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    • mpension
    • By mpension 19th May 19, 11:59 AM
    • 19Posts
    • 2Thanks
    mpension
    Advice re deferred defined benefits pension
    • #1
    • 19th May 19, 11:59 AM
    Advice re deferred defined benefits pension 19th May 19 at 11:59 AM
    Hi,

    I would appreciate some advice if anyone has time?

    I have a deferred defined benefits pension. I haven't been paying into it for over ten years, but it is index linked.

    the current pension value is approx 1000gbp per month or 8700 with a 25% cash free lump.

    However, the transfer value is 380000. this does not seem to add up with the 25% lump.

    is this normal for DB pensions and would I possibly be better off transferring the pot into another pension?
    Ideally, id like a pension where my wife and then child get some money from it after Im gone.

    Thank you in advance
Page 1
    • Silvertabby
    • By Silvertabby 19th May 19, 12:51 PM
    • 4,305 Posts
    • 6,701 Thanks
    Silvertabby
    • #2
    • 19th May 19, 12:51 PM
    • #2
    • 19th May 19, 12:51 PM
    Hi,

    I would appreciate some advice if anyone has time?

    I have a deferred defined benefits pension. I haven't been paying into it for over ten years, but it is index linked.

    the current pension value is approx 1000gbp per month or 8700 with a 25% cash free lump.

    However, the transfer value is 380000. this does not seem to add up with the 25% lump.

    is this normal for DB pensions and would I possibly be better off transferring the pot into another pension?
    Ideally, id like a pension where my wife and then child get some money from it after Im gone.

    Thank you in advance
    Originally posted by mpension
    The reduced pension/25% tax free cash option depends on the scheme commutation rate. The public sector use a relatively poor rate of 1:12 (ie, give up 1 of annual pension for every 12 of tax free cash) but other schemes are more generous.

    Don't try to compare the 25% tax free cash should you remain with your DB scheme with 25% of the CETV value - it's apples and oranges.

    The CETV of 380,000 in return for an annual pension of 12K is a little over 30x, so it's a good bet that you are in a private DB scheme. (The only public sector scheme which still allows transfers out is the LGPS, and the GAD set transfer factors are nowhere near that!).

    No-one on here can/will advise you to transfer or not, I'm afraid - not allowed. However, as your CETV is over 30K you will have to take (and pay for) independant financial advice. Be aware that this advice is becoming rarer and more expensive, due to the increase in insurance premiums IFAs now have to pay to help safeguard themselves against mis-advice claims in the future.


    HTH !
    Last edited by Silvertabby; 19-05-2019 at 12:54 PM.
    • Albermarle
    • By Albermarle 19th May 19, 1:25 PM
    • 883 Posts
    • 521 Thanks
    Albermarle
    • #3
    • 19th May 19, 1:25 PM
    • #3
    • 19th May 19, 1:25 PM
    Cashing in your DB pension is a very serious financial decision . To add to the comments above I suggest you read this good review of the pros and cons .
    https://www.moneyobserver.com/final-salary-pension-transfers-scenarios-when-you-should-consider-transferring
    • JillyC8
    • By JillyC8 19th May 19, 1:27 PM
    • 152 Posts
    • 112 Thanks
    JillyC8
    • #4
    • 19th May 19, 1:27 PM
    • #4
    • 19th May 19, 1:27 PM
    How can advisors be sued later on if they have advised the pension holder not to transfer but they choose to do it anyway? (Be gentle)
    • JillyC8
    • By JillyC8 19th May 19, 1:31 PM
    • 152 Posts
    • 112 Thanks
    JillyC8
    • #5
    • 19th May 19, 1:31 PM
    • #5
    • 19th May 19, 1:31 PM
    Hi,

    I have a deferred defined benefits pension. I haven't been paying into it for over ten years, but it is index linked.

    the current pension value is approx 1000gbp per month or 8700 with a 25% cash free lump.

    However, the transfer value is 380000. this does not seem to add up with the 25% lump.

    is this normal for DB pensions and would I possibly be better off transferring the pot into another pension?
    Ideally, id like a pension where my wife and then child get some money from it after Im gone.
    Originally posted by mpension
    Do you mean 8700 a year?

    If so I'm in a similar position with an old DB pension although mine is worth less. Prepare for some negativity. DB pensions were designed to provide an income for life and the pension freedoms only apply to DC pension so they're better off left alone.

    Like you I would like to transfer mine at some point as I don't have a spouse, have other arrangements and would like to leave money to my children, but to do so would cost a lot in advice so I doubt it's worth it in my case.
    • Silvertabby
    • By Silvertabby 19th May 19, 1:54 PM
    • 4,305 Posts
    • 6,701 Thanks
    Silvertabby
    • #6
    • 19th May 19, 1:54 PM
    • #6
    • 19th May 19, 1:54 PM
    How can advisors be sued later on if they have advised the pension holder not to transfer but they choose to do it anyway? (Be gentle)
    Originally posted by JillyC8

    It's already happening! DunstanH and hyubh may pop up with some anecdotal accounts, otherwise look at the Pension Ombudsman website for some past cases. Seems if a pension fund member transfers out against the advice of the IFA, and then later loses a shedload of money, then the IFA could still be deemed to be at fault because they (the expert) weren't robust enough with their warnings to the pension fund member (not an expert, and so can't be be expected to know what they were doing).

    And it's still early days.... Pension Freedoms was just yesterday, in pensions speak, and the majority of people of who transferred out of their DB pensions (including public sector pensions) either haven't retired or have only been retired for a year or two. There hasn't been a major stock market crash in that time so, those with pensions in reputable personal pensions/SIPPs etc shouldn't be in any pain - but it would only take an overnight drop of 20% to make a difference. That, plus the temptation to 'draw down' well over any safe rate, could see many people potless in 10 or 15 years time. They will then compare what they have (nothing) with what they could have had if they had remained in their DB schemes and feel hard done by. Then the trouble will start.
    Last edited by Silvertabby; 19-05-2019 at 3:40 PM.
    • JillyC8
    • By JillyC8 19th May 19, 2:21 PM
    • 152 Posts
    • 112 Thanks
    JillyC8
    • #7
    • 19th May 19, 2:21 PM
    • #7
    • 19th May 19, 2:21 PM
    It's already happening! DunstanH and hyubh may pop up with some anecdotal accounts, otherwise look at the Pension Ombudsman website for some past cases. Seems if a pension fund member transfers out against the advice of the IFA, and then later loses a shedload on money, then the IFA could still be deemed to be at fault because they (the expert) weren't robust enough with their warnings to the pension fund member (not an expert, and so can't be be expected to know what they were doing).

    And it's still early days.... Pension Freedoms was just yesterday, in pensions speak, and the majority of people of who transferred out of their DB pensions (including public sector pensions) either haven't retired or have only been retired for a year or two. There hasn't been a major stock market crash in that time so, those with pensions in reputable personal pensions/SIPPs etc shouldn't be in any pain - but it would only take an overnight drop of 20% to make a difference. That, plus the temptation to 'draw down' well over any safe rate, could see many people potless in 10 or 15 years time. They will then compare what they have (nothing) with what they could have had if they had remained in their DB schemes and feel hard done by. Then the trouble will start.
    Originally posted by Silvertabby
    It's surprising the pension freedoms exist at all, given the risk of running out of money later on. Maybe it will be revoked at some point.
    • Silvertabby
    • By Silvertabby 19th May 19, 2:41 PM
    • 4,305 Posts
    • 6,701 Thanks
    Silvertabby
    • #8
    • 19th May 19, 2:41 PM
    • #8
    • 19th May 19, 2:41 PM
    It's surprising the pension freedoms exist at all, given the risk of running out of money later on. Maybe it will be revoked at some point.
    Originally posted by JillyC8
    It was a good idea - ie, treat people like adults - but I fear that far too many people will end up later in life with nothing but the State pension to live on.

    When the Pension Freedoms were announced, it was made clear that they only applied to DC pension schemes (ie, in order to drawdown instead of purchasing a poor value annuity) and not DB schemes. Unfortunately, a lot of people didn't read all the details and the LGPS was swamped with phone calls from fund members (both deferred and current) who wanted 'their money' to be transferred to their bank accounts. The only way they could do this was by first transferring their LGPS benefits to a private pension plan, even though the CETV was often less than 20 x the pension given up, but many still did this. LGPS administrators aren't allowed to give actual financial advice, but I would explain what they would be giving up in return for a less than generous CETV (and a big tax bill). Sadly, I feel that many had already mentally spent their expected windfall by then, so my words usually fell on deaf ears.
    Last edited by Silvertabby; 19-05-2019 at 2:47 PM.
    • JillyC8
    • By JillyC8 19th May 19, 2:57 PM
    • 152 Posts
    • 112 Thanks
    JillyC8
    • #9
    • 19th May 19, 2:57 PM
    • #9
    • 19th May 19, 2:57 PM
    It's understandable how DB pension holders might feel it's better to transfer though. If you have a DB pension and croak it at 65 and there is no spouse where does it go?

    It would be better if the govt could come up with a set of 'rules' around this, for instance, those wishing to transfer may need to tick certain boxes first, such as having other arrangements in place, before they're allowed to transfer.
    • Albermarle
    • By Albermarle 19th May 19, 3:04 PM
    • 883 Posts
    • 521 Thanks
    Albermarle
    It's surprising the pension freedoms exist at all, given the risk of running out of money later on. Maybe it will be revoked at some point.
    The freedoms have been welcomed and put to good use by the more knowledgeable and responsible people. However it also makes it easier for people with little/no knowledge of financial issues , to make big mistakes and even get scammed completely. This was blindingly obvious at the time they were introduced and with hindsight the freedoms should have been more restricted ( although not stopped altogether )
    I think it shows how sensitive DB transfers are when :
    1) Experienced IFA's have to pay a fortune for indemnity insurance against future claims
    2) Many pension providers will simply not accept a DB transfer without a positive reccomendation , even though it would be good business for them .
    • JoeCrystal
    • By JoeCrystal 19th May 19, 3:08 PM
    • 1,710 Posts
    • 1,176 Thanks
    JoeCrystal
    I am not entirely sure, but I think there used to be a guaranteed income of 20k+ before taxes requirement before allowing flexible drawdown on other pension funds. But then, it will only allow access to selectively a few people which defeats the whole point of pension freedom.

    IThey will then compare what they have (nothing) with what they could have had if they had remained in their DB schemes and feel hard done by. Then the trouble will start.
    Originally posted by Silvertabby
    I am looking so forward to reading the posts from bitterly disappointed or unhappy people who transferred out their DB pension scheme.
    Last edited by JoeCrystal; 19-05-2019 at 3:12 PM.
    • bostonerimus
    • By bostonerimus 19th May 19, 3:30 PM
    • 2,940 Posts
    • 2,248 Thanks
    bostonerimus
    It's understandable how DB pension holders might feel it's better to transfer though. If you have a DB pension and croak it at 65 and there is no spouse where does it go?
    .
    Originally posted by JillyC8
    The money is used to pay the pensions of people still alive. This is called the mortality credit.
    Misanthrope in search of similar for mutual loathing
    • Silvertabby
    • By Silvertabby 19th May 19, 3:38 PM
    • 4,305 Posts
    • 6,701 Thanks
    Silvertabby
    “ It's understandable how DB pension holders might feel it's better to transfer though. If you have a DB pension and croak it at 65 and there is no spouse where does it go?
    .
    Originally posted by JillyC8
    Further to boston's answer, most DB schemes have a guarantee period (which runs from death before retirement to either 5 or 10 years after retirement), in which they pay a tax free lump sum to a nominated beneficiary. The beneficiary can be almost anyone - even a charity.
    Last edited by Silvertabby; 19-05-2019 at 3:48 PM.
    • GDB2222
    • By GDB2222 19th May 19, 4:02 PM
    • 15,249 Posts
    • 82,228 Thanks
    GDB2222
    I suggest getting a quote for an index linked annuity for 1000 pm, then comparing that to the cetv. That gives you an idea how much it costs the insurance company to provide your pension without taking an investment risk.
    No reliance should be placed on the above! Absolutely none, do you hear?
    • Silvertabby
    • By Silvertabby 19th May 19, 4:45 PM
    • 4,305 Posts
    • 6,701 Thanks
    Silvertabby
    I suggest getting a quote for an index linked annuity for 1000 pm, then comparing that to the cetv. That gives you an idea how much it costs the insurance company to provide your pension without taking an investment risk.
    Originally posted by GDB2222

    Plus survivor pension benefits on par with the DB scheme.
    • enthusiasticsaver
    • By enthusiasticsaver 19th May 19, 5:14 PM
    • 8,613 Posts
    • 20,023 Thanks
    enthusiasticsaver
    I have a deferred DB pension paying out next year (smaller than yours though) and asked exactly the same question. I have explored further and it will cost me in the region of 5000 for the advice as to whether it is advisable to transfer from a pension specialist and as this is around 7.5% of the CETV I have decided not to go ahead. I have another DB pension which I am already living off and my intention initially was to invest the CETV and drawdown more flexibly and tax efficiently if at all as it is surplus to requirements as our living expenses are already covered.

    As silvertabby says no one can advise you but the fact it is so difficult to transfer it tells you something. Will it provide spousal protection?
    Early retired in December 2017

    I'm a Board Guide on the Debt-Free Wannabe, Mortgages and Endowments, Banking and Budgeting boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Any views are mine and not the official line of moneysavingexpert.com. Pease remember, board guides don't read every post. If you spot an illegal or inappropriate post then please report it to forumteam@moneysavingexpert.com
    • Silvertabby
    • By Silvertabby 19th May 19, 5:56 PM
    • 4,305 Posts
    • 6,701 Thanks
    Silvertabby
    Funny old thing, but an item has just popped up on my 'phone. According to the Daily Telegraph, since Pension Freedoms the average pensioner has been drawing down at between 6% and 9% - meaning that some could be potless in less than 10 years.

    Of course, some of these people may have other (DB?) benefits not included in the data, but it's still scary. For those for whom just a few hundred s is untold riches, the temptation to take the lot and treat the family to a holiday/ buy a car/etc - or just live well for a year or two - must be hard to ignore.
    Last edited by Silvertabby; 19-05-2019 at 5:58 PM.
    • mpension
    • By mpension 19th May 19, 6:18 PM
    • 19 Posts
    • 2 Thanks
    mpension
    Many thanks to all of you for taking the time to reply. Although Im 49, I haven't taken enough notice of my pensions and as such, I don't understand all of the acronyms, but I will learn in order that I can better understand your advice.

    To answer one question, my DB pension does have spousal support.

    5000 for advice - almost beyond belief!!

    All the help much appreciated. Thank you
    • enthusiasticsaver
    • By enthusiasticsaver 19th May 19, 6:39 PM
    • 8,613 Posts
    • 20,023 Thanks
    enthusiasticsaver
    Many thanks to all of you for taking the time to reply. Although Im 49, I haven't taken enough notice of my pensions and as such, I don't understand all of the acronyms, but I will learn in order that I can better understand your advice.

    To answer one question, my DB pension does have spousal support.

    5000 for advice - almost beyond belief!!

    All the help much appreciated. Thank you
    Originally posted by mpension
    As others have said the insurance premiums for pension transfer specialists recommending or advising transfer for DB pensions are very high. Also I am not sure if the amount is in direct proportion to the CETV. The CETV of my DB pension is only 17 times the annual pension and the suggested cost for advice is 5000 against a 68k CETV. As your CETV is more than 5 times as much as mine I am not sure if the advisor cost will also rise proportionally so you could be looking at closer to 25k costs. That is a substantial DB pension to give up. When does it pay out?
    Early retired in December 2017

    I'm a Board Guide on the Debt-Free Wannabe, Mortgages and Endowments, Banking and Budgeting boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Any views are mine and not the official line of moneysavingexpert.com. Pease remember, board guides don't read every post. If you spot an illegal or inappropriate post then please report it to forumteam@moneysavingexpert.com
    • mpension
    • By mpension 19th May 19, 7:03 PM
    • 19 Posts
    • 2 Thanks
    mpension
    Thank you. Pays out in 11 years. I have another, smaller DB pension that pays out around the same time. now i have a DC pension too with my current employer which i want to increase my payments into, but it has no provision for spouse, so i feel like i could be (or she will be) just losing money if I die early.
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