Should I Transfer My Final Salary Pension Fund?

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  • jamesd
    jamesd Posts: 26,103 Forumite
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    Malthusian wrote: »
    One case in ten is not "the normal situation". ... The "transferring out of a DB scheme is suitable one time in ten" figure is across all time periods.
    We aren't in all time periods, we're in now, when transfer values are around the highest they have ever been, making it an unusually good time to transfer. I don't ignore changes in transfer values and pretend they are as they were fifteen years ago, I use what is available now because now is when people are deciding. And at current typical transfer values there's likely to be significantly higher income available, also better matching when it's needed.

    But do you have an actual source for one in ten and the time periods it covers?
  • OldMusicGuy
    OldMusicGuy Posts: 1,758 Forumite
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    edited 20 June 2018 at 12:08PM
    I'm afraid I'm more with Malthusian than Jamesd on this. Many people looking to transfer out of DB pensions have no idea of Guyton-Klinger rules or the issues around managing a large DC pot through 30 years of retirement. I spent a long time discussing one such potential transfer with a friend who works for a company that is closing the DB scheme and moving everyone to a DC basis. He had the option to keep his DB benefits as is or transfer them to the new DC scheme. As he has been there a long time, his transfer value was in the hundreds of thousands of pounds.

    When I explained why, if I was in his position, I would keep the DB pension and save until retirement into a DC pot, he kept saying "but I can get 5% guaranteed on the transfer value". He had no conception of investing and managing a DC pot, he just assumed (like so many people that ask questions on here) that he could get 5% for no risk with some kind of investment product.

    Now according to Guyton-Klinger he might be ok but he had no real idea of what he would be letting himself in for. IMO few people have the knowledge and investment maturity to jump from the secure world of DB pensions to effective management of DC pensions. I just worry they are too tempted by the big £££ signs of potential transfer values.
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    I remember reading someone who said that almost all investors should take a middling course if they want to maximise returns. That's because people who hold few equities will get a poor return in the long term. People who hold lots of equities will panic in the face of a market crash, sell, lock in their losses, and thereby get a poor return in the long term.

    So, for DB transferrers the question is whether they are prepared to hold a middling portfolio indefinitely, rebalancing (say) once a year. Backing up this reasonable policy on the investment side they also need good sense on the expenditure side, as jamesd advocates. How many novice money managers are going to accomplish both of those feats? And accomplish them into their years of 'cognitive decline'?

    One argument that does terrify me is the "I want money to leave to the children" line. Excluding someone unmarried with poor health, it means that they've already taken their eyes off the ball.
    Free the dunston one next time too.
  • Prism
    Prism Posts: 3,803 Forumite
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    kidmugsy wrote: »
    One argument that does terrify me is the "I want money to leave to the children" line. Excluding someone unmarried with poor health, it means that they've already taken their eyes off the ball.

    Thats a pretty decent reason to transfer a DB pension to a SIPP though. Its certainly why my wife is considering moving one of her older ones. Of course we come first, but should there be something left then thats good too
  • MrStanners
    MrStanners Posts: 42 Forumite
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    It's been quoted earlier in this thread that the transfer value for the OP is 33 times the pension, and that it is very good.

    However the OP said that the 12281pa option was for Sept 2017 last year when he was 59, so his pension at 65 must be in the region of 17k i.e. 12281 is approx 70% of 17k. So the pension multiple for age 65 is 23.9'ish.

    Is that still viewed as good for the OP?

    I have an interest in the answer because my DB pension has a similar transfer value. I've used a modelling tool and financially I should be better of if I transfer out but I'm undecided. I've been thinking that if I transferred I wouldn't spend much of it because a) I would be worried about market crashes and b) I've been a saver all my life and it will be a tough habit to break.

    Another factor the OP should consider is inflation protection. In my case my DB pension has some protection but part of it has no guaranteed increases at all, so mine will decrease in value in real terms.

    Finally, the OP talks about transferring their pension into a pension fund or annuity. I don't think it's necessarily one or the other, or are annuities still very bad?. Why not have both where the annuity with state pension provides a basic guaranteed income, and part of the DB pension fund e.g. the 25% tax free, is invested.
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    MrStanners wrote: »
    I've been thinking that if I transferred I wouldn't spend much of it because a) I would be worried about market crashes ...

    The usual advice about DC pensions in payment is that you'll need to drawdown at modest and flexible rates, and keep a large cash pile so that you won't find it necessary to sell equities in a market downturn. Do people properly account for that pile? Dunno. Would people who talk about cash as "dead money" have the prudence to keep such a pile? Dunno.
    MrStanners wrote: »
    Another factor the OP should consider is inflation protection. In my case my DB pension has some protection but part of it has no guaranteed increases at all, so mine will decrease in value in real terms.

    That indeed gives you a serious incentive to consider transferring. I wonder whether anyone in those circumstances ever transfers and then spends some of the money on buying some index-linked annuity income? In fact, have you tried working out whether your CETV is large enough to buy you a level annuity and an IL annuity in the same proportions as the DB pension income, and still leave you a profit? People will say that it shouldn't. My question is does it?

    But then that's pretty close to a point you made yourself.
    Free the dunston one next time too.
  • MrStanners
    MrStanners Posts: 42 Forumite
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    In reply to kidmugsy:
    I've not tried working out buying a level annuity and IL annuity in the same proportion as the DB income. I have tried looking at a 25% lump sum and IL annuity and it does come out in favour of the annuity option. I had to assume an age for death, if memory serves me right I think I entered an age of 90. The longer I live the better the annuity option because of the index linking.
    Unfortunately I don't have the facility to change the assumed inflation, I think it was 4.5% which may be a bit high and therefore favour the annuity.
  • pensionnovice
    pensionnovice Posts: 4 Newbie
    Thank you guys for all the information posted. I will need to print the posts out and read through them several times to try and digest it all. I don't have any experience of investment. A lot of the info posted is news to me. In fact, pretty much all of it. Just to clarify something, the early retirement figures I've quoted are what I would have got if I had taken my works pension there and then. They will increase as the years go by if I leave it alone, but I don't know by how much.



    My Dad passed away last year. I don't have any siblings, so he left everything to me. His house and enough money for me to live on for a few years, as long as I don't spend extravagantly. I could possibly last until I'm 65, but I'm not sure. My health is generally good. I keep myself fit, so I would like to think I'll live for a long time, but you never know what might be round the corner of course.



    Whether or not I transfer my pension is the biggest financial decision I will ever make. I don't want it to be the wrong one. I don't like the idea of putting all my trust in a financial advisor. One of the comments was that I should find an INDEPENDENT financial advisor. Aren't they all supposed to be independent? Don't they all have a vested interest in persuading people to transfer? I would have thought any financial advisor will get rewarded if they can persuade someone to transfer. Or am I wrong?


    Thank you for all your feedback.


    David
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    pensionnovice wrote: »
    Whether or not I transfer my pension is the biggest financial decision I will ever make. I don't want it to be the wrong one. I don't like the idea of putting all my trust in a financial advisor. One of the comments was that I should find an INDEPENDENT financial advisor. Aren't they all supposed to be independent?

    No; the ones who aren't INDEPENDENT are basically salesmen. That doesn't necessarily mean that they do a bad job but they are entirely unsuitable for an issue like this.

    pensionnovice wrote: »
    Don't they all have a vested interest in persuading people to transfer? I would have thought any financial advisor will get rewarded if they can persuade someone to transfer. Or am I wrong?

    You're out of date. IFAs charge you a fee; they don't take commission. (Except, I understand, on insurance. I'm open to correction.)

    Not only do you need an IFA, you need one with the special qualifications necessary to advise on pension transfers. I imagine that one of the pros will come along and tell you how to find such an advisor.
    Free the dunston one next time too.
  • pensionnovice
    pensionnovice Posts: 4 Newbie
    Sorry. A couple of things I forgot to mention. When I saw my financial advisor, I described my attitude to risk as "balanced" from the options she gave me. She works for a company called "True Potential". Before, she worked for Legal & General. She was recommended to me by a friend of a former colleague, who is also a former colleague. He tells me that he is delighted with what she has done for him. It still doesn't 100% reassure me though, even though it probably should. The decision is too massive.



    I am married to a foreign woman. We are currently in the process of trying to get a spouse visa for her to come to live with me in UK. I don't have any kids.
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