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BIG decision to make!

Including Financial Independence and Retiring Early (FIRE)
BrummieDave
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Re: BIG decision to make!

#252585

Postby BrummieDave » September 18th, 2019, 8:20 pm

Nen2319 wrote:Maybe another option is to transfer my DC pot into my DB pot which is allowed


Is your DB scheme still open then?

And if so, you think you can transfer your DC pot (which can quite correctly be described as a 'pot' because it's your own fund) into your DB scheme (which cannot correctly be described as a 'pot' - you don't have your own fund as such, the scheme has a total fund from which pensions are paid).

I have never heard of a DC to DB transfer.

flyer61
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Re: BIG decision to make!

#252591

Postby flyer61 » September 18th, 2019, 9:12 pm

Having thought about it I too am only aware of DB to DB.

Alaric
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Re: BIG decision to make!

#252603

Postby Alaric » September 18th, 2019, 11:54 pm

BrummieDave wrote:I have never heard of a DC to DB transfer.


DC schemes might have an option where the value is converted into an income payable either immediately or deferred. If the amount of income is fixed or indexed and doesn't subsequently depend on market prices, that might be described as a transfer to DB.

TUK020
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Re: BIG decision to make!

#252619

Postby TUK020 » September 19th, 2019, 7:25 am

BrummieDave wrote:
Nen2319 wrote:Maybe another option is to transfer my DC pot into my DB pot which is allowed


Is your DB scheme still open then?

And if so, you think you can transfer your DC pot (which can quite correctly be described as a 'pot' because it's your own fund) into your DB scheme (which cannot correctly be described as a 'pot' - you don't have your own fund as such, the scheme has a total fund from which pensions are paid).

I have never heard of a DC to DB transfer.


I had made an enquiry to see if I could transfer my DC pot to my DB provider, so that I could then retrieve the DC pot as a % tax free payment. Idea was to be able to take a bigger tax free lump sum, without touching my DB pension. Told rules of the pension scheme prohibited transfers in. Suspect you need to check this out.

BrummieDave
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Re: BIG decision to make!

#252631

Postby BrummieDave » September 19th, 2019, 8:20 am

TUK020 wrote:
BrummieDave wrote:
Nen2319 wrote:Maybe another option is to transfer my DC pot into my DB pot which is allowed


Is your DB scheme still open then?

And if so, you think you can transfer your DC pot (which can quite correctly be described as a 'pot' because it's your own fund) into your DB scheme (which cannot correctly be described as a 'pot' - you don't have your own fund as such, the scheme has a total fund from which pensions are paid).

I have never heard of a DC to DB transfer.


I had made an enquiry to see if I could transfer my DC pot to my DB provider, so that I could then retrieve the DC pot as a % tax free payment. Idea was to be able to take a bigger tax free lump sum, without touching my DB pension. Told rules of the pension scheme prohibited transfers in. Suspect you need to check this out.


Now that I understand.

Some combined DB and DC schemes, where a DB scheme has closed and the same employer opened a DC scheme for subsequent contributions, treat the two pensions as one for certain aspects such as calculating the PCLS for each, adding them, then allowing the whole amount to be taken from the DC fund thus leaving more of the DB pension intact. This has the benefit of preserving the greater benefits of DB whilst accessing the full PCLS of the two schemes but from only the DC fund.

I have only ever seen this once, and that was for a very small cohort of members in a section of a large scheme, limited to a handful of senior managers who had transferred in via a company acquisition. It is quite unusual in my experience. If it is allowed, it can be beneficial, but this will need to be checked thoroughly.

Chrysalis
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Re: BIG decision to make!

#252661

Postby Chrysalis » September 19th, 2019, 10:26 am

Some of the public sector DB schemes used to allow transfers in from D.C. schemes, but I think there was a time limit eg within the first year of joining. I had a friend join the Civil Service from the private sector who did very very nicely out of that facility. I suspect it’s either no longer allowed or restricted to ‘top talent’ (revolting term).

Alaric
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Re: BIG decision to make!

#252693

Postby Alaric » September 19th, 2019, 1:30 pm

BrummieDave wrote:Some combined DB and DC schemes, where a DB scheme has closed and the same employer opened a DC scheme for subsequent contributions, treat the two pensions as one for certain aspects such as calculating the PCLS for each, adding them, then allowing the whole amount to be taken from the DC fund thus leaving more of the DB pension intact. This has the benefit of preserving the greater benefits of DB whilst accessing the full PCLS of the two schemes but from only the DC fund.



I think to make that work, it's constructed as legally one scheme, but with two sections. It may even be a common method for Companies that ran a DB scheme in the past, closed it to new entrants and additional accruals but continued to pay into a scheme with defined contribution benefits. Continuing employees would then have both types of pension arising from a single employment.

BrummieDave
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Re: BIG decision to make!

#252703

Postby BrummieDave » September 19th, 2019, 2:54 pm

Alaric wrote:
BrummieDave wrote:Some combined DB and DC schemes, where a DB scheme has closed and the same employer opened a DC scheme for subsequent contributions, treat the two pensions as one for certain aspects such as calculating the PCLS for each, adding them, then allowing the whole amount to be taken from the DC fund thus leaving more of the DB pension intact. This has the benefit of preserving the greater benefits of DB whilst accessing the full PCLS of the two schemes but from only the DC fund.



I think to make that work, it's constructed as legally one scheme, but with two sections. It may even be a common method for Companies that ran a DB scheme in the past, closed it to new entrants and additional accruals but continued to pay into a scheme with defined contribution benefits. Continuing employees would then have both types of pension arising from a single employment.


Indeed, and I'm a long standing Trustee of such a scheme. We are one overall scheme, with many sections, some DB, some DC, primarily due to the acquisitive nature of the sponsoring employer.

But even within such a construct, it is very unusual for the scheme rules to allow a member to calculate the combined PCLS for their DB and DC, and then take this aggregated amount exclusively from their DC. The reason is that this can put a funding strain on the DB scheme, because the overall liabilities will have been calculated by the scheme's actuary based on an assumption of what % each member will take as a PCLS. The approach of taking the aggregated PCLS exclusively from the DC pot as outlined above, would therefore imply a lower, potentially zero, PCLS from the DB, leaving a larger than actuarially assumed DB pension for the member, and thus potentially create a funding strain on the overall DB scheme, especially if the option was extended to all members.

As I say, I've only ever seen it once, and that was for a very small cohort of transferred in employees within a section of a scheme with many thousands of members who didn't have this option. It was part of the Ts and Cs from the previous employer and was carried across at transfer/acquisition.

dealtn
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Re: BIG decision to make!

#252715

Postby dealtn » September 19th, 2019, 3:59 pm

Gan020 wrote:
Yes but that's the purpose of holding some bonds in an investment portfolio. The returns are lower but carry far less risk. As a very broad comment if you hold 50% in bonds and the market falls 20%, your portfolio will only fall around 10%.

...

In order to sleep well I need to raise my bond percentage to at least 30%. I have found it difficult to implement my plan to buy more bonds as the returns on equity always seem to pull me towards them. It's a balance that each individual needs to strike depending on their personal circumstances.


Because capital held in bonds isn't subject to repricing risk? It only takes a cursory glance at, say, Gilt prices over the last year or so to show that's a nonsense.

What about if the bond market falls 20%, with equities unchanged? There's a portfolio loss of 10% too. Take comfort in diversification if you like, but do it with eyes open at least to the fact that bonds, especially with interest rates at, or about, historic lows, might not "carry far less risk".

jonesa1
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Re: BIG decision to make!

#252826

Postby jonesa1 » September 20th, 2019, 9:16 am

BrummieDave wrote:
But even within such a construct, it is very unusual for the scheme rules to allow a member to calculate the combined PCLS for their DB and DC, and then take this aggregated amount exclusively from their DC. The reason is that this can put a funding strain on the DB scheme, because the overall liabilities will have been calculated by the scheme's actuary based on an assumption of what % each member will take as a PCLS. The approach of taking the aggregated PCLS exclusively from the DC pot as outlined above, would therefore imply a lower, potentially zero, PCLS from the DB, leaving a larger than actuarially assumed DB pension for the member, and thus potentially create a funding strain on the overall DB scheme, especially if the option was extended to all members.


At last, I've discovered something my previous employer could have done to its advantage and the disadvantage of its employees, that it didn't actually do. Last year I was able to take the whole of my DC and AVC value as a PCLS for a combined DB, DC and AVC pot.

Alaric
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Re: BIG decision to make!

#252831

Postby Alaric » September 20th, 2019, 9:29 am

BrummieDave wrote:
But even within such a construct, it is very unusual for the scheme rules to allow a member to calculate the combined PCLS for their DB and DC, and then take this aggregated amount exclusively from their DC. The reason is that this can put a funding strain on the DB scheme, because the overall liabilities will have been calculated by the scheme's actuary based on an assumption of what % each member will take as a PCLS. The approach of taking the aggregated PCLS exclusively from the DC pot as outlined above, would therefore imply a lower, potentially zero, PCLS from the DB, leaving a larger than actuarially assumed DB pension for the member, and thus potentially create a funding strain on the overall DB scheme, especially if the option was extended to all members.


I dare say they will advise the employer it costs more, but the actuaries can be told to make different assumptions, in particular that members with both DC and DB entitlements will most likely take the DC as cash and the DB as income.

BrummieDave
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Re: BIG decision to make!

#252867

Postby BrummieDave » September 20th, 2019, 11:16 am

Alaric wrote:
I dare say they will advise the employer it costs more, but the actuaries can be told to make different assumptions, in particular that members with both DC and DB entitlements will most likely take the DC as cash and the DB as income.


Don't wish to stray O/T but there's a whole host of reasons whereby that may not be practical, including that many schemes will have different administrators for DB and DC, the actuary won't have access to the DC data for each member to perform any calculations, if the actuary did, there would be far too many calculations to perform and aggregate based on different approaches individual members may take for a single DB scheme liability to be established, members are likely to have pensions from other employers which muddies things, and, above all, for a scheme of any size having this degree of variation in actuarial valuation resulting from that approach would make it both unmanageable and costly to administer, and if members took their PCLS exclusively from their DC pots the resulting impact on DB liabilities would likely be unaffordable for most sponsoring employers to fund.

So for anyone offered it, like jonesa1 and potentially and Nen2319, you're in a fortunate position to have the choice IMHO.

Nen2319
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Re: BIG decision to make!

#263677

Postby Nen2319 » November 12th, 2019, 10:14 am

Well in the end I didn’t have a decision to make. I contacted an IFA to start the process of gaining advice about a transfer. I sent my data and didn’t hear anything back in weeks. After I chased them up I still didn’t hear anything so wrote again complaining. They acknowledged my complaint and opened a case. This all means that the transfer offer has expired and I have to wait another year before I can request another one. All in all not a good experience.

jonesa1
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Re: BIG decision to make!

#263692

Postby jonesa1 » November 12th, 2019, 11:29 am

Is it possible to get a new quote sooner if you pay for it?

BrummieDave
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Re: BIG decision to make!

#263756

Postby BrummieDave » November 12th, 2019, 3:52 pm

Your pensions scheme may charge you for a second quote within a set period. This is to avoid the scheme incurring unnecessary costs by dint of members repeatedly requesting quotes.

Nen2319
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Re: BIG decision to make!

#264538

Postby Nen2319 » November 15th, 2019, 12:28 pm

Nope. They simply say I have to wait 12 months so that’s what I’m going to do. In the meantime keep building the SIPP up.

Btw these boards are fantastic. So many people willing to help less experienced people like me. Thx to all!


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