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    • Frank1962
    • By Frank1962 11th Jul 18, 1:12 PM
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    Frank1962
    Defined Benefit Pension Advice please
    • #1
    • 11th Jul 18, 1:12 PM
    Defined Benefit Pension Advice please 11th Jul 18 at 1:12 PM
    Hi, one of my old pensions is a defined benefit pension. Everywhere I have looked/researched, says I should not transfer it. However, I no longer work for the company I had it with (I left in 2009). I wanted to transfer it into a SIPP that I have. My concern is that should I die before my wife, she will only get a small amount of pension, whereas, if I transfer it into the SIPP it's all there (subject to tax of course) and would probably grow more with the funds I have researched and invested in, until I finally retire. Any advice or suggestions would be greatly appreciated. Thanks in advance.
Page 1
    • dunstonh
    • By dunstonh 11th Jul 18, 1:26 PM
    • 93,353 Posts
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    dunstonh
    • #2
    • 11th Jul 18, 1:26 PM
    • #2
    • 11th Jul 18, 1:26 PM
    What does your adviser say about this?
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • campbell19925
    • By campbell19925 11th Jul 18, 1:30 PM
    • 75 Posts
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    campbell19925
    • #3
    • 11th Jul 18, 1:30 PM
    • #3
    • 11th Jul 18, 1:30 PM
    Hi, one of my old pensions is a defined benefit pension. Everywhere I have looked/researched, says I should not transfer it. However, I no longer work for the company I had it with (I left in 2009). I wanted to transfer it into a SIPP that I have. My concern is that should I die before my wife, she will only get a small amount of pension, whereas, if I transfer it into the SIPP it's all there (subject to tax of course) and would probably grow more with the funds I have researched and invested in, until I finally retire. Any advice or suggestions would be greatly appreciated. Thanks in advance.
    Originally posted by Frank1962
    If you have a DB scheme over 30k you need to take professional advice before you can move it.

    https://www.pensionwise.gov.uk/en
    • AnotherJoe
    • By AnotherJoe 11th Jul 18, 1:43 PM
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    AnotherJoe
    • #4
    • 11th Jul 18, 1:43 PM
    • #4
    • 11th Jul 18, 1:43 PM
    You simply haven't posted anywhere near enough info.
    Your ages, other pensions and savings, date the DB would start paying, the amount the DB pension would pay, what lump sum they will pay you instead (the CETV), your health, what experience you have managing investments - for starters.
    • sandsy
    • By sandsy 11th Jul 18, 2:16 PM
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    sandsy
    • #5
    • 11th Jul 18, 2:16 PM
    • #5
    • 11th Jul 18, 2:16 PM
    As your main focus is death benefits, have you considered taking out some life assurance instead?

    Life insurance for a fixed term is relatively cheap if you're in good health. But taking advice on moving your DB pension and then all the fees you'd pay after it was moved (if, indeed you were ever advised to do so) would probably cost substantially more.
    • Brynsam
    • By Brynsam 11th Jul 18, 2:24 PM
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    Brynsam
    • #6
    • 11th Jul 18, 2:24 PM
    • #6
    • 11th Jul 18, 2:24 PM
    Hi, one of my old pensions is a defined benefit pension. Everywhere I have looked/researched, says I should not transfer it.
    Originally posted by Frank1962
    Nowhere does it say you should not transfer; you are simply looking at generic comments.

    Any idea what the transfer value might be (i.e. have you ever asked for one)? If not, what was the value at the time you left active membership of the scheme/when you left the employer (you will have received a leaving service statement) - and how old are you?
    • mgdavid
    • By mgdavid 11th Jul 18, 2:36 PM
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    mgdavid
    • #7
    • 11th Jul 18, 2:36 PM
    • #7
    • 11th Jul 18, 2:36 PM
    Also, how much is the Widow's pension in your Scheme? 50% , 60% or some other figure?
    The questions that get the best answers are the questions that give most detail....
    • Frank1962
    • By Frank1962 12th Jul 18, 12:27 PM
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    Frank1962
    • #8
    • 12th Jul 18, 12:27 PM
    • #8
    • 12th Jul 18, 12:27 PM
    Thank you all for your replies. I have not spoke to an advisor yet. I wanted to find out more for myself first, so that I was more informed when I have the meeting.

    I am 56 (so is my wife). I am in reasonably good health, though diabetic. Our house is paid for.

    The transfer value on this particular pension is approximately 70k. (I am waiting for the current statement for this year). The pension is set to run until I'm am 60, and says the value at that time is estimated to be approximately 90k (though this can run longer if I want to retire later). I also have an NHS pension that runs until I am 67 which should be valued at approximately 120k.

    I also had some private small pensions I took out in the late 80's/90's with Pearl that were later assigned to Phoenix Life now worth 20k. and have been performing very poorly considering the amount of time they have had them. So I transferred them into a SIPP in the hope of doing better than 1% a year. I am new to investing privately this way and wish I had shown more of an interest earlier in my life.
    I have chosen the funds myself after researching various websites and they are performing reasonably well in the short term at 3.4% since the middle of May 18. I am also investing monthly in a stocks and shares ISA to try and boost my funds further. And am presently looking at AVC's at work too.

    If I die whilst working, my wife would presently get 49k from NHS plus approximately 1k a year. Plus almost 2k a year from the DB pension. Plus any investments in the SIPP/ISA

    I am hoping to retire at about 62/63 or earlier if possible.

    The main concern for me is that the DB pension would pay very little to my wife considering the value of the pot and I want to make sure she is well provided for if I should go first (before retirement). Whereas if I transferred it into a SIPP and maximize an ISA every year, this should boost my pot further for my retirement, where I could do a drawdown whilst it continued to grow. Also my wife would get most of it in the event of my demise, to continue investing it for herself.

    My wife has her own pension from working with a Bank for 25 years , plus the pensions she transferred into it from previous employment.

    The life insurance suggested had not crossed my mind, but will also give this some consideration too now.

    Essentially I want to make sure my family are provided for by not losing most of the value of the DB pension.

    Hope the above info helps.
    Many thanks
    Last edited by Frank1962; 12-07-2018 at 2:34 PM. Reason: Missed something
    • kidmugsy
    • By kidmugsy 12th Jul 18, 2:30 PM
    • 11,038 Posts
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    kidmugsy
    • #9
    • 12th Jul 18, 2:30 PM
    • #9
    • 12th Jul 18, 2:30 PM
    I also have an NHS pension that runs until I am 67 which should be valued at approximately 120k.
    Originally posted by Frank1962
    That doesn't sound right. NHS pensions can't be transferred out. Maybe you got a CETV quoted before the change in rules?

    Since you are going to have to take the NHS pension as a pension you probably want to look at it in detail. For example, how big is the actuarial reduction if you draw the pension early? Is it possible to commute some of the pension for a tax-free lump sum? How big a widow's pension does it pay? What inflation-protection (i.e. index-linking) does it include?

    I am also investing monthly in a stocks and shares ISA to try and boost my funds further.
    Originally posted by Frank1962
    Might it not be wiser to contribute to a SIPP or other personal pension for your wife?

    Further question: is your wife still working?



    I throw this question open to everyone: could it be an attractive strategy for someone who is still working, and whose wife is perhaps still working, to draw a DB pension early and use the new income to make DC pension contributions for himself and, particularly, his wife? (I'm assuming that usually he would contribute enough to his own pension to ensure he avoids 40% tax and would thereafter maximise his wife's contributions.)
    Free the dunston one next time too.
    • Deneb
    • By Deneb 12th Jul 18, 2:58 PM
    • 321 Posts
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    Deneb
    I throw this question open to everyone: could it be an attractive strategy for someone who is still working, and whose wife is perhaps still working, to draw a DB pension early and use the new income to make DC pension contributions for himself and, particularly, his wife? (I'm assuming that usually he would contribute enough to his own pension to ensure he avoids 40% tax and would thereafter maximise his wife's contributions.)
    Originally posted by kidmugsy
    Well, I didn't take my DB pension early, but I had a PPA of 49 and took it in full from 54. I carried on working for a further 6 years, in which time I contributed to SIPPs for both of us, negating a 40% tax liability, and am now happily retired with a disposable income as good as, if not slightly better than any I had throughout my working life.

    I call that a good result, and it probably wouldn't have happened were it not for the information I picked up from avidly reading numerous posts by several good folk on this forum

    Another thought for the OP. Would you be happy committing yourself, and you wife should you predecease her, to a lifetime of stressing about investment returns and the risk of substantial reduction in value of your pension, or would you rather not have that worry and feel secure in the knowledge that you will both receive a defined income for the rest of your lives?

    You may both be the type of people who can live happily with investment risk, periodic falls in value of your fund, and both have the knowledge to manage your investments. Whilst I am happy to do that with money which is surplus to our required basic income, I was not prepared to give up the certainty of either of my DB pensions - not that I could have transferred out of one of them anyway.
    • Frank1962
    • By Frank1962 12th Jul 18, 3:10 PM
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    Frank1962
    Hi thanks for the reply. I'm only considering transferring the DB pension I had from when I was working in the private sector, as I had discovered that the NHS pension cannot be transferred anymore.

    There will be a reduction in the NHS pension if I retire early and that would lose approximately 5k for each year of early retirement. That should be partly offset by the DB pension growing if I leave it running longer (as long as I don't transfer it) as the DB pension is set for retirement at 60.

    My wife still works and the NHS widow pension is presently 49k lump sum on death plus approximately 1k a year. Plus 2k a year from the DB pension. Not certain if it is index linked on the widows pension. Though it is linked to the CPI index as a pension for me until retirement.

    I'm putting any spare money into an ISA now invested in funds, as this is tax free. Rather than putting any of my spare money into the SIPP, as an alternative to contributing any more into her pension.

    Regarding your open question. I had also considered drawing the DB pension now and using the lump sum to put into an ISA in joint names. But I am not certain if I have to 'officially' retire to do this. Can you still draw the DB private Pension and carry on working full time? Does any one here know the answer to this?

    Many thanks
    • Frank1962
    • By Frank1962 12th Jul 18, 3:40 PM
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    Frank1962
    Thanks Deneb. I, Like many people of this country who are poorly educated when it comes to investing and pensions have only started looking into this now at 56, to try and understand the retirement landscape ahead of me. Only to realise, it would have been wiser to do this earlier!

    At the moment I have transferred old poorly performing pensions into the SIPP. And I am trying to work out if it would be financially better to transfer the full DB pension into it.

    As you mention in your comment, that comes with risk. My wife has no experience of private investment. And I am reading everything under the sun to understand it better as newcomer to private investment. My son seems to undertand it very well for a 25 year old, and should the need arise he would be able to guide her along with some professional help. But it is a well made point. My wife is risk averse. Whereas I am not.

    Many thanks
    • Deneb
    • By Deneb 12th Jul 18, 3:45 PM
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    Deneb
    I'm putting any spare money into an ISA now invested in funds, as this is tax free. Rather than putting any of my spare money into the SIPP, as an alternative to contributing any more into her pension.
    Originally posted by Frank1962
    So you're putting money that has already been taxed into an ISA, where it will be tax free on the way out. If you were to put it into a SIPP, you would get tax relief at your marginal rate on the way in, and be able to take 25% tax free on the way out. Depending on your other income after retirement, you may be able to take even more out tax free as well, up to the amount of your personal tax allowance. So an ISA is not the most efficient option, unless you need to withdraw the money before you are 55.

    Regarding your open question. I had also considered drawing the DB pension now and using the lump sum to put into an ISA in joint names. But I am not certain if I have to 'officially' retire to do this. Can you still draw the DB private Pension and carry on working full time? Does any one here know the answer to this?
    Yes, provided you're above the minimum scheme age to start drawing the pension, although you will be paying additional tax on your pension income that may not arise if you take it after you have retired. Taking the lump sum from a DB pension may not be the most efficient option either.
    • Frank1962
    • By Frank1962 12th Jul 18, 4:12 PM
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    Frank1962
    Thanks Daneb. I thought you had to pay tax on your annuities. What circumstances would you not pay taxes on them?

    May I ask the reason you think not taking the lump sum to use as investment money, may not be the most efficient option? (Genuine question, I am trying to learn and understand people's rationale and the information here is very useful)

    Many thanks
    • Deneb
    • By Deneb 12th Jul 18, 5:08 PM
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    Deneb
    Thanks Daneb. I thought you had to pay tax on your annuities. What circumstances would you not pay taxes on them?
    Originally posted by Frank1962
    An annuity is only one of several ways to take a pension. If you are in receipt of a final salary pension you are not taking an annuity, which involves handing over a sum of money to an annuity provider who will agree to pay you a regular defined income for an agreed period of time, usually until death and perhaps to a surviving partner thereafter.

    But aside from that, pension income is subject to the same tax limits as employment income, with the proviso that when you commence a pension, you can if you wish take up to 25% of it (or a notional amount in the case of a DB pension) tax free.

    You also have your personal tax allowance, 11,850 for 2018-19, plus any other tax allowances you might be entitled to. The first 11,850 of your income in the current tax year would therefore be untaxed, and any other income above that amount taxed at your notional rate, i.e 20%, 40% etc.

    If your income in retirement is less than your personal tax allowance, it will not be subject to income tax at all. If you start taking a pension income whilst still working, and your employment income is greater than your personal tax allowance, your entire pension will be taxed at your marginal rate.

    May I ask the reason you think not taking the lump sum to use as investment money, may not be the most efficient option? (Genuine question, I am trying to learn and understand people's rationale and the information here is very useful)

    Many thanks
    Lump sums taken from DB pensions are calculated on the basis that you give up a certain amount of annual pension income in exchange for a one off tax free lump sum, i.e. you commute part of your pension entitlement. The amount of lump sum that you receive for every pound of income that you give up is referred to as the commutation rate.

    Commutation rates for DB pensions are often, although not always, fairly poor value. 12:1 is not uncommon, meaning that you are offered a tax fee sum of 12 for every 1 of annual income that you give up. If you are healthy with no reason to suspect that you have a poor chance of surviving a normal lifespan, the only winner out of that arrangement is the pension scheme. You are likely to receive substantially more in the form of regular income over your future lifespan, on average, than you would by taking the lump sum, unless of course you have an urgent and justifiable need for the money. A commutation rate of around 20:1 is probably at a point where you might want to consider which side of the fence you'd like to fall!
    • Deneb
    • By Deneb 12th Jul 18, 5:37 PM
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    Deneb
    Frank, just realised on re-reading your question as to whether you can take your DB pension whilst still working, that there is an ambiguity in the question and my reply.

    Whilst there is nothing to stop you receiving a DB pension from the minimum scheme age, and continuing to work thereafter, you would have to "retire" from your current employment if the pension is linked to that employer, and possibly seek work elsewhere.

    It is possible to go back to work for the NHS after retiring and taking an NHS pension, as my wife is in that position. But, if you earn over a certain amount, a proportion of your pension may be abated (withheld) and you will also not be allowed to rejoin the NHS pension scheme.
    • Frank1962
    • By Frank1962 12th Jul 18, 7:01 PM
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    Frank1962
    Thank you Deneb and everyone who has replied. Some useful information here that I will digest and use to review my situation.
    Last edited by Frank1962; 12-07-2018 at 7:04 PM. Reason: Typo
    • Terron
    • By Terron 12th Jul 18, 9:24 PM
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    Terron
    You seem to be worried about your wife's status should you die early./


    You also seem to be confusing how DB pensions work with how DC pensions like your SIPP work.
    A DB pension is not a lump sum. It is a promise to pay you a certain amount per year. SUch promises are expensive to keep so companies like to buy them selves out of them. At a rate advatageous to them. It may also be advatageous to youin certain circumstances, such as if you are at a high risk of dying early.



    The DB pension is likely index linked and it sounds like there is provision for a spouse's pension. That may seem small but the index linking would make it good insurance against your living a long time, and slightly less good insurace against your wife living a long time.


    My feeling as a non-professional is that you should probably keep the DB pension along with your NHS pension/ Neither is very large but together they will give reasonable protection against living a long time/



    Life insurance could cover the risk of your dying early
    • Frank1962
    • By Frank1962 13th Jul 18, 12:18 AM
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    Frank1962
    Thank you Terron.
    • kidmugsy
    • By kidmugsy 13th Jul 18, 10:16 AM
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    kidmugsy
    There will be a reduction in the NHS pension if I retire early and that would lose approximately 5k for each year of early retirement.
    Originally posted by Frank1962
    That can't be right. If you lost 5k a year pension that implies that your NHS pension would be somewhere about 100k a year.

    How big is your NHS annual pension forecast to be?


    I had also considered drawing the DB pension now and using the lump sum to put into an ISA in joint names. But I am not certain if I have to 'officially' retire to do this. Can you still draw the DB private Pension and carry on working full time? Does any one here know the answer to this?
    Originally posted by Frank1962
    (i) There's no such thing as an ISA in joint names. The "I" stands for 'individual'. You can open an ordinary investment account in joint names. It might be called a "dealing account" or a "shares and funds account" or something like that. It would be up to you to manage it to ensure that you paid no income tax on the dividends and no capital gains tax on share sales. If the amount of money in the account were to be modest that tax avoidance would be easily done. For example you are each allowed 2k a year in dividend income without having any income tax to pay on it.

    (ii) In general there's nothing stopping you drawing your non-NHS DB pension early and then using the extra income to fund some extra pension for you or your wife. You'd want to know what the "actuarial reduction" will be for drawing it early. As a rough rule, if it were reduced by only 3% for each year early that would be good value. 5% is more likely but you simply have to enquire.
    Last edited by kidmugsy; 13-07-2018 at 11:37 AM.
    Free the dunston one next time too.
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