Moving a pension fund out of a DB Scheme

JNW1 · 06-11-2018, 07:39 AM

Been looking at this recently and just wondered if anyone else on here had been through the same process?

Have to say the transfer value quoted for a Defined Benefit (DB) pension pot from a former employer has come as a very pleasant surprise and I'm now thinking seriously about moving it to a personal drawdown pension instead. The downside is obviously risk passes from the company pension scheme to me but there are significant advantages in terms of how you can take the pension and, providing a fund can average 7% to 8% growth before fees (which a decent one should), I reckon that will be fine for my circumstances.

On balance I'm therefore leaning towards making the switch but any thoughts on the pros and cons? I'm aware I'll need to demonstrate I've taken independent advice before I can move funds from a DB Scheme anyway but just curious if anyone else has been through the same loop and has any experience they'd like to share (e.g. who's good (or bad!) for giving advice, which funds perform well, etc).

Flyboy-fil · 06-11-2018, 07:56 AM

Cons....you can run out of money!

This is a huge decision so ensure you get advice from multiple sources. Quite a lot of people where I work have done this, although quite a lot have not. Some took partial transfers to spread their risk a little. You mention 7%, we were given the advice that you really need to be able to live on a 3-4% return so the extra few percent (to take you to the 7) can pay for fees and allow the fund to grow with inflation.

Have you thought about the LTA? A DB pension uses a 20-times multiple for lTA purposes but you may get much more than that if you transfer out meaning you can now bust the LTA whereas you would not had you stayed in. These are all decisions.

Pros You can leave what's left, which may be the whole amount if you've managed to survive on the growth, to your dependants.....or buy a Lamborghini!

Watsey · 06-11-2018, 08:33 AM

Unless the incentive(s) to you are huge, I'd leave it alone. I have a couple of DB pensions and all of my IFAs over the years have recommended leaving well alone.

isleaiw1 · 06-11-2018, 08:34 AM

Quote:

Originally Posted by JNW1

Been looking at this recently and just wondered if anyone else on here had been through the same process?

Have to say the transfer value quoted for a Defined Benefit (DB) pension pot from a former employer has come as a very pleasant surprise and I'm now thinking seriously about moving it to a personal drawdown pension instead. The downside is obviously risk passes from the company pension scheme to me but there are significant advantages in terms of how you can take the pension and, providing a fund can average 7% to 8% growth before fees (which a decent one should), I reckon that will be fine for my circumstances.

On balance I'm therefore leaning towards making the switch but any thoughts on the pros and cons? I'm aware I'll need to demonstrate I've taken independent advice before I can move funds from a DB Scheme anyway but just curious if anyone else has been through the same loop and has any experience they'd like to share (e.g. who's good (or bad!) for giving advice, which funds perform well, etc).

I looked at it - widowed, so want whatever is left when I have done drawing to go to kids not to be swallowed up by the scheme to cover their deficits! - bit my scheme didnt come back with good valuations (not much different to the 20x multiplier used for LTA) so the IFA said they would not be able to justify it. Will look again in a few years just in case....

I'm happy to take the risk for the potential to leave the rest to the kids if I dont live to a ripe old age (if I do they will be using it for my home anyway...) as I will be doing that with the DC schemes I have had since....and I have to manage that money appropriately....

Nobby Clark · 06-11-2018, 08:43 AM

Quote:

Originally Posted by Watsey

Unless the incentive(s) to you are huge, I'd leave it alone. I have a couple of DB pensions and all of my IFAs over the years have recommended leaving well alone.

Exactly this. Just been through this exercise myself. My FIA also said you need a very, very compelling reason to move the pot.

Rhino at Work · 06-11-2018, 09:14 AM

The default position on this for most people is don't do it so be hyper careful before you sign up for anything.

Ss66 · 06-11-2018, 09:46 AM

Interesting thread, both me and my wife have a FA coming round tomorrow. We both have DB pensions hers is a recent one from her last employer 600k transfer value. And mine is from a previous employer, which when I can get my hands will be a new M5.

will hopefully be looking at a drawdown pension for both.

Ss66 · 06-11-2018, 09:59 AM

Our main concern is that if anything happens to the wife, will what's in her pension go with her. If it's left in her current scheme.

Hanchurch · 06-11-2018, 10:12 AM

I got advice on this recently, obviously depends on your age, financial situation and attitude to risk but I am keeping it where it is. There is a reason why they are offering such massive transfer valuations!

isleaiw1 · 06-11-2018, 10:28 AM

Quote:

Originally Posted by Ss66

Our main concern is that if anything happens to the wife, will what's in her pension go with her. If it's left in her current scheme.

That will depend on specific rules of scheme - most have a spouses pension at about half of the full pension. My scheme had a rule that would only pay to spouse at time of leaving so even if I married again (unlikely!) they would not get a spouses pension. So moving out to something that goes to kids if I dont live for 20 plus years from retirement sounded sensible - but not on a TV multiple of 20....

JNW1 · 06-11-2018, 10:44 AM

Thanks to everyone for the replies so far!

Received wisdom was always that a DB Scheme was like gold dust (and therefore best to hang on to it if you've got one) but I do think there are reasonable arguments the other way which is why I'm investigating the draw-down option further. However, rest assured I won't be moving anything without taking expert advice and receiving a recommendation to do so!

In terms of there being a reason for transfer values being high at the moment, there is and from my understanding a lot of it is to do with low base rates which in turn impact assumed returns on low-risk government gilts and bonds. Those instruments are what are assumed to fund a large proportion of the defined benefits in a DB pension scheme and therefore the lower the returns the larger the pot needs to be to provide the benefit.

I suspect there may also be an element of pension schemes being happy to see people leave because if life expectancy increases the pressure on the schemes will invariably increase as well. However, from what I can gather the main reason for the current high transfer values is (in effect) low base rates (and if that changes in the coming year it may be that transfer values are now as good as they're going to get to look for quite a while).

To give a bit of context to transfer values, unfortunately I got divorced almost exactly 10 years ago and by coincidence left the company with whom my DB pension was with shortly afterwards. I had to get a transfer value for my pension as part of calculating the asset values for the divorce and the figure I'm being quoted now is 6 times what it was 10 years ago despite next to no additional contributions in the meantime. Thankfully we agreed a clean break so ex-Mrs JNW1 has no claim on the increased pension fund!

JNW1 · 06-11-2018, 11:13 AM

Quote:

Originally Posted by LobB

Indeed the reason is very straightforward.

Firstly we need to understand what a pain in the arse defined benefit schemes are to the finance director. Notoriously, the vast majority of schemes are in defecit. This defecit has to be shown on the companies balance sheet.Ouch!
Secondly, the deficits are extremely volatile, subject to movement in the stock market and longevity, by way of example. Just what you don't want on the balance sheet. Double ouch!

Given the above, there is a move by some companies to 'buy out' the members. In other words, keep increasing the Cash Equivalent Transfer Value until it's an offer too good to refuse.

This is what happened in my case. My CETV was already looking tempting, then within a period of six months, the trustees increased it by another £70,000 in an attempt to get me to piss off.

I took the money

From what I've gleaned there's a process which needs to be adhered to when calculating transfer values for DB Schemes as the figure has to be seen as fair to both the person potentially looking to leave and those who remain in the scheme. I'm sure that "fairness" will only have to fall within an acceptable range - and hence there won't be only one possible, correct, figure - but equally I don't think trustees are able to offer any number they choose just to bribe members to leave!

There are some calculators online which allow you to enter the pension projected from your scheme at 60 or 65 and from that it gives you a range within which your transfer value is likely to sit; what I'm being offered is just about bang in the middle so it feels like it's neither brilliant nor awful (and therefore quite possibly fair!).

isleaiw1 · 06-11-2018, 11:19 AM

Quote:

Originally Posted by JNW1

From what I've gleaned there's a process which needs to be adhered to when calculating transfer values for DB Schemes as the figure has to be seen as fair to both the person potentially looking to leave and those who remain in the scheme. I'm sure that "fairness" will only have to fall within an acceptable range - and hence there won't be only one possible, correct, figure - but equally I don't think trustees are able to offer any number they choose just to bribe members to leave!

There are some calculators online which allow you to enter the pension projected from your scheme at 60 or 65 and from that it gives you a range within which your transfer value is likely to sit; what I'm being offered is just about bang in the middle so it feels like it's neither brilliant nor awful (and therefore quite possibly fair!).

Just beware that getting it signed off by an IFA requires you to show clear reasons and no undue risk - at a transfer value of 20x give or take my IFA couldnt event start to justify so he walked away with no fee....

JD6 · 06-11-2018, 11:24 AM

I have read about people being offered 50x the starting pension level, which does seem excessive and quite worth doing. I imagine 30x is more normal for a 60 year old.

Can I ask those who have either done this, or been given a figure from the trustees, what multiple have you been offered, and what were the basic terms of your pension (age 60, CPI increase, 5 year guarantee, half pension for spouse....)?

Cheers

JNW1 · 06-11-2018, 11:29 AM

Quote:

Originally Posted by isleaiw1

Just beware that getting it signed off by an IFA requires you to show clear reasons and no undue risk - at a transfer value of 20x give or take my IFA couldnt event start to justify so he walked away with no fee....

Excuse my ignorance but is that 20 times by reference to the pension you'd expect to receive at normal retirement age from the scheme? For example, if normal retirement age with a scheme is 65 - and the projected pension at that point is £40k/annum - are you saying a transfer value would need to be well over £800k (i.e. 20 times £40k) for it to be attractive/worthwhile?

JD6 · 06-11-2018, 11:34 AM

Quote:

Originally Posted by JNW1

Excuse my ignorance but is that 20 times by reference to the pension you'd expect to receive at normal retirement age from the scheme? For example, if normal retirement age with a scheme is 65 - and the projected pension at that point is £40k/annum - are you saying a transfer value would need to be well over £800k (i.e. 20 times £40k) for it to be attractive/worthwhile?

Yes

JD6 · 06-11-2018, 11:45 AM

Quote:

Originally Posted by LobB

I got 50x when I moved the monies earlier this year. Aged 54 years

Pension was NRD 60, 2/3 spouses, 5% or RPI, min 3% escalation, can't remember the guarantee.

Interesting thanks.

I have one DB pension from my first graduate job where I stayed just over 5 years. I would certainly take 50x as I am very used to investing for myself.

Ss66 · 06-11-2018, 11:51 AM

Will be interesting to see what our IFA says tomorrow. As my wife has a high CETV, given she's still 13 years away from 65.

JNW1 · 06-11-2018, 01:35 PM

By all means flame me for the inappropriate use of man-maths but I'm honest I'm more looking at what I need to be comfortable and working backwards from that!

Rough figures using online calculators suggest that at age 55 I could take a lump sum of 10% up-front and, providing the remaining fund then returns around 7-8% before fees, that would give me roughly what I need lasting well into my 90's (which is apparently beyond my life expectancy anyway!). In the event the pension pot ran out - and the other half and I were still alive and kicking - I think I could then use equity drawdown from the house to fund our remaining years (or that one-way trip to Switzerland!).

In contrast, if I leave my DB fund where it is, there's no way the pension payable will enable me to retire at 55. In addition, for me one of the big disadvantages of these schemes is they pay the same in real terms at 85 as they do at 55 when in reality your capacity and desire to get out and do things is probably less. The idea of being able to access your money when it's more use to you therefore has its appeal IMO although I do concede my view is perhaps being coloured by seeing the way vascular dementia has affected my dad in later life....

JD6 · 06-11-2018, 01:44 PM

Quote:

Originally Posted by JNW1

providing the remaining fund then returns around 7-8% before fees, that would give me roughly what I need lasting well into my 90's

I don't think it's safe to rely upon a 7-8% return. It may happen, but I wouldn't base your plans on that unless you have options that you are happy to take to fill the gap - downsize, equity release, reduce living costs...

isleaiw1 · 06-11-2018, 01:52 PM

Quote:

Originally Posted by JNW1

Excuse my ignorance but is that 20 times by reference to the pension you'd expect to receive at normal retirement age from the scheme? For example, if normal retirement age with a scheme is 65 - and the projected pension at that point is £40k/annum - are you saying a transfer value would need to be well over £800k (i.e. 20 times £40k) for it to be attractive/worthwhile?

In my case 20x the pension at NRD expressed in today's money ie as if I was 65 now. I was 53 when I got the quote, 12 years to retirement.

At 40 times I would have gone through with it.

Nobby Clark · 06-11-2018, 03:42 PM

Trading certainty, for (high) risk.
An intersting thought given you can’t go back and this is your income for a fair portion of your life. How many here took a fixed rate mortgage at some point? How many are disappointed with the equity at the end of their pcp? All very minor financial decisions compared to a pension
All you need is another stock crash, and that will happen, and it could be game over.

Back to my previous post, where you can have an approach to risk, my FIA said he’d want a 95% positive, certain reasons to move a DB pension but may take even a 50/50 approach to other investments.

06-11-2018, 07:39 AM	#1
JNW1 Major General 3122 Rep 5,681 Posts Drives: F56 Mini Cooper S Join Date: Oct 2012 Location: North Yorkshire iTrader: (0)	Moving a pension fund out of a DB Scheme Been looking at this recently and just wondered if anyone else on here had been through the same process? Have to say the transfer value quoted for a Defined Benefit (DB) pension pot from a former employer has come as a very pleasant surprise and I'm now thinking seriously about moving it to a personal drawdown pension instead. The downside is obviously risk passes from the company pension scheme to me but there are significant advantages in terms of how you can take the pension and, providing a fund can average 7% to 8% growth before fees (which a decent one should), I reckon that will be fine for my circumstances. On balance I'm therefore leaning towards making the switch but any thoughts on the pros and cons? I'm aware I'll need to demonstrate I've taken independent advice before I can move funds from a DB Scheme anyway but just curious if anyone else has been through the same loop and has any experience they'd like to share (e.g. who's good (or bad!) for giving advice, which funds perform well, etc).
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06-11-2018, 07:56 AM	#2
Flyboy-fil Private 22 Rep 86 Posts Drives: 520d B47 Join Date: Aug 2014 Location: Hertfordshire iTrader: (0)	Cons....you can run out of money! This is a huge decision so ensure you get advice from multiple sources. Quite a lot of people where I work have done this, although quite a lot have not. Some took partial transfers to spread their risk a little. You mention 7%, we were given the advice that you really need to be able to live on a 3-4% return so the extra few percent (to take you to the 7) can pay for fees and allow the fund to grow with inflation. Have you thought about the LTA? A DB pension uses a 20-times multiple for lTA purposes but you may get much more than that if you transfer out meaning you can now bust the LTA whereas you would not had you stayed in. These are all decisions. Pros You can leave what's left, which may be the whole amount if you've managed to survive on the growth, to your dependants.....or buy a Lamborghini!
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06-11-2018, 08:33 AM	#3
Watsey Major General 6461 Rep 8,525 Posts Drives: F31 330D sDrive M Sport Join Date: Jun 2015 Location: On sabbatical. iTrader: (1)	Unless the incentive(s) to you are huge, I'd leave it alone. I have a couple of DB pensions and all of my IFAs over the years have recommended leaving well alone. __________________ Current : F31 330sD, remapped, Ohlins Road & Track, Millway camber plates, Quaife LSD, Stoptech brakes + Pagid RSL1 pads all round, Weichers front strut brace, Eibach front & rear anti-roll bars, Michelin MP4S.
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06-11-2018, 09:14 AM	#6
Rhino at Work Major 714 Rep 1,244 Posts Drives: G21 330i Portimao Blue Join Date: Aug 2012 Location: Yorkshire iTrader: (0)	The default position on this for most people is don't do it so be hyper careful before you sign up for anything. __________________ Current: Portimao Blue G21 330i Previous: EB F30 340i Shadow Edition Previous: EB F30 330d xdrive
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06-11-2018, 09:46 AM	#7
Ss66 Captain 346 Rep 898 Posts Drives: F32 440i Join Date: May 2014 Location: Warwickshire iTrader: (0)	Interesting thread, both me and my wife have a FA coming round tomorrow. We both have DB pensions hers is a recent one from her last employer 600k transfer value. And mine is from a previous employer, which when I can get my hands will be a new M5. will hopefully be looking at a drawdown pension for both. __________________ 2014 f330d 2015 f335d 2016 f32 440i tanzanite/white merino 2008 Toyota Yaris sr 2005 e46 320d. 1996 316i.
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06-11-2018, 09:59 AM	#8
Ss66 Captain 346 Rep 898 Posts Drives: F32 440i Join Date: May 2014 Location: Warwickshire iTrader: (0)	Our main concern is that if anything happens to the wife, will what's in her pension go with her. If it's left in her current scheme. __________________ 2014 f330d 2015 f335d 2016 f32 440i tanzanite/white merino 2008 Toyota Yaris sr 2005 e46 320d. 1996 316i.
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06-11-2018, 10:12 AM	#9
Hanchurch Captain 322 Rep 716 Posts Drives: tesla model 3 performance Join Date: Mar 2016 Location: Yorkshire iTrader: (0)	I got advice on this recently, obviously depends on your age, financial situation and attitude to risk but I am keeping it where it is. There is a reason why they are offering such massive transfer valuations! __________________ Tesla Model 3 Performance June 2021 Past - BMW 335d touring xdrive m sport June 2016 Audi S4 B7 avant 4.2l V8, Alfa Romeo 156 V6, Fiat Bravo HGT, VW Polo coupe S, VW Polo gl Mrs Hanchurch - Fiat 500 La Prima Electric, Mini Cooper S cabriolet Past - Mini Cooper S 7 5 door, BMW 120d m sport, Saab 9-3 2.8 V6 turbo, Mazda RX8 231, Mini Cooper S
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06-11-2018, 10:44 AM	#11
JNW1 Major General 3122 Rep 5,681 Posts Drives: F56 Mini Cooper S Join Date: Oct 2012 Location: North Yorkshire iTrader: (0)	Thanks to everyone for the replies so far! Received wisdom was always that a DB Scheme was like gold dust (and therefore best to hang on to it if you've got one) but I do think there are reasonable arguments the other way which is why I'm investigating the draw-down option further. However, rest assured I won't be moving anything without taking expert advice and receiving a recommendation to do so! In terms of there being a reason for transfer values being high at the moment, there is and from my understanding a lot of it is to do with low base rates which in turn impact assumed returns on low-risk government gilts and bonds. Those instruments are what are assumed to fund a large proportion of the defined benefits in a DB pension scheme and therefore the lower the returns the larger the pot needs to be to provide the benefit. I suspect there may also be an element of pension schemes being happy to see people leave because if life expectancy increases the pressure on the schemes will invariably increase as well. However, from what I can gather the main reason for the current high transfer values is (in effect) low base rates (and if that changes in the coming year it may be that transfer values are now as good as they're going to get to look for quite a while). To give a bit of context to transfer values, unfortunately I got divorced almost exactly 10 years ago and by coincidence left the company with whom my DB pension was with shortly afterwards. I had to get a transfer value for my pension as part of calculating the asset values for the divorce and the figure I'm being quoted now is 6 times what it was 10 years ago despite next to no additional contributions in the meantime. Thankfully we agreed a clean break so ex-Mrs JNW1 has no claim on the increased pension fund!
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06-11-2018, 11:24 AM	#14
JD6 Major General 4306 Rep 6,969 Posts Drives: 840i GC + Mini Electric L3 Join Date: May 2014 Location: United Kingdom iTrader: (0)	I have read about people being offered 50x the starting pension level, which does seem excessive and quite worth doing. I imagine 30x is more normal for a 60 year old. Can I ask those who have either done this, or been given a figure from the trustees, what multiple have you been offered, and what were the basic terms of your pension (age 60, CPI increase, 5 year guarantee, half pension for spouse....)? Cheers
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06-11-2018, 11:51 AM	#18
Ss66 Captain 346 Rep 898 Posts Drives: F32 440i Join Date: May 2014 Location: Warwickshire iTrader: (0)	Will be interesting to see what our IFA says tomorrow. As my wife has a high CETV, given she's still 13 years away from 65. __________________ 2014 f330d 2015 f335d 2016 f32 440i tanzanite/white merino 2008 Toyota Yaris sr 2005 e46 320d. 1996 316i.
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06-11-2018, 01:35 PM	#19
JNW1 Major General 3122 Rep 5,681 Posts Drives: F56 Mini Cooper S Join Date: Oct 2012 Location: North Yorkshire iTrader: (0)	By all means flame me for the inappropriate use of man-maths but I'm honest I'm more looking at what I need to be comfortable and working backwards from that! Rough figures using online calculators suggest that at age 55 I could take a lump sum of 10% up-front and, providing the remaining fund then returns around 7-8% before fees, that would give me roughly what I need lasting well into my 90's (which is apparently beyond my life expectancy anyway!). In the event the pension pot ran out - and the other half and I were still alive and kicking - I think I could then use equity drawdown from the house to fund our remaining years (or that one-way trip to Switzerland!). In contrast, if I leave my DB fund where it is, there's no way the pension payable will enable me to retire at 55. In addition, for me one of the big disadvantages of these schemes is they pay the same in real terms at 85 as they do at 55 when in reality your capacity and desire to get out and do things is probably less. The idea of being able to access your money when it's more use to you therefore has its appeal IMO although I do concede my view is perhaps being coloured by seeing the way vascular dementia has affected my dad in later life....
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06-11-2018, 03:42 PM	#22
Nobby Clark Lieutenant Colonel 759 Rep 1,863 Posts Drives: F36 430d xDrive M Sport Join Date: Dec 2015 Location: Scotland iTrader: (0)	Trading certainty, for (high) risk. An intersting thought given you can’t go back and this is your income for a fair portion of your life. How many here took a fixed rate mortgage at some point? How many are disappointed with the equity at the end of their pcp? All very minor financial decisions compared to a pension All you need is another stock crash, and that will happen, and it could be game over. Back to my previous post, where you can have an approach to risk, my FIA said he’d want a 95% positive, certain reasons to move a DB pension but may take even a 50/50 approach to other investments.
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