just banging on about their own preferences.

Find out the facts:

1. can you stop your pension coming into payment next month
2. are you entitled to a CETV (Cash Equivalent Transfer Value) if you are very close to your scheme's Normal Retirement Age
3. if 'yes' to both the above, can you manage without any income from this scheme for some months to come? If you cancel the current application for payment, you are likely to go back to the bottom of the queue...and if you decide to try and seek advice about transferring, it could be early next year before you've worked through that process.

p00hsticks

Carefulspender1 said:

p00hsticks said:

Are you sure that that transfer is still an option ? As you are within  a year of the normal retirement age, I don't think the pension scheme is obligated to permit a transfer out. 

Also when did you get that £65k value ? 
If it was a while ago it may have dropped significantly since then. 

If it hasn't dropped to below £30k then you will need to pay for financial advice before attempting a transfer, which will cost many £1000's, and unless they advise the transfer you wont be able to transfer directly to your HL account - there have been multiple threads regarding transferring out of a DB pension on this board. 

Thank you for your reply p00hsticks. I'd have to check with the scheme managers re transferring the pension out now - I actually got the transfer value quote in July 2022 so do you think it will have dropped significantly in that time? Also I have started to go through the other threads but haven't found anything about not being able to transfer to my HL account - if I'm not allowed to do that what do I have to do? Thank you for taking the time to look at this. I find it all really confusing.

Yes, the CETV (Cash Equivalent Transfer Value) is likely to have dropped significantly since 2022.

If it is still over £30k then legislation forces you to seek advice from a Financial Adviser before transferring - many are now reluctant to take on this sort of business as it is a risky area and they will charge several thousands for it.

If their advice is that it is better for you NOT to transfer out, then the vast majority of pension schemes will not accept a transfer in against such advice. You can become an 'insistent client' and demand a transfer out, but I believe there is only one type of pension that you can set up that is legally obligated to accept a transfer in against advice. 

molerat

Carefulspender1 said:

 With regards to your final paragraph, I'm sorry but I don't understand. Do you mean that I use some of the lump sum from the DB pension to contribute to a SIPP and then draw it down again a year later?

Yes.  A well known wheeze.  Pay £2880 into a SIPP.  The taxman adds £720 to that and you withdraw £3600, £900 tax free and £2700 taxable.  As a basic rate taxpayer you end up with £3060 in your bank account so £180 up on the deal, way better than a savings account.  Even better if a non tax payer. Rinse and repeat every year until you are 75, the first year involves a bit of admin but from then on takes no more than around half an hour.

Marcon

Carefulspender1 said:

Also I have started to go through the other threads but haven't found anything about not being able to transfer to my HL account - if I'm not allowed to do that what do I have to do? Thank you for taking the time to look at this. I find it all really confusing.

Just about every other thread on this topic warns that the only scheme which will accept a transfer without a positive recommendation from the adviser is a stakeholder pension (it has to, although you'd still need to have received advice where your CETV is £30K+) - and your HL account isn't a stakeholder pension.