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DB pension vs SIPP

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I worked for 6 years for a company about 10 yrs ago with a DB pension. I'm trying to decide whether I should transfer my pension pot into a SIPP.  

Based on contributing 9% of salary at annual return of 9% (I started saving at 18, so use half my age as % of salary for pension contribution rule of thumb), my pension pot with them should currently be worth £30k approx (as in transfer out value). They have offered me more than double that... is that because they're so keen to get people out of the scheme?

My reason for wanting to transfer out is simply because I think they might go under (although Pension Protection Fund would cover my back I guess).

So my question is, bearing in mind the large sum they're offering me, is there any reason not to transfer out? I am aware of SIPP charges, and am a seasoned investor with shares in 40 or so companies.

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£60K(ish) won't buy much of an annuity these days - and you don't say what the DB pension could mean in terms of income/whether it is index linked etc.  I guess it then comes down to what kind of return you think you can get from it and whether that's likely to beat inflation etc. But compared to many, it's a nice problem to have. 

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Sorry just to add i'm only 39, so loooong way from retirement yet. I'm wondering whether the company (big bank) is better left to look after that part of my pension, or I could do better with it in a SIPP.

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Difficult to say without details of the pension schemes benefits. DB schemes were usually written up by idiots - but it's a funny case of the recipients being very lucky.

Fwiw, my Dad's DB benefits ended up being worth 3-4 x what the pot should have been worth.

Tl;Dr You need to work out what the benefits would be worth if you were to buy it as an open market annuity to get the real value. What you think it's worth based on your contributions is kinda meaningless when it comes to DB pensions.

Lovely problem to have :-)

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On 20/10/2016 at 4:54 AM, hiace_drifter said:

They have offered me more than double that... is that because they're so keen to get people out of the scheme

Basically yes.  It's all to do with low interest rates on gilts. The wonders of QE and low gilt rates means it costs a fortune to provide a guaranteed income for life.  This is the reason for those £Billion pension deficits you hear about. Its not just inadequate contributions from the companies involved, its the rules they have to play by to guarantee that pension.

If you think gilt rates will stay rock bottom (i.e. annuities will stay expensive), keep the DB.

If you think gilt rates are going up, now may be a good time to move. On the principle of "always decline the first offer", you could always see if they will improve it.

PPF only appears to cover your back 90%. Read the rules carefully as it is not the guarantee it initially appears to be. I believe you lose the index-linking and other benefits of a DB. Best to check this yourself. Last time I looked, I figured the protection was only worth around 50% of the promises if you were 20+ years from retiring.

My inlaws were offered a similar deal, several thousands now (taxable) to give up some income (tax-free under personal allowance). I showed them that the offer wouldn't even buy half their income they were already getting.  They would only "win" if they both dropped dead within a couple of years. Being in good health, I suggested they keep the income.

Given all the info in your post, I would be more than tempted to collecting your winnings now and get it all under your control.

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I remember a few years ago, on the news we were being told that pension schemes had massive surpluses.  So much so, companies were taking contribution holidays, tax rules could be changed. Now they don't have enough funds and it is the little person having to take it on the chin. 

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36 minutes ago, One-percent said:

I remember a few years ago, on the news we were being told that pension schemes had massive surpluses.  So much so, companies were taking contribution holidays, tax rules could be changed. Now they don't have enough funds and it is the little person having to take it on the chin. 

Tails they win, Heads you lose. 

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My question under this forum was identical. 

For you there is another factor....now you are out of the scheme you may find that your pension (ie the amount you will actually get) is already increasing every year. 

I still am employed and one of the very reasons I am leaving ASAP. The pension when deferred (ie when you have left) or when in payment is often index linked. For me, mine is absolutely fixed until I leave. 

So in simple terms of your pension is £5k at 62, you may find that number is jumping up every year and when you get there it is £10k. 

So check that out and factor in. 

Of course £60k if taken will be yours to invest....but that is comparing 2 different things. Difficult to say what is 'best' trying to compare an apple to a pear. 

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Similar situation for me...final salary scheme from old job, giving fairly low (and fixed other than index linking) annual payment. Just been offered 48 x annual pension as transfer value (I'm at least 19 years from retirement). For me it's a no-brainer to transfer out to a SIPP, but as transfer value is >£30k, I am obliged to get written "permission" from an IFA, who will charge somewhere between £1500 to £4000 for the privilege! The written IFA opinion also has to be in favour of transfer, or the SIPP provider won't accept it. I've been ringing around, but no-one seems to want to touch it - the standard response is that final salary trumps SIPP every time. Well, only if I live past 113!

 

Anyone found a way around this? I would be grateful for the help...

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18 minutes ago, normdiploom said:

Similar situation for me...final salary scheme from old job, giving fairly low (and fixed other than index linking) annual payment. Just been offered 48 x annual pension as transfer value (I'm at least 19 years from retirement). For me it's a no-brainer to transfer out to a SIPP, but as transfer value is >£30k, I am obliged to get written "permission" from an IFA, who will charge somewhere between £1500 to £4000 for the privilege! The written IFA opinion also has to be in favour of transfer, or the SIPP provider won't accept it. I've been ringing around, but no-one seems to want to touch it - the standard response is that final salary trumps SIPP every time. Well, only if I live past 113!

 

Anyone found a way around this? I would be grateful for the help...

48 times which pension? The pension amount is that based on, the amount you get if you took it now or the one you would get at 65. 

My offer of 28 times (what it would be at 62) looks rather low. But it's 35x what I get at 50.

Adviser rang me again today and I appreciate he has a vested interested but clearly feels grabbing the money is better than a pension for me. I will have other income in retirement and some years will not draw a pension at all. Also if I sell a house I may not draw for 5 years so it offers flexibility and because I intend to sell all houses he suggests it then is a nice lump sum for the kids if I never get round to spending it. 

Nice problem to have I know....but becomes less about working it out with a calculator but deciding if I want the asset of £570k. Because a £15k pension will for me be taxed and end up being £12k. 

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Yes, nice problem to have as you say...but still a headache.

The transfer value for me is 48 x the annual pension at normal retirement date (NRD), which in this case is 2035.

 

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On 26/10/2016 at 11:39 PM, Phil321 said:

Because a £15k pension will for me be taxed and end up being £12k. 

Not necessarily so. You could take 11k income and a further 4k pa as tax free cash.

 

 

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Guest

The paperwork from the existing pension provider says I need a form signed by an IFA if I transfer the funds into a Defined Contribution pension. I was planning to move the funds into a SIPP - is that classed as Defined Contribution? I'm hoping to avoid IFA fees.

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2 hours ago, hiace_drifter said:

The paperwork from the existing pension provider says I need a form signed by an IFA if I transfer the funds into a Defined Contribution pension. I was planning to move the funds into a SIPP - is that classed as Defined Contribution? I'm hoping to avoid IFA fees.

Yes, IFA is unavoidable if fund is over £30k. 

One of the reasons I will probably end up (wrongly) just taking the easy route. Not sure I can be bothered with managing fees and searching for best returns each year. 

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On 7 November 2016 at 11:59 PM, CHF said:

Not necessarily so. You could take 11k income and a further 4k pa as tax free cash.

 

 

In my case I will take out all tax free cash up front....I don't trust future changes. 

And the £11k will be taxable due to other income. (Unfortunately....or fortunately). 

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9 hours ago, hiace_drifter said:

I'm struggling to find an IFA ... The three I have asked won't advise on transfers out.

If you go via unbiased.co.uk you should find an IFA who would be fine with advising on exiting a DB.  Expect eye-watering cost though and on top of that you have to get a 450 quid tick-in-the-box from some chair-polishing certification outfit whose name I can't remember. The reason you are having problems is probably you found IFAs who did not have the necessary G60 qualification.

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