"Cashing in" a defined benefit pension

Hantrail

Good evening all,

I currently have a defined benefit pension from a job I had with my local water company from over 20 years ago.

My pension pot is estimated to be worth around £50K, according to the scheme administrator - I haven't obtained an official transfer value yet though.

I've been offered an annual pension of £2,600 (with no lump sum) from age 55, or a lump sum of £11,000 with annual pension of £1,700 from age 55.

I'm due to turn 55 in the next couple of months and would ideally like to "cash in" the entire value of my pension - I haven't got a copy of my pension scheme rules but I'm pretty sure I can't just cash the lot in under current scheme rules.

What would be the best way of achieving my goal to cash the lot in?

Would it be best to transfer my current DB pension into a suitable DC pension (which would be chosen to allow me to cash the lot in ASAP)?

Any general guidance would be greatly appreciated, thank you.

El_Torro

Since your DB pension is worth more than £30k you will need advice from a Financial Advisor to move it to a DC pot. This advice usually costs at least £4k and the findings will probably be that you shouldn't transfer it to a DC pot. Most DB pension schemes won't do the transfer unless you get advice saying that it is a good idea. 

So you're probably out of luck. Or in luck perhaps, because cashing it in is likely to be a bad idea.

Aylesbury_Duck

What's the reason for wanting to cash it all in?  Is there a serious health concern?  That might provide options. Otherwise it's almost certainly a bad idea.

Marcon

El_Torro said:

Since your DB pension is worth more than £30k you will need advice from a Financial Advisor to move it to a DC pot. This advice usually costs at least £4k and the findings will probably be that you shouldn't transfer it to a DC pot. Most DB pension schemes won't do the transfer unless you get advice saying that it is a good idea. 

If the member has a right to a transfer and has demonstrated that they have received advice from a regulated adviser, it isn't normally open to the DB scheme to refuse to do the transfer unless eg they have reason to believe it is to a scam scheme or similar. They only need confirmation (a Section 48 certificate signed by the adviser) that the member has received advice - and won't need or want to see what that advice is.

The problem is whether the receiving scheme will accept the transfer once that advice has been obtained - and currently a stakeholder pension is the only type which will accept a transfer when the advice is to stay put, simply because stakeholders have to accept a transfer from any UK registered pension scheme. 

Hantrail

El_Torro said:

Since your DB pension is worth more than £30k you will need advice from a Financial Advisor to move it to a DC pot. This advice usually costs at least £4k and the findings will probably be that you shouldn't transfer it to a DC pot. Most DB pension schemes won't do the transfer unless you get advice saying that it is a good idea. 

So you're probably out of luck. Or in luck perhaps, because cashing it in is likely to be a bad idea.

Wow that's an eye watering fee for a relatively modest pension pot. I didn't know that my scheme administrators might be able to refuse a transfer, if advised not to do it by a financial advisor.

DRS1

Forget "cashing it in"

Marcon

Hantrail said:

El_Torro said:

Since your DB pension is worth more than £30k you will need advice from a Financial Advisor to move it to a DC pot. This advice usually costs at least £4k and the findings will probably be that you shouldn't transfer it to a DC pot. Most DB pension schemes won't do the transfer unless you get advice saying that it is a good idea. 

So you're probably out of luck. Or in luck perhaps, because cashing it in is likely to be a bad idea.

Wow that's an eye watering fee for a relatively modest pension pot. I didn't know that my scheme administrators might be able to refuse a transfer, if advised not to do it by a financial advisor.

They can't. See my post above.

The fee reflects the fact that giving advice on DB pension transfers is hugely high risk for the adviser.

Hantrail

Aylesbury_Duck said:

What's the reason for wanting to cash it all in?  Is there a serious health concern?  That might provide options. Otherwise it's almost certainly a bad idea.

No health concerns at the moment, I want to cash in in mainly because of how inflexible it is and if anything happens to me before I start drawing my pension/after I start drawing my pension then my beneficiaries won't get anywhere near the full value of my pension pot.

Hantrail

Hantrail said:

El_Torro said:

Since your DB pension is worth more than £30k you will need advice from a Financial Advisor to move it to a DC pot. This advice usually costs at least £4k and the findings will probably be that you shouldn't transfer it to a DC pot. Most DB pension schemes won't do the transfer unless you get advice saying that it is a good idea. 

So you're probably out of luck. Or in luck perhaps, because cashing it in is likely to be a bad idea.

Wow that's an eye watering fee for a relatively modest pension pot. I didn't know that my scheme administrators might be able to refuse a transfer, if advised not to do it by a financial advisor.

I meant to add that I thought that I just had to get the advice, rather than take it, before a transfer would be allowed.

xylophone

The commutation factor is poor at  approx 12:1.


See this thread

https://forums.moneysavingexpert.com/discussion/6449917/cash-out-of-db-pension/p1

DRS1

Hantrail said:

Aylesbury_Duck said:

What's the reason for wanting to cash it all in?  Is there a serious health concern?  That might provide options. Otherwise it's almost certainly a bad idea.

No health concerns at the moment, I want to cash in in mainly because of how inflexible it is and if anything happens to me before I start drawing my pension/after I start drawing my pension then my beneficiaries won't get anywhere near the full value of my pension pot.

It is not meant to be flexible; it is meant to provide you with an income for life.

Even if the pension does not increase in payment (have you checked that?) it will have paid you more than the "pot" in 20 years.  You are probably going to live longer than that.

If you die there will probably be a pension for your spouse (have you checked that?) for the rest of their life.  What is that worth?

Many of us with only DC pensions wonder why people with DB pensions are keen to swap them for DC ones.