Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • rathernot
    • By rathernot 13th Oct 18, 4:05 PM
    • 334Posts
    • 85Thanks
    rathernot
    DB Pensions for Muppets?
    • #1
    • 13th Oct 18, 4:05 PM
    DB Pensions for Muppets? 13th Oct 18 at 4:05 PM
    I have a pension from a DB scheme, USS.

    I no longer pay in as I now work in a different field with a different scheme so I believe I'm classed as a deferred member.

    I have my last statement from 2015 which says I have accrued approximately:

    * Prior to 2011 a deferred pension of 2500 p/a
    * A lump sum of 7700

    * From 2011 a deferred pension of 1800 p/a
    * A lump sum of 5555

    If I use their modeller here https://www.ussbenefitmodeller.co.uk/deferred/pension_increase with the 2500 and 1800 figures it spits out that aged 65 I should have a pension of 8100 p/a and a tax free lump sum of 25K.

    Their calculation is based on (Pensionable service x Pensionable Salary) / 80.

    When I left my salary was 39K and my service was 9 years.

    Their modeller is a little short of detail on how they get their figures and the only variable you can adjust is inflation.

    How accurate is it likely to be please?
Page 1
    • NoMore
    • By NoMore 13th Oct 18, 4:31 PM
    • 253 Posts
    • 227 Thanks
    NoMore
    • #2
    • 13th Oct 18, 4:31 PM
    • #2
    • 13th Oct 18, 4:31 PM
    It will be correct for current date, for the future its a guess that you choose on what inflation is likely to be.

    The 9/80ths is not going to change as your no longer in the job, the 39k will be adjusted for inflation and thats the guess bit.
    • rathernot
    • By rathernot 13th Oct 18, 4:36 PM
    • 334 Posts
    • 85 Thanks
    rathernot
    • #3
    • 13th Oct 18, 4:36 PM
    • #3
    • 13th Oct 18, 4:36 PM
    Thank you, so the bit I'm being dumb on is this - is the only thing influencing the future value inflation?
    • NoMore
    • By NoMore 13th Oct 18, 4:51 PM
    • 253 Posts
    • 227 Thanks
    NoMore
    • #4
    • 13th Oct 18, 4:51 PM
    • #4
    • 13th Oct 18, 4:51 PM
    yes, to check in that calculator if you set inflation to zero, you get the same results in the future as you get today.
    • kidmugsy
    • By kidmugsy 13th Oct 18, 5:11 PM
    • 12,203 Posts
    • 8,645 Thanks
    kidmugsy
    • #5
    • 13th Oct 18, 5:11 PM
    • #5
    • 13th Oct 18, 5:11 PM
    Thank you, so the bit I'm being dumb on is this - is the only thing influencing the future value inflation?
    Originally posted by rathernot
    All that's adjustable is the inflation-protection number. But that might not equal the CPI rate of inflation because the scheme documents simply say, in effect, that the inflation-protection should be the same as for civil servants. And governments can change the latter on whim. Though probably only in dire economic emergency, I'd think. (The last change, from RPI to CPI, was part of dealing with Gordon Brown's crazy spending spree as Chancellor.)

    If people were allowed to sell DB pension rights you'd find keen customers queuing up to buy yours.
    Free the dunston one next time too.
    • rathernot
    • By rathernot 14th Oct 18, 8:40 AM
    • 334 Posts
    • 85 Thanks
    rathernot
    • #6
    • 14th Oct 18, 8:40 AM
    • #6
    • 14th Oct 18, 8:40 AM
    Thank you I did query things like transfer values some time ago but my understanding is that transfer values are based on the assumption of "If we're going to be paying 8k p/a for 30 years that's 240k so let's make an offer to get it off our books now".

    I understand that DB pensions are coveted but I'm keen to understand something.

    Right now my "pot" on that old pension is whatever it is and is subject only to inflation, correct?

    In very simplistic terms let's say they offered 200K as a transfer value.

    If that's in the markets for 20 years (the approximate time I have left until 65) @ 5% interest a quick calculation puts me at around 550K in the pot at retirement time.

    I get that markets aren't guaranteed whilst a DB pension is, but I am still a little unclear in this scenario whether keeping the DB is as much of a no-brainer as it sounds?

    Frankly I'd almost forgotten about it so either way it's a bit of an unexpected welcome gift
    • Kynthia
    • By Kynthia 14th Oct 18, 9:14 AM
    • 5,392 Posts
    • 7,551 Thanks
    Kynthia
    • #7
    • 14th Oct 18, 9:14 AM
    • #7
    • 14th Oct 18, 9:14 AM
    Would 200k guarantee you the annual income every year no matter how long you lived, no matter how high inflation got, no matter how poor investments went, no matter your skill level at managing larger pots, etc. Would it pay your spouse a percentage until their death, no matter how long they lived, and if you died young wpuld this pot pay your children a pension until adulthood along with your spouse for the rest of their life? Would this pot allow you to retire early should you become too ill to work?

    I'm guessing it wouldn't.
    Don't listen to me, I'm no expert!
    • rathernot
    • By rathernot 14th Oct 18, 10:47 AM
    • 334 Posts
    • 85 Thanks
    rathernot
    • #8
    • 14th Oct 18, 10:47 AM
    • #8
    • 14th Oct 18, 10:47 AM
    Thank you Those are all good points.

    In my situation there is no spouse or dependents so being purely selfish I guess those don't come into play unless my personal circumstances change.

    Illness and (for example) early retirement are good points, hopefully considering the latter more than the former hence starting to look ahead a little more

    To be clear I'm not saying I want to transfer, simply trying to understand pros and cons, like I said I've been very slack on this stuff other than ensuring I pay in.
    • Albermarle
    • By Albermarle 14th Oct 18, 11:27 AM
    • 246 Posts
    • 124 Thanks
    Albermarle
    • #9
    • 14th Oct 18, 11:27 AM
    • #9
    • 14th Oct 18, 11:27 AM
    Firstly I suggest you spend some time going back through the numerous threads on this board on the subject of taking the CETV ( Cash equivalent transfer value ) vs keeping the DB annual income promise.


    In advance here are a couple of points worth noting:
    1) There is no fixed pot as such , the scheme will take a view on what the CETV should be . Some schemes offer more generous CETVs than others even though the DB benefits may be similar.
    2) Before transferring you have to take mandatory advice from an IFA qualified in the subject . These can be difficult to find and will charge a few Grand. It's quite probable they will advise you not to transfer In fact as you have had the advice you can still go ahead with the transfer but if you have had advice not to transfer it can be difficult to find a pension provider to accept a transfer, but not impossible.. It is because everybody is cautious after problems with DB transfers in the past proving disastrous for the individuals concerned ( British Steel for example. )
    • kidmugsy
    • By kidmugsy 14th Oct 18, 11:40 AM
    • 12,203 Posts
    • 8,645 Thanks
    kidmugsy
    In my situation there is no spouse or dependents so being purely selfish I guess those don't come into play unless my personal circumstances change.
    Originally posted by rathernot
    That's an important point. If you are male, however, you can become a parent fairly easily until a ripe old age.

    In your shoes I think I'd find out how often they'd provide me with a free CETV valuation. Annually? Once every two years? ....

    Then I might ask for the occasional valuation.

    I wonder what effect a huge stock market crash would have. It might increase the attraction of a transfer since you could then invest when shares are cheaper. But would it reduce the CETV offered? I have no idea.
    Free the dunston one next time too.
    • glennevis
    • By glennevis 14th Oct 18, 11:44 AM
    • 201 Posts
    • 150 Thanks
    glennevis
    If you're thinking of early retirement note that the USS scheme for deferred members only becomes payable at state retirement age. So as that increases to 66 then 67 or even 68, the date you can draw the full pension without actuarial reduction will shift.
    • LHW99
    • By LHW99 14th Oct 18, 1:12 PM
    • 1,589 Posts
    • 1,455 Thanks
    LHW99
    Also, you do have the option (at least with the pre-2011 part) to give up some annual income for a larger lump sum - that said, the terms were not particularly generous when my OH looked at it.
    • sandsy
    • By sandsy 14th Oct 18, 1:40 PM
    • 1,414 Posts
    • 867 Thanks
    sandsy
    Although the benefits payable by your scheme are only dependent on future inflation, the transfer value varies for other reasons. In general, transfer values go up as you age as the benefit is closer to being paid AND it will go up for inflation of the benefits.

    And in your thinking about what 200k could look like in 20 years time, you're forgetting about inflation. Yes, it could be worth 530k in 20 years time but that will only buy what 335k will buy today.

    And (everything else remaining equal) the the transfer value itself will have increased from 200k by then too (as above).

    Transferring out with 20 years to go is generally not considered a good idea as you as you're closing a door on one of the retirement options available to you and that door can never be re-opened. It's best to keep open as many doors as possible until you're closer to retirement and have a better idea what you want your retirement to look like.
    • Kynthia
    • By Kynthia 14th Oct 18, 7:12 PM
    • 5,392 Posts
    • 7,551 Thanks
    Kynthia
    Thank you Those are all good points.

    In my situation there is no spouse or dependents so being purely selfish I guess those don't come into play unless my personal circumstances change.

    Illness and (for example) early retirement are good points, hopefully considering the latter more than the former hence starting to look ahead a little more

    To be clear I'm not saying I want to transfer, simply trying to understand pros and cons, like I said I've been very slack on this stuff other than ensuring I pay in.
    Originally posted by rathernot
    Not having a spouse or children does reduce some of the advantages of s DB scheme. However unless all your other pensions are DB also, most people highly value havibg a percentage of their retirement income low risk, unaffected by stock market crashes and guaranteed to not run out if you live longer than average.

    However for some people transferring out can be a good thing, if all their pensions are DB, they have no spouse, and they want some to be inheritable for their children, flexible to fund early retirement, or they have life-limiting medical conditions. It all depends on your complete and individual circumstances which is why an IFA would look into everything before coming up with a recommendation.
    Don't listen to me, I'm no expert!
    • rathernot
    • By rathernot 14th Oct 18, 7:16 PM
    • 334 Posts
    • 85 Thanks
    rathernot
    Although the benefits payable by your scheme are only dependent on future inflation, the transfer value varies for other reasons. In general, transfer values go up as you age as the benefit is closer to being paid AND it will go up for inflation of the benefits.

    And in your thinking about what 200k could look like in 20 years time, you're forgetting about inflation. Yes, it could be worth 530k in 20 years time but that will only buy what 335k will buy today.

    And (everything else remaining equal) the the transfer value itself will have increased from 200k by then too (as above).

    Transferring out with 20 years to go is generally not considered a good idea as you as you're closing a door on one of the retirement options available to you and that door can never be re-opened. It's best to keep open as many doors as possible until you're closer to retirement and have a better idea what you want your retirement to look like.
    Originally posted by sandsy
    Thank you, that makes a heck of a lot of sense (I did say I needed a guide a pension muppet could understand ).

    The comment on closing a door that cannot be re-opened makes sense, but the bit I hadn't appreciated was your comment that people typically transfer DB's (if it's sensible to do so) closer to their retirement data rather than such a long way out.

    I think I'm entitled to one free valuation every 12 months so I may get one at some point, but it certainly doesn't sound like there's any rush to consider doing anything, almost sounds the opposite
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

112Posts Today

2,850Users online

Martin's Twitter