"Cashing in" a defined benefit pension

Hantrail

DRS1 said:

Forget "cashing it in"

Maybe "cashing it in" was wishful thinking - but I'd certainly like to move it to a scheme with much more flexibility and one where I can dictate exactly what happens to my pension pot in the event of a change in circumstances or even death.

Marcon

Hantrail said:

DRS1 said:

Forget "cashing it in"

Maybe "cashing it in" was wishful thinking - but I'd certainly like to move it to a scheme with much more flexibility and one where I can dictate exactly what happens to my pension pot in the event of a change in circumstances or even death.

If you move it to a DC scheme then you can cash it in. The fact you can do something doesn't mean it's a good idea. 

I'm afraid that death at some point is a bit of a certainty...but if you have 30+ years in retirement, and a DB pension which will almost certainly increase in payment, you might be glad you didn't.

p00hsticks

Hantrail said:

DRS1 said:

Forget "cashing it in"

Maybe "cashing it in" was wishful thinking - but I'd certainly like to move it to a scheme with much more flexibility and one where I can dictate exactly what happens to my pension pot in the event of a change in circumstances or even death.

A bit pedantic, but it is NOT a 'pot'. It is a promise to pay you a certain amount of money for the rest of your life. The pension provider can quote  you a 'cash equivalent transfer value' (CETV), which represents how much the provider is prepared to pay you now to get rid of that obligation. That value can go up and down depending on a number of factors - CETV values are considerably less than they were a few years ago .

Marcon

xylophone said:

The commutation factor is poor at  approx 12:1.

Abysmal for someone aged 55, as they are giving up many more years of future pension than someone aged (say) 65.

Hantrail

DRS1 said:

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. 

I take all of your points - I'm going to have alook at my scheme rules in detail and will report back in due course.

Hantrail

xylophone said:

The commutation factor is poor at  approx 12:1.


See this thread

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

That thread was really useful, thank you.

Could you please explain what the commutation factor is?

Dazed_and_C0nfused

Hantrail said:

xylophone said:

The commutation factor is poor at  approx 12:1.


See this thread

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

That thread was really useful, thank you.

Could you please explain what the commutation factor is?

Think of it as the amount the scheme is willing to pay you off with to avoid paying you your pension for the next 40+ years.

You get £12 for every £1 of pension you agree to give up.  That £12 is normally exempt from tax but is a one off.  The £1 is taxable (tax depends on what other income you have) but will normally have some inflation protection and benefit paid until you die.  And sometimes after you die it will be paid to a surviving spouse.

JoeCrystal

A number you get in exchange for reducing your annual pension accordingly. Aka 12:1 means for every pound of the income you give up, you get 12 pounds. It might be worth it for you to Google such terms.

bjorn_toby_wilde

You’re giving up £900 a year for a lump sum of £11000.

£11,000 divided by 900 is approximately 12 and that’s the commutation factor - 12:1

That’s a poor commutation factor.  If it was around 20:1 or more you might think it was more worth taking.

Keep_pedalling

The normal pension age for the scheme is also likely to be 60 so you need to see how much your annual payments are being reduced by to take it early as that may also not be a good deal.