"Cashing in" a defined benefit pension

LHW99

Marcon said:

eskbanker said:

Datchet said:

Hi, I have just been through the exact same loop and my lovely new IFA stated NEVER cash in or transfer a DB pot. He said the same thing as many here; the DC managers wont do it without a full analysis and the analysis always says ‘ don’t move it!’

Generalisation alert - that assessment may have been appropriate for you, and chances are it'll fit most people, but it certainly doesn't apply to all people....

My sentiments entirely. Any adviser who works on the basis that a particular course of action is right (or wrong) for everyone, regardless of their circumstances, is to be avoided. This adviser sounds pretty hopeless - the analysis does not 'always say don't move it'. If it's in the member's interests to transfer, that's what the answer will be.

Wonder if this adviser actually hold permissions from the FCA to advise on such transfers? One can only hope not.

Or was this in the paid-for advice report, or in the "getting to know you" meeting?

Marcon

LHW99 said:

Marcon said:

eskbanker said:

Datchet said:

Hi, I have just been through the exact same loop and my lovely new IFA stated NEVER cash in or transfer a DB pot. He said the same thing as many here; the DC managers wont do it without a full analysis and the analysis always says ‘ don’t move it!’

Generalisation alert - that assessment may have been appropriate for you, and chances are it'll fit most people, but it certainly doesn't apply to all people....

My sentiments entirely. Any adviser who works on the basis that a particular course of action is right (or wrong) for everyone, regardless of their circumstances, is to be avoided. This adviser sounds pretty hopeless - the analysis does not 'always say don't move it'. If it's in the member's interests to transfer, that's what the answer will be.

Wonder if this adviser actually hold permissions from the FCA to advise on such transfers? One can only hope not.

Or was this in the paid-for advice report, or in the "getting to know you" meeting?

Doesn't matter. It's wrong regardless.

Hantrail

Hello all, thank you for all the replies and advice so far.

I've obtained an official transfer value from my current pension scheme (£52k) and have also received some information on death benefits as follows:

Death benefits after retirement

Is the pension guaranteed for a minimum length of time? Yes – 5 years

Is a lump sum payable? If death occurs within 5 years of retirement a Defined Benefit Lump Sum Death Benefit is paid (subject to legislative conditions being met). The amount payable is the undiscounted value of pension payments remaining over the 5 year period.

Is a spouse’s pension payable? An eligible spouse is entitled to half of the member’s pension in force at the date of death.

Death benefits before retirement

Are member contributions returned? If no spouse or children, a refund of contributions, with interest, is payable at Trustee discretion

Are AVCs or other DC funds returned? Yes

Is an additional lump sum payable? For certain sections where cash is granted on top of pension, this cash sum would be payable

Is a spouse’s pension payable? Yes - 50% of member’s pension revalued to the date of death

General notes on death benefits

a) Additional children's benefits may be payable.

b) The spouse’s pension is payable to a legal spouse or civil partner at date of death

c) If there is no spouse the pension may be payable to a nominated dependant at the Trustees' discretion.

As I don't have a spouse or any dependent children, a lot of these "benefits" are irrelevant to me. I have named my adult children as my nominated beneficiaries, but phrases like "may be payable" and "Trustees' discretion" fill me with horror, as I want to be 100% in control of 100% of my pension. I'm totally happy to give up the potential long term guaranteed benefits of my DB pension in order to achieve this control.

Hantrail

snowlaser said:

Something that seems to be missing in this discussion is - what money are you planning to live off in retirement: do you have lots of other pensions or other income?  If so then I can understand the thoughts behind wanting this pot to be more of an inheritance idea.  But if not, why are you are so concerned about what happens if you die young / about passing money on - what about how you will fund your own expenditure?

I'm planning to live off the income from other investments - and if this was, say, a £20K a year DB pension then I'd certainly be wary of giving up quite a decent guaranteed annual income, but as it's only a relatively modest amount I'd be giving up it's not going to make a great deal of difference in the grand scheme of things. I'm happy to sacrifice that modest guaranteed annual pension to get the greater control and flexibility I'd get with a DC pension.

bjorn_toby_wilde

Hantrail said:

snowlaser said:

Something that seems to be missing in this discussion is - what money are you planning to live off in retirement: do you have lots of other pensions or other income?  If so then I can understand the thoughts behind wanting this pot to be more of an inheritance idea.  But if not, why are you are so concerned about what happens if you die young / about passing money on - what about how you will fund your own expenditure?

I'm planning to live off the income from other investments - and if this was, say, a £20K a year DB pension then I'd certainly be wary of giving up quite a decent guaranteed annual income, but as it's only a relatively modest amount I'd be giving up it's not going to make a great deal of difference in the grand scheme of things. I'm happy to sacrifice that modest guaranteed annual pension to get the greater control and flexibility I'd get with a DC pension.

Another way to look at it might be that having that modest but guaranteed (and to some degree inflation linked) income gives you more flexibility to use your other investments as you want.

Viewing other similar threads it seems that once the idea of transferring out is seeded in someone’s thinking it’s remarkably hard to change course.  Sometimes it’s good to take a step back and look at your overall objectives for retirement.

Could this pension fit in with those objectives?

dunstonh

 I have named my adult children as my nominated beneficiaries, but phrases like "may be payable" and "Trustees' discretion" fill me with horror, as I want to be 100% in control of 100% of my pension. 

If an explicit nomination is in place, then the benefits become taxable.  If it is discretionary, then it is not taxable.

Your fears are your lack of understanding and not reasons sufficient to justify transfer.

 I'm totally happy to give up the potential long term guaranteed benefits of my DB pension in order to achieve this control.

You wouldn't be gaining that control as a personal pension would also be discretionary.   Although some providers will allow absolute nominations, but it is normally daft to do so.

I'm planning to live off the income from other investments 

In which case, taking the DB pension income would allow you to draw less on your existing investments resulting in a higher value on those.

Hantrail

bjorn_toby_wilde said:

Hantrail said:

snowlaser said:

Something that seems to be missing in this discussion is - what money are you planning to live off in retirement: do you have lots of other pensions or other income?  If so then I can understand the thoughts behind wanting this pot to be more of an inheritance idea.  But if not, why are you are so concerned about what happens if you die young / about passing money on - what about how you will fund your own expenditure?

I'm planning to live off the income from other investments - and if this was, say, a £20K a year DB pension then I'd certainly be wary of giving up quite a decent guaranteed annual income, but as it's only a relatively modest amount I'd be giving up it's not going to make a great deal of difference in the grand scheme of things. I'm happy to sacrifice that modest guaranteed annual pension to get the greater control and flexibility I'd get with a DC pension.

Another way to look at it might be that having that modest but guaranteed (and to some degree inflation linked) income gives you more flexibility to use your other investments as you want.

Viewing other similar threads it seems that once the idea of transferring out is seeded in someone’s thinking it’s remarkably hard to change course.  Sometimes it’s good to take a step back and look at your overall objectives for retirement.

Could this pension fit in with those objectives?

Appreciated - you are right though, although my knowledge of pensions has been expanded somewhat since starting this thread, and of course I've had to consider issues I hadn't even thought of before, my basic aim remains the same.

Hantrail

dunstonh said:

 I have named my adult children as my nominated beneficiaries, but phrases like "may be payable" and "Trustees' discretion" fill me with horror, as I want to be 100% in control of 100% of my pension. 

If an explicit nomination is in place, then the benefits become taxable.  If it is discretionary, then it is not taxable.

Your fears are your lack of understanding and not reasons sufficient to justify transfer.

 I'm totally happy to give up the potential long term guaranteed benefits of my DB pension in order to achieve this control.

You wouldn't be gaining that control as a personal pension would also be discretionary.   Although some providers will allow absolute nominations, but it is normally daft to do so.

I'm planning to live off the income from other investments 

In which case, taking the DB pension income would allow you to draw less on your existing investments resulting in a higher value on those.

I had no idea about the explicit/taxable - discretionary/non-taxable situation - so thank you for that.

cfw1994

Hantrail said:

dunstonh said:

 I have named my adult children as my nominated beneficiaries, but phrases like "may be payable" and "Trustees' discretion" fill me with horror, as I want to be 100% in control of 100% of my pension. 

If an explicit nomination is in place, then the benefits become taxable.  If it is discretionary, then it is not taxable.

Your fears are your lack of understanding and not reasons sufficient to justify transfer.

 I'm totally happy to give up the potential long term guaranteed benefits of my DB pension in order to achieve this control.

You wouldn't be gaining that control as a personal pension would also be discretionary.   Although some providers will allow absolute nominations, but it is normally daft to do so.

I'm planning to live off the income from other investments 

In which case, taking the DB pension income would allow you to draw less on your existing investments resulting in a higher value on those.

I had no idea about the explicit/taxable - discretionary/non-taxable situation - so thank you for that.

Nor did I - thanks @dunstonh, every day is a school day 😂👍

I had understood that it gave them some discretion: for example, if an ‘unknown’ offspring came out of the woodwork with a valid claim, then they could apportion things contrary to the nomination/s  👀

Makes more sense now - it had always “worried” me that they could simply decide a scheme was underfunded and to chose not to pay up.  Hopefully that could never happen 🫣

artyboy

cfw1994 said:

Hantrail said:

dunstonh said:

 I have named my adult children as my nominated beneficiaries, but phrases like "may be payable" and "Trustees' discretion" fill me with horror, as I want to be 100% in control of 100% of my pension. 

If an explicit nomination is in place, then the benefits become taxable.  If it is discretionary, then it is not taxable.

Your fears are your lack of understanding and not reasons sufficient to justify transfer.

 I'm totally happy to give up the potential long term guaranteed benefits of my DB pension in order to achieve this control.

You wouldn't be gaining that control as a personal pension would also be discretionary.   Although some providers will allow absolute nominations, but it is normally daft to do so.

I'm planning to live off the income from other investments 

In which case, taking the DB pension income would allow you to draw less on your existing investments resulting in a higher value on those.

I had no idea about the explicit/taxable - discretionary/non-taxable situation - so thank you for that.

Nor did I - thanks @dunstonh, every day is a school day 😂👍

I had understood that it gave them some discretion: for example, if an ‘unknown’ offspring came out of the woodwork with a valid claim, then they could apportion things contrary to the nomination/s  👀

Makes more sense now - it had always “worried” me that they could simply decide a scheme was underfunded and to chose not to pay up.  Hopefully that could never happen 🫣

I would have thought that a pension trustee would have some level of fiduciary duty that they couldn't just decide to pay out to one of their mates down the pub rather than to the person listed on the expression of wishes. My take on this is that 'discretion' has always really been more of a tax technicality rather than something to actually worry about...

Yes, there are edge cases where a long divorced ex- is still listed on the expression of wish because the pension holder never thought to update it - and in that case, discretion can actually come in useful. But unless anyone knows of any other egregious cases of trustee skullduggery, it's not anything that will give me sleepless nights.

Although of course with the IHT changes on DC pots, the tax value of the discretionary arrangement is effectively eliminated, no?