How valuable is my DB pension actually?

leosayer

https://forums.moneysavingexpert.com/discussion/comment/81909475#Comment_81909475

It depends how the statement is worded.

Most statements show the annual pension accrued until the statement date in today's money as you said.

Some statements also include projections if you keep contributing until your planned retirement age which may default to state pension age.

OldScientist

https://forums.moneysavingexpert.com/discussion/6657921/how-valuable-is-my-db-pension-actually

In order to estimate the value of the DB pension you need to know

1. Inflation protection (fully inflation protected DB pension is much more valuable than one with a 2.5% inflation cap).
2. Surviving spouse benefits (typically 50% - a DC pension effectively has 100% survivor benefits)
3. Whether the £15k per year you state above is the projected value (presumably nominal) at 65yo assuming you complete another 30 years service or the projected value if you cease service now. In other words, the assumptions made for the projection are important.

Regardless of the above, having a DC pension in addition to the DB pension will be useful in retirement since it allows ad-hoc or extra spending on top of the income floor provided by the DB pension and state pension and allows diversification away from UK plc.

Triumph13

The other missing part of the puzzle is that your DB scheme doesn't start paying out for decades. That £375 to £400k estimate is for a £15k pa payout starting tomorrow. If you assume that investments average 5% pa real return over the next 31 years, that means you'd only need £82 to £88k in a DC pension now to get you to that same point.

Of course there is no guarantee that investments will grow at 5% real, and having that certainty is very valuable, but it illustrates the fact that being an active member of a DB scheme is way more valuable (and expensive to the employer) for an older person than for a younger one.

ETA: Doh! Missed page 2 where Hugheskevi had already brought up the discount rate point.

GunJack

Surely there is a point being missed here...if you've got a DB, you've got a DB, end of story. Is there really any point in trying to work out the equivalent in a DC when (especially these days) you are in practical terms not going to be able to transfer out?

Even when it comes to possibly changing jobs, comparing employer's contributions to your current DB and the proposed DC is a bit of a pointless exercise, as in the DB it doesn't matter what the employer conts are, you get the pension as per the scheme rules.

Sometimes people try and overcomplicate things when there's really no need to....

NormalNorman

The older you get the more valuable the DB becomes as part of your later life income stream.

ussdave

https://forums.moneysavingexpert.com/discussion/comment/81910148#Comment_81910148

It can be a useful point of comparison though. For example, a friend of mine recently had a bit of a panic as she compared her DB amount to another person's fairly hefty DC pot. This was in part to her not understanding the difference between DC and DB and therefore assuming she was massively behind on her pension savings. Providing a very rough comparison of how much of a DC pot she would need to achieve similar results to her DB helped reassure her that she was actually on track for a very comfortable retirement with her combination of TPS and USS.

artyboy

https://forums.moneysavingexpert.com/discussion/comment/81908854#Comment_81908854

Very happy to have been the exception here then 😇

But it's with anecdotes like this, you can sort of understand the sledgehammer approach of requiring advice to transfer out DBs with any material value - in my case it was close to 30 years ago that I got my 'generous' buy out offer with no suggestion that it might not be in my best interests to accept…

Cobbler_tone

I think some people just struggle with the concept of ££££ and the relationship to pensions. If you said to some people "if you hand over £500,000 I will give you £20,000 for the rest of your life" they would think you were stealing from them….age dependant of course.

I think it is pointless to try and compare values of DB schemes and DC ones. If we get to a world where a transfer value will consistently buy a much better annuity than the DB pension it is offering, it might be worth discussing. Work on the premise that a DB is better and you won't go far wrong.