Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

Transfer out of DB scheme - advice wanted

WickedLester
Lemon Slice
Posts: 503
Joined: November 8th, 2016, 6:56 pm
Has thanked: 221 times
Been thanked: 246 times

Transfer out of DB scheme - advice wanted

#471344

Postby WickedLester » January 8th, 2022, 10:44 am

My first job after leaving school was at Barclays Bank and I stayed there for three years before heading back to College and then University.

Now I have a defined benefit scheme from my time there which I can take at 65 (i'm 49) currently worth about £343 per year. I was just pottering about on the pension trustees website and asked for a transfer out value. The figure came out at over £76000 which seems an awful lot to me.

I'm not married and have no children so don't really need spouse benefits.

It seems to me if I transferred this fund out into my SIPP, even investing it cautiously I could probably get an income of 4% a year which is significantly greater than £343 per year.

I am confident in managing my own money and although I didn't really make any money last year, the year before my SIPP returned around 80% (although some of this was very good luck).

What do Fools think? Would it make sense to transfer out and invest the money myself (another benefit of this is that if there is anything left when I die I can leave it to my nieces).

Any advice gratefully received.

AsleepInYorkshire
Lemon Half
Posts: 7383
Joined: February 7th, 2017, 9:36 pm
Has thanked: 10514 times
Been thanked: 4659 times

Re: Transfer out of DB scheme - advice wanted

#471346

Postby AsleepInYorkshire » January 8th, 2022, 10:54 am

May help

viewtopic.php?f=17&t=32441

There's a couple of other threads too

Just scroll down and you'll see them on the first page

AiY

Boots
2 Lemon pips
Posts: 177
Joined: August 1st, 2021, 2:51 pm
Has thanked: 153 times
Been thanked: 116 times

Re: Transfer out of DB scheme - advice wanted

#471348

Postby Boots » January 8th, 2022, 10:59 am

You would also need to factor in inflation protection, so need to read the small print for the Barclays scheme and try to cost that.

But, at first glance, what you are proposing seems to make sense to me.

JohnB
Lemon Quarter
Posts: 2497
Joined: January 15th, 2017, 9:20 am
Has thanked: 677 times
Been thanked: 997 times

Re: Transfer out of DB scheme - advice wanted

#471357

Postby JohnB » January 8th, 2022, 12:05 pm

I would ask them to recheck their numbers as 343/76000 is 1:220, when the LTA allowance for a DB pension (admittedly low) is 1:20

WickedLester
Lemon Slice
Posts: 503
Joined: November 8th, 2016, 6:56 pm
Has thanked: 221 times
Been thanked: 246 times

Re: Transfer out of DB scheme - advice wanted

#471360

Postby WickedLester » January 8th, 2022, 12:12 pm

JohnB wrote:I would ask them to recheck their numbers as 343/76000 is 1:220, when the LTA allowance for a DB pension (admittedly low) is 1:20


I thought it looked too good to be true!

monabri
Lemon Half
Posts: 8396
Joined: January 7th, 2017, 9:56 am
Has thanked: 1539 times
Been thanked: 3428 times

Re: Transfer out of DB scheme - advice wanted

#471362

Postby monabri » January 8th, 2022, 12:16 pm

The figure of £76k sounds very high (??) and I'd go back to the pensions people to query it. If it is genuine and you can get your hands on it then I'd be VERY tempted to grab it.

I'm just wondering whether the 76k figure might be reduced by ~5% per year x (65-49 years) if you redeem early ? ( I picked 5% as I believe that that would be a reasonable figure). So, based on a reduction of 5%x 16 years, the figure you might get "now" could be reduced to £15.2k.

mc2fool
Lemon Half
Posts: 7812
Joined: November 4th, 2016, 11:24 am
Has thanked: 7 times
Been thanked: 3017 times

Re: Transfer out of DB scheme - advice wanted

#471377

Postby mc2fool » January 8th, 2022, 12:48 pm

WickedLester wrote:Now I have a defined benefit scheme from my time there which I can take at 65 (i'm 49) currently worth about £343 per year. I was just pottering about on the pension trustees website and asked for a transfer out value. The figure came out at over £76000 which seems an awful lot to me.

Yes, it is an awful lot! £76000/£343 = ~221, which is huge. Most people get a ratio of 30 to maybe 40 and anything over that is amazing, so, I'm afraid I can't help feeling something is wrong. I'd get back to your scheme to double check the figures, and also to understand what they actually are.

Was the transfer out value a formal guaranteed-for-three-months one? If so when asking them to recheck the figures make sure they don't take that as you asking for another guaranteed-for-three-months transfer value, as most schemes will only give you one per 12 month period for free and will charge, typically £200-300, for any subsequent ones.

Then also, find out what the £343pa (or whatever the figure ends up being after rechecking) is actually made up of, and how it will be revalued, both in deferment and in payment. Some/all of it will be GMP (Guaranteed Minimum Pension), and from your post it sounds like most/all of it will be post-88 GMP but you may have some pre-88 GMP. Don't worry about the difference now, just find out. There may also be some non-GMP in the £343pa.

Find out also if the £343pa (or whatever) is a "today" value or is the entitlement revalued to at 65. If the former find out the revaluation-in-deferment scheme they use. Most common for GMP is either by "section 148 orders" (national earnings) or by a fixed scheme. If it's the latter then for folks leaving between 6 April 1988 to 5 April 1993 it's 7.5%pa. So, if £343pa is a "today" figure and the whole of it is GMP and they're using the fixed scheme, then in 16 years it'll be £1091pa. Any non-GMP is almost always revalued in deferment by the s.148 orders.

Sorry, that all sounds like a nightmare! Just trying to give you an idea of what to find out. In summary:
  • Get them to recheck the figures (and without charging you for it!)
  • Ask for a detailed breakdown of the components of the £343pa (or whatever)
  • Find out if it is a "today" or "at 65" figure
  • Ask for the revaluation methods (and numbers) for each of the components, both in deferment and in payment
And finally, even if the transfer value does turn out for to be an amazing deal, beware that it'll cost you several thousand pounds to get at it. See the other Transfer a DB Pension threads in this forum.

mc2fool
Lemon Half
Posts: 7812
Joined: November 4th, 2016, 11:24 am
Has thanked: 7 times
Been thanked: 3017 times

Re: Transfer out of DB scheme - advice wanted

#471379

Postby mc2fool » January 8th, 2022, 12:53 pm

monabri wrote:I'm just wondering whether the 76k figure might be reduced by ~5% per year x (65-49 years) if you redeem early ? ( I picked 5% as I believe that that would be a reasonable figure). So, based on a reduction of 5%x 16 years, the figure you might get "now" could be reduced to £15.2k.

Pension schemes often have an reduction if you take your pension early, but cash equivalent transfer values (CETV) are always "now", surely? I've never heard of an in-16-years CETV being quoted or offered....

parallellines
Lemon Pip
Posts: 71
Joined: November 5th, 2016, 6:58 pm
Has thanked: 2 times
Been thanked: 26 times

Re: Transfer out of DB scheme - advice wanted

#472038

Postby parallellines » January 11th, 2022, 1:23 pm

mc2fool wrote:[*]Find out if it is a "today" or "at 65" figure



... or indeed is a "at date of leaving employment" figure. While noting the OP has confirmed the pension is "currently worth" £343 pa, I'd observe that many schemes only quote date of leaving figures until asked to issue a retirement pack, and if it is a figure at date of leaving which ignores thirty years worth of increases , this could explain the apparently generous multiple.

mc2fool
Lemon Half
Posts: 7812
Joined: November 4th, 2016, 11:24 am
Has thanked: 7 times
Been thanked: 3017 times

Re: Transfer out of DB scheme - advice wanted

#472047

Postby mc2fool » January 11th, 2022, 1:36 pm

parallellines wrote:
mc2fool wrote:[*]Find out if it is a "today" or "at 65" figure

... or indeed is a "at date of leaving employment" figure. While noting the OP has confirmed the pension is "currently worth" £343 pa, I'd observe that many schemes only quote date of leaving figures until asked to issue a retirement pack, and if it is a figure at date of leaving which ignores thirty years worth of increases , this could explain the apparently generous multiple.

Yes, good point, I've seen that too, and my apologies for forgetting that in my list.

WickedLester
Lemon Slice
Posts: 503
Joined: November 8th, 2016, 6:56 pm
Has thanked: 221 times
Been thanked: 246 times

Re: Transfer out of DB scheme - advice wanted

#473510

Postby WickedLester » January 16th, 2022, 1:08 pm

parallellines wrote:
mc2fool wrote:[*]Find out if it is a "today" or "at 65" figure



... or indeed is a "at date of leaving employment" figure. While noting the OP has confirmed the pension is "currently worth" £343 pa, I'd observe that many schemes only quote date of leaving figures until asked to issue a retirement pack, and if it is a figure at date of leaving which ignores thirty years worth of increases , this could explain the apparently generous multiple.


Thanks for raising this point. I think you're correct. I did ask for a value at today's date and it cam out at around £600 pa I think, so presumably at 65 it would be even greater although i'm not sure what.

I'm still tempted to transfer out for the flexibility, I really would like to retire before 65 and i'm confident I can grow my money investing it myself having done a reasonable job of it over the last few years.

mc2fool
Lemon Half
Posts: 7812
Joined: November 4th, 2016, 11:24 am
Has thanked: 7 times
Been thanked: 3017 times

Re: Transfer out of DB scheme - advice wanted

#473541

Postby mc2fool » January 16th, 2022, 3:50 pm

WickedLester wrote:
parallellines wrote:
mc2fool wrote:[*]Find out if it is a "today" or "at 65" figure

... or indeed is a "at date of leaving employment" figure. While noting the OP has confirmed the pension is "currently worth" £343 pa, I'd observe that many schemes only quote date of leaving figures until asked to issue a retirement pack, and if it is a figure at date of leaving which ignores thirty years worth of increases , this could explain the apparently generous multiple.

Thanks for raising this point. I think you're correct. I did ask for a value at today's date and it cam out at around £600 pa I think, so presumably at 65 it would be even greater although i'm not sure what.

Doesn't compute. First of all, even at £600pa, with a CETV of £76000 that's still 1:126, which is still unbelievably good.

Secondly, if your £343 pa was, indeed, the "at date of leaving employment" figure, and you did this job for three years between school and university, so, when you were circa 19, and you are now 49, then in the 30 years since the pension in deferment would have increased by a mere £600/£343 = 1.75 = 75%. That's less that 2%pa. Even s.148 orders (earnings) are 174.6% over the period. So, unless Barclays somehow have/had an exceptionally stingy scheme, that doesn't sound right either.

I can only suggest that you get back to them and get the info mentioned earlier in the thread. Get a copy of the scheme rules too.

WickedLester
Lemon Slice
Posts: 503
Joined: November 8th, 2016, 6:56 pm
Has thanked: 221 times
Been thanked: 246 times

Re: Transfer out of DB scheme - advice wanted

#473567

Postby WickedLester » January 16th, 2022, 5:25 pm

mc2fool wrote:
WickedLester wrote:
parallellines wrote:
mc2fool wrote:[*]Find out if it is a "today" or "at 65" figure

... or indeed is a "at date of leaving employment" figure. While noting the OP has confirmed the pension is "currently worth" £343 pa, I'd observe that many schemes only quote date of leaving figures until asked to issue a retirement pack, and if it is a figure at date of leaving which ignores thirty years worth of increases , this could explain the apparently generous multiple.

Thanks for raising this point. I think you're correct. I did ask for a value at today's date and it cam out at around £600 pa I think, so presumably at 65 it would be even greater although i'm not sure what.

Doesn't compute. First of all, even at £600pa, with a CETV of £76000 that's still 1:126, which is still unbelievably good.

Secondly, if your £343 pa was, indeed, the "at date of leaving employment" figure, and you did this job for three years between school and university, so, when you were circa 19, and you are now 49, then in the 30 years since the pension in deferment would have increased by a mere £600/£343 = 1.75 = 75%. That's less that 2%pa. Even s.148 orders (earnings) are 174.6% over the period. So, unless Barclays somehow have/had an exceptionally stingy scheme, that doesn't sound right either.

I can only suggest that you get back to them and get the info mentioned earlier in the thread. Get a copy of the scheme rules too.


Hi Mc2fool

I have just checked the figures again and they give me a current value of £688.07 per year with a GMP of £78.52 and the transfer out document gives me a value of £76606.38.

I admit it seems a lot to me which is why I was keen on transferring out.

If you can make any more sense of these figures i'd appreciate it. I don't know much about the whole thing.

scrumpyjack
Lemon Quarter
Posts: 4812
Joined: November 4th, 2016, 10:15 am
Has thanked: 606 times
Been thanked: 2675 times

Re: Transfer out of DB scheme - advice wanted

#473578

Postby scrumpyjack » January 16th, 2022, 5:49 pm

I suppose the pension increases by RPI for another 16 years until you are 65 so the 688 would be a lot more then. As returns on gilts are far less than RPI, the liability is greatly increased by the length of time before retirement (effectively a negative discount rate!).
That could account for the apparent very high capital value now.

mc2fool
Lemon Half
Posts: 7812
Joined: November 4th, 2016, 11:24 am
Has thanked: 7 times
Been thanked: 3017 times

Re: Transfer out of DB scheme - advice wanted

#473584

Postby mc2fool » January 16th, 2022, 5:58 pm

WickedLester wrote:Hi Mc2fool

I have just checked the figures again and they give me a current value of £688.07 per year with a GMP of £78.52 and the transfer out document gives me a value of £76606.38.

I admit it seems a lot to me which is why I was keen on transferring out.

If you can make any more sense of these figures i'd appreciate it. I don't know much about the whole thing.

Not without all the details already mentioned (and maybe not even then!), but, hey, as you seem to have already decided to transfer out (not a bad thing, I did the same ;)) and you'll need to get an IFA to do it, you might as well get them to understand and explain it; make them do something for the several thousand pounds you'll be paying them! :D

stevem01
Posts: 9
Joined: January 10th, 2019, 4:04 pm
Has thanked: 1 time
Been thanked: 15 times

Re: Transfer out of DB scheme - advice wanted

#476672

Postby stevem01 » January 27th, 2022, 8:03 pm

WickedLester wrote:I have just checked the figures again and they give me a current value of £688.07 per year with a GMP of £78.52 and the transfer out document gives me a value of £76606.38.

I admit it seems a lot to me which is why I was keen on transferring out.

If you can make any more sense of these figures i'd appreciate it. I don't know much about the whole thing.


The current values of your occupational pension benefit are quoted as being £688.07 per annum with a GMP of £78.52. It is not clear whether the value of £688.07 per annum includes the GMP figure, or whether the GMP is in addition to the value of £688.07 per annum. To be conservative, lets assume that the value of £688.07 per annum includes the GMP of £78.52. This means the non-GMP portion of your occupational pension benefit is currently worth £688.07-£78.52 = £609.49 per annum

The GMP value quoted is still the value that it was when you left employment and deferred your occupational pension benefit, some 30 years ago. The GMP portion of your occupational pension benefit is not revalued at all until you reach GMP age (65 for males and 60 for females). However, if you deferred a GMP, it must be revalued from the date of deferral to your GMP age, when the GMP revaluation takes place. There are a number of different methods of GMP revaluation which are available to an employers occupational pension scheme. Which of the available GMP revaluation methods that apply to your occuaptional pension scheme depends on the rules of the employers pension scheme.

Many private sector pension schemes chose to select the "Fixed Rate GMP Revaluation" method. This resulted in your deferred GMP being revalued by a fixed rate that is applied to every complete tax year between the date you deferred your pension benefit and the date of your 65th birthday for males or 60th birthday for females. The actual revaluation rate which applies to the deferred GMP portion of your occupational pension benefit was a value published by the government and which was determined based on the date that you deferred your occupational pension benefit.

Assuming that "Fixed Rate GMP Revalution" applies to the Barclays Bank pension scheme, then, as your occupational pension benefit was deferred around 30 years ago, the "Fixed Rate GMP Revaluation" that would apply was 7.5% per annum, as this was the value to be used for all GMP benefits that were deferred between 06 April 1988 and 05 April 1993.

Assuming you are male and that there would be 45 complete tax years between the date you deferred your occupational pension benefits and the date of payment of your GMP (65th birthday for males) that means your GMP would be revalued so that the initally deferred value of £78.52 per annum will be worth £78.52 *1.075^45 = £2,027.05.

If you are male, your average life expectancy will be around age 86, which is 21 years after you reach GMP age. Therefore, the occupational pension scheme would expect that it would need to pay you the revalued GMP for 21 years, which is a total of £2,027.05*21 = £42,568.05 ignoring any inflation uplifting that is applied to the GMP once it comes into payment. NOTE: GMP is actually split into two "bits" - that earned before 05 April 1988 and that earned after 06 April 1988. Once the GMP is in payment, any pre-1988 GMP will NOT have any inflation uplifts applied to it, whereas any post-1988 GMP will be uplifted annually by CPI with a cap of 3%.

If you receive a transfer value for your whole occupational pension, the transfer value must include a fair valuation of the pension benefit being sacrificed in exchange for the transfer value. Therefore:
1. the transfer value offered to you has to include a fair valuation of your GMP benefit - which is likley to be at least £42,500 and possibly more, in order to to reflect the obligation for the occupational pension scheme to pay the annual inflation uplift that is applied to the post-1988 portion of the in-payment GMP.
2. The non-GMP portion of the occupational pension benefit is currently worth about £610 per annum. If a transfer value was offered equivalent to, say, 35 times the annual value of the non-GMP pension benefit, that would mean the non-GMP portion of the occuaptional pension benefit would have a transfer value of £610*35 = £21,350.

So, it is likely that the transfer value offered to you would have to be at least £63,850 in order to represent "fair value". Hence it is not too surprising that the transfer value being offered to you is £76k. This will allow the occupational pension scheme to eliminate the future risk (to them) of you living a very long life and them having to pay your occupational pension benefit - including the GMP element for a very long time.

WickedLester
Lemon Slice
Posts: 503
Joined: November 8th, 2016, 6:56 pm
Has thanked: 221 times
Been thanked: 246 times

Re: Transfer out of DB scheme - advice wanted

#477267

Postby WickedLester » January 30th, 2022, 12:43 pm

Thanks for the excellent explanation steve.

So if I understand it correctly the pension fund are offering to pay me roughly the equivalent of the total of all the money they expect to pay me over the next 36 years now?

In that case I have to make the decision whether it is worth having that money now and investing it for the next 15 years and hopefully getting a decent return on it but taking on the risk that I don't, against the certainty of an inflation protected income from 65 for the rest of my life.

I'm not sure what to do now.

ursaminortaur
Lemon Half
Posts: 6944
Joined: November 4th, 2016, 3:26 pm
Has thanked: 447 times
Been thanked: 1717 times

Re: Transfer out of DB scheme - advice wanted

#477288

Postby ursaminortaur » January 30th, 2022, 2:10 pm

WickedLester wrote:Thanks for the excellent explanation steve.

So if I understand it correctly the pension fund are offering to pay me roughly the equivalent of the total of all the money they expect to pay me over the next 36 years now?

In that case I have to make the decision whether it is worth having that money now and investing it for the next 15 years and hopefully getting a decent return on it but taking on the risk that I don't, against the certainty of an inflation protected income from 65 for the rest of my life.

I'm not sure what to do now.


It won't be that simple. Since the transfer value is more than £30,000 you will have to get professional advice in order to transfer which will cost you a fair amount of money. That advice may well be that you should not transfer but you will still have to pay for that advice. Legally, although you now have to get advice, you are allowed to then ignore that advice and continue with the transfer - in which case you become what is known as an insistent client. Which is where you will hit another barrier in that the number of pension providers who will accept transfers from insistent clients has plummeted in recent years so you will need to find one who will still accept such clients.

BullDog
Lemon Quarter
Posts: 2443
Joined: November 18th, 2021, 11:57 am
Has thanked: 1965 times
Been thanked: 1196 times

Re: Transfer out of DB scheme - advice wanted

#477298

Postby BullDog » January 30th, 2022, 2:52 pm

ursaminortaur wrote:
WickedLester wrote:Thanks for the excellent explanation steve.

So if I understand it correctly the pension fund are offering to pay me roughly the equivalent of the total of all the money they expect to pay me over the next 36 years now?

In that case I have to make the decision whether it is worth having that money now and investing it for the next 15 years and hopefully getting a decent return on it but taking on the risk that I don't, against the certainty of an inflation protected income from 65 for the rest of my life.

I'm not sure what to do now.


It won't be that simple. Since the transfer value is more than £30,000 you will have to get professional advice in order to transfer which will cost you a fair amount of money. That advice may well be that you should not transfer but you will still have to pay for that advice. Legally, although you now have to get advice, you are allowed to then ignore that advice and continue with the transfer - in which case you become what is known as an insistent client. Which is where you will hit another barrier in that the number of pension providers who will accept transfers from insistent clients has plummeted in recent years so you will need to find one who will still accept such clients.

In fact, it may now be the case that though you have a "right" to transact a DB to DC transfer, it might be practically impossible to do so (at least for reasonable cost anyway). One of the last retail pension platforms taking insistent clients was AJ Bell who have now stopped doing so.

mc2fool
Lemon Half
Posts: 7812
Joined: November 4th, 2016, 11:24 am
Has thanked: 7 times
Been thanked: 3017 times

Re: Transfer out of DB scheme - advice wanted

#477305

Postby mc2fool » January 30th, 2022, 3:48 pm

WickedLester wrote: I have to make the decision whether it is worth having that money now and investing it for the next 15 years and hopefully getting a decent return on it but taking on the risk that I don't, against the certainty of an inflation protected income from 65 for the rest of my life.

It's not going to be fully inflation linked. As stevem01 has explained, the GMP component in payment will increase each year by CPI with a cap of 3% (post-88 GMP; as you're 49 it's unlikely you've got any pre-88 GMP, but do ask), and you need to find out how the non-GMP component will be revalued, both in deferment and in payment.

WickedLester wrote:I'm not sure what to do now.

The thing to do now is to get back to the scheme and get the information bullet listed in viewtopic.php?p=471377#p471377.

stevem01 in his excellent explanation has, as I did in the above linked to post, told you what the GMP revaluation rate would be (7.5%) if the scheme is going by the fixed rate method, but it may not be so, so find out.

(When I got a pension forecast from my one-and-only DB scheme they gave me three sets of GMP figures: at date of leaving, revalued [by the fixed scheme] to the date of the forecast, and revalued to GMP age [65] -- and they were all per week figures! [Which, BTW, are what HMRC and DWP talk in terms of.])

Look, as an example, if the fixed-rate GMP revaluation assumption is good and we ignore the non-GMP part for the moment then you'll know that you'll get £2,027.05 in 15 years (for the first year) and the decision is (IMO) easy. £2,027.05 / £76,000 = 2.7%, and the FTSE 100 is currently yielding ~3.5%, so if you took the £76,000 today and just stuck it in a FTSE 100 tracker you'd get more today, and with the hope (albeit not guaranteed of course) that both income and capital would grow (just an example, not a recommendation!).

Clearly though, if the GMP revaluation method is different and/or the non-GMP part is significant (likely, to some degree or another) then the calculation changes. But in any case, you're going to have to take some leaps of faith, 'cos with it being 15 years away you'll very likely have to make some assumptions about things like national earnings growth (s.148 orders) and inflation to figure out what your pension will actually be worth in 15 years, and then some assumptions about whether you could do better. For me it was a lot easier as when I did my DB->SIPP transfer I could have instead started taking the pension immediately, so that eliminated part of the crystal ball gazing. :D

But, as I say, the first thing is to get the information as listed in viewtopic.php?p=471377#p471377 ;)


Return to “Pensions - Practical Problems”

Who is online

Users browsing this forum: No registered users and 11 guests