Should I stay or should I go? A guide to defined benefit pension transfers

I understand if a scheme is underfunded the transfer value is reduced in proportion to the underfunding. eg If a scheme is only funded to 60% of potential liabilities, transfer value will be reduced by 40%. If this rule were not in place, members transferring out are increasing the level of scheme underfunding marginally, increasing risk for remaining members. In extreme cases a scheme could be bankrupted by excessive transfers. I don’t recall this being mentioned in the webinar, but think this is a key point.

Thanks

We need advice but How can I get advice

Financial advisers will try to get their hands on your whole pension pot and try to manage your pot long term for an annual fee . Only agree to a ONE OFF payment and make it clear you do not want to be under any further obligation after you have paid the 1500.00 pounds or so for their advice. They should then give you a written report which contains their recommendation which, as this presentation makes clear- YOU DO NOT HAVE TO ACCEPT THEIR ADVICE.

The latest Neil Woodford debacle should be a powerful warning about whether to take draw down or to go for an annuity.

Could I transfer my government pension to a private pension??

Companies do not offer better pensions for no reason at all!

I work in the NHS and they tried to get everyone to swap from a DB originally to the DC. Most fell for it!

If you have a DB (final salary) then keep it. I would bet most people who have paid in for 20-30 years will not want to then work past 60? Which is the guarantee you will be expected to do in a defined contribution scheme. (You will have a slightly larger pension but you will work far longer and harder for it) We had our Trust trying to make people swap over and a lot did. They now regret it as they realised the scheme payment is not for life!

If you are in a defined contribution scheme but had to leave earlier than planned and drawdown on your pot. You need to realise you are expected to work till 67 to get the full benefit of the scheme without any penalties. The likelihood that is you or some of your family members may not be in optimal health between 60 and 67, theres far more higher risk of impact to your work life balance (which then may affect your pension) if you cannot potentially work 40 hours a week any more it could affect you in the twighlight of your career (when you want to be winding down)

The reality is if you leave work at lets say 62 (5 years Early on a DC) and start drawing from your pension you will be penalised by circa 5% / year. That would be 25% of your pot wiped out. Lets say you needed to take a max lump sum on the pension straight away you have just reduced your pension by 50% (so a pension of £200k has just become £100k in your first year of retirement. Scary. You need to have other investments and saving to make sure you do not fall into this trap and only tap into your pot when you are out of the penalties (age 67). So in a defined contribution scheme you would need to support your self with savings if you leave work early and wait till 67 to make sure you do not loose your hard earn pension. DC also does not offer a lump sum (3* your final salary pension calculation when you retire)

If you are lucky and have DB keep it no matter what. I would then recommend also getting a SIPP, Bonds and ISAs as soon as you can just add in what you can when you can. If you are in a DB and retire at 58-60 and have not got the full 40 years in it then top up with options mentioned above or and Buy property for rental income. If you get inheritance use it wisely invest it rather than spend the majority on new car, holidays or a new kitchen etc...


DB is pension for life you will get a fixed annuity until you DIE. It will not run out!
DC is a calculation based on your life expectancy. When the POT is empty thats it ALL GONE. You are expected to only drawdown 4% a year and let the rest be invested to gain interest.

I'm in the NHS and we have just won a case against the government as staff were forced to move to a DC and penalised on their age while others were able to stay in. MY DB was frozen in 2015. I like many NHS staff will now ask to have our NHS 2015 DC pension re-allocated to our frozen DB scheme and gain back 7 extra years at least. From 2022 to 2028 i expect that i will have some DC pension contribution which i will wait to take at 67 to avoid penalties.

MAKE SURE YOU CHECK WITH YOUR UNIONS WHAT SCHEME YOU ARE IN AND WHAT YOU ARE ENTITLED TO AND IF YOU CAN MOVE ANY YEARS THAT ARE IN THE 2015 scheme BACK into your DB if you are lucky to have one.

Hope this is informative?

I have a DB pension of 24 years. If the company goes bust over the next few years do i only get 90% of it through the PPF (Pension Protection fund). Normal age people take this pension is age 65?. So i can take 25% of that tax free or does this only apply to the defined contribution pension.? My company has now moved me to a defined contribution pension now :(. They cannot touch my DB pension.

Fantastic and really helpful. Thank you.

Current xfer values at my employer are 40X .