Another DB Conundrum

[Fluke]

I've been looking into transferring a few smallish deferred private and employer pensions over to my SIPP (which is invested in HYP shares), 3 of them I'm going ahead with - 2 x private and 1 x company DC. The 4th is a DB scheme which I hadn't planned to touch but after reading about historically high transfer valuations for such schemes I thought I'd look into it to see if it was worth considering. I obtained estimated yearly pension figures for age 60 and 65 (NRD) and when I punched them into this calculator, the transfer value didn't seem especially high. It was at the upper end of the range when I used the aged 60 figure and about in the middle with the aged 65 figure.

https://www.finalsalarytransfer.com/l/calculator

The yearly figure at 60 is 3.02% of transfer value and the figure for age 65 is 4.13%. I have a proven to myself that I can quite easily achieve the upper end of that with my HYP investment strategy. If I were to take the pension now, today the yearly payments would be 2.43%.

I'd prefer to leave it, there's an IFA cost for one and I like the idea of a few different pots (it's also inflation linked), but the thing that niggles is the idea of the whole fund going down the swanny like BHS or getting treated to some other kind of hair cut which would result in reduced/delayed payments, the company in question is Sainsburys.

I'm looking for a good reason to stay put or a good reason to get out, but at the moment I'm wavering.

[Degsy67]

...I'm looking for a good reason to stay put or a good reason to get out, but at the moment I'm wavering.

Need a bit more info. Single or married? Good health or poor health? Any kids? What death benefits does the DB pension provide for surviving dependants?

Degsy

[mark88man]

Plus - have you really considered the peace of mind that comes with a DB scheme. If its only a fraction of your pension income then maybe that isnt such a big deal, and a cash injection is always nice.

But if it is a lot of your projected income, are you happy with having to manage it yourself - esepcially given the volatility of the world at the moment.

Personally I am in this latter camp, and part of me is thinking don't touch it, and part is thinking an increasing number of people will have to survive off DC pots in the future, so its clearly not impossible to do, and if the implied yield is not too high, it would bring forward my retirement as I dont have sufficient non pension assets to advance significantly my retirement

[Fluke]

Need a bit more info. Single or married? Good health or poor health? Any kids? What death benefits does the DB pension provide for surviving dependants?

It comes with a spouse benefit in the event of my death worth about half of my pension, not a big consideration as I have no spouse or kids. Yes fit and healthy I'm glad to report.

But if it is a lot of your projected income, are you happy with having to manage it yourself

Most of my retirement income is invested in my high yield portfolio so yes happy to manage it myself. The DB is a relatively small part of my projected income, I'd say about 8%.

[Fluke]

I stupidly didn't realise I had the option to transfer out at a high multiple until after the scheme rules were tightened to block transfers out:

Yes I think I too have turned up to the party a bit late, although I don't know what they would have quoted 6 months or a year ago. Just read an interesting article, these are the reasons given for why it could be a good idea to transfer if the valuation is good:

if they are heavily in debt
if they have a short life expectancy
if they are unmarried and do not have dependants (tick)
if they would prefer wealth to an income stream

In my case it's no to the others, plus:

if you want to pass on the value of your pension to your spouse or children
if you would like the opportunity for a larger tax free lump sum at retirement (that would be nice)
if you are concerned over the stability of your ex-employer (a bit)
if you want personal investment control and flexibility

Given this I don't think I have a strong enough case.

[JohnnyCyclops]

I'd prefer to leave it, there's an IFA cost for one and I like the idea of a few different pots (it's also inflation linked), but the thing that niggles is the idea of the whole fund going down the swanny like BHS or getting treated to some other kind of hair cut which would result in reduced/delayed payments, the company in question is Sainsburys.

Any failed DB scheme should fall into the hands of the Pension Protection Fund. From my limited experience a few years ago, wherein a DB scheme for a relatively small previous employer was only 60-70% funded, the company could no longer support it (indeed, were it to do so the entire rationale of the current form of the company would have been to support the now closed pension scheme!), and it transferred into the PPF, also allowing the company to continue to trade, happiness all around! The PPF makes a commitment for 90% payment, AFAIK but DYOR if you're concerned your DB pension might be either materially underfunded or the company is at some significant risk of failing to meet its obligations. You might consider approaching the DB scheme's trustees for a view on current risks.

http://www.pensionprotectionfund.org.uk ... epage.aspx

[DrBunsenHoneydew]

if they are unmarried and do not have dependants (tick)

Would the transferring DB scheme not give a lower quote if they know you are unmarried than if they knew you were married and they were on the hook for a widow(er)'s benefit in the long run?

[parallellines]

if they are unmarried and do not have dependants (tick)

Would the transferring DB scheme not give a lower quote if they know you are unmarried than if they knew you were married and they were on the hook for a widow(er)'s benefit in the long run?

I suppose it's possible but I've never heard of it happening, for two reasons:-
-most schemes don't maintain such records in real time, and just enquire about beneficiaries when a member dies;
-in most schemes the condition is just do you have a qualifying partner when you die. So being unmarried today proves nothing as it could all change.

But it is a reason to transfer if the OP really puts no value on the survivor's pension.

The transfer decision still needs a proper analyis of what investment return would be needed to generate equivalent benefits, and how achievable is that, and the OPs tolerance of risk.

[monabri]

When I took my DB pension I did not take any of the 25% tax free cash as I calculated that I would have to find someway of consistently giving me 8% a year after tax to replace the benefit of the 25% cash. For me personally, I didn't see how I could consistently match that with no risk.