Hello, I had a final salary pension from 1999 to 2005. Is there a cut off point i.e length of time and the relatively low salary where it would be beneficial to transfer my frozen final salary pension to a group personal pension
@@cameronjamespensiontransfer My situation is I'm in my early 50s looking to retire in the next 10 years. I don't have a current CETV. I'm asking in more generic terms....
Hard to provide generic terms. DB required an authorised and regulated advice process from a PTS which we have via the two adviser model. What I was trying to help you understand was whether the DB CETV was above or below £30,000 as this will make a big difference.
should the platform provider for the DB scheme provide all this information for me? I have a simple yearly statement with a basic estimate of amount - I don’t know if thats an estimate in today’s money and that will grow with inflation; I don’t know if I can take earlier/later and what effect that’ll have on the amount; I don’t know if that includes a lump sum and how much; I don’t know if it’ll pass to my wife and what %. I tried contacting them and they said I was too young to talk to! (I’m a few years away from 55) - but I want to be aware of my DB scheme details so I can plan other aspects of retirement including that info.
Your trustee will (and must) legally have all this information on file for your pension. Obtaining the information, well, that's often another story. Here at CJ, we have 5 full-time staff whose job it is to email and call the ceding schemes day in and day out every working day of the year to gather the information for our clients. It can at times take 5-6 information request attempts for our team to gather all the required information. I know clients who have told me they gave up on the ceding scheme as they found them too difficult and frustrating to deal with. What I would recommend you to do is to request from your scheme your CETV. You are permitted one free one every 12-months, by law. However, even requesting a CETV is frequently not enough. There are many specific factors (early/late retirement, commutation factors etc) to request. Do you know what the rough value of your DB CETV or proposed annual pension is from your NRD? Feel free to drop me an email on dominic.murray@cjfinance.co.uk if you would like to chat in more detail or you can book a slot here calendly.com/dominic-james-murray/catch-up-30min. We can help you to gather all the required information from your scheme without charge. It called a Letter Of Authority. Once we have all the information, we share it with you. For you to understand your scheme details in greater detail. Here to help if you need!
So if a DB scheme is closed to future accrual, that means its frozen but will rise with the schemes inflation metric? Ie it will not be linked to your future salary increases.
Hello Thank you for your comment. It can depend on the Scheme, but in the vast majority of cases, when you formally left the Scheme and became a Deferred member, that will be the date at which they use for your final salary. So if you earned £30k annually on the day you left the Scheme, even if you stayed at the employer and eventually earned £100k, they would us £30k as the assumption. From that date your deferred income, based on that final salary, will increase with various assumptions depending on the years and rules during that time, but tied to inflation and/or fixed rates. The idea is that the amount of money will keep up with the cost of living, although it will often outpace the cost of living during those years due to fixed elements. I presume you have a DB Scheme and are looking at your retirement options?
Don't final salary schemes generally only aim to keep up with inflation and not beat it? Whereas you can invest your DC pension in equities, beat inflation over the long term and leave anything you don't spend to your family. Seems like the better option to me.
As has been stated remaining in the schemes is best for most people worth noting that a final salary pension will never run out while a dc pension can. The only reason I can think of to transfer out is if life expectancy is low.
Hello Thank you for your comment. Many final salary schemes will have multiple levels of growth that apply to different periods of employment, both during the deferred stage i.e. before you take the benefits, and when in payment, so there will be lots of different assumptions used, with a blended growth rate. However, that rate will typically be higher than your average inflation reading, due to fixed rates, and also certain minimum levels. All schemes are different, but on average you would expect the level of increase to be slightly higher than inflation. Whilst equities have indeed beaten inflation over the long term, you are not taking into account sequencing risk, which is that returns don't go in a straight line, and having to take funds in bad down years means that the long term viability of the pot is reduced. For the vast majority of people, especially now with valuations much lower, keeping the DB will be the best option. One rule of thumb we like to bring up is the 4% rule. The 4% rule implies that if you want to take the same level of benefits from a pot that you would have with the DB, the CETV, net of all fees, will need to be at least 25x the income. Then you take into account that the 4% rule doesn't include fees, and that you might live much longer than 30 years, and you get into the realms of needing closer to 30x. Although figures will depend on each scheme, and other variables. With multiples now around 20x or lower, if you were looking to transfer to try and match the scheme, you would all but certainly run out of money considerably before you die, and if you have some bad luck, much earlier. DB's should rarely be transferred, especially now, for "spreadsheet" reasons. This is why transfers are rarely advised when there is no ill health or tax reasons. I hope that helps. CJ Team
I stopped paying into my company DB scheme with ITV, in 2002 having paid in around £8000 in contributions when i left. Fast forward to 2021, at age 55, i took an enhanced offer of £530,000 and invested it in a diverse medium to high risk portfolio, this year it has started to yield good returns. To those that say you should never cash in an inflation linked gold plated lifetime pension, think again !
Hello Thank you for your comment. Yes, back in 2021, when transfer values were nearly double what they are now, there were a lot of people who transferred out, and will have zero regrets, but doesn't necessarily mean that it was good for everyone. We have had plenty of clients in 2021 who did what you did and are very happy, but if your scheme offered you only, say £300k, if that, now, would you be so keen? Probably not, so sometimes need to remove your own experience when looking at these things, as the landscape has changed so much. But, sounds like you are very happy! Do you have an ongoing adviser, or did you go it alone?
@@cameronjamespensiontransfer Hi, thanks for the reply, i used a FA for the transfer process and the company i am now invested with, (TP) offer the complete management package of advice and investment. I appreciate that i did hit the sweet spot as it were, back in 2021 when enhanced offers had peaked and yes, if i were making that same decision today i would probably have remained in my final salary pension.
Great timing then! How are you finding TP? We hear mixed things, so would be interesting to hear about your experience. We also do free reviews for prospective clients, comparing their fees, performance and ongoing financial planning value add, so always feel free to book in to speak with one of our advisers should you want one.
Hello The advice is in the majority of cases is to retain the DB Scheme but, all else being equal, there can be additional aspects that make living overseas a stronger rationale, but it is all individual. Of course, just because you are advised to keep the DB, doesn't mean you have to, you are only obliged to obtain advice, not follow it, but it does make it more challenging, and reduces your options. What stage are you at, have you obtained a CETV, or just looking at your options as you near retirement?
Hello, I had a final salary pension from 1999 to 2005. Is there a cut off point i.e length of time and the relatively low salary where it would be beneficial to transfer my frozen final salary pension to a group personal pension
This will all come down to your own situation. Have you obtained a CETV?
@@cameronjamespensiontransfer My situation is I'm
in my early 50s looking to retire in the next 10 years. I don't have a current CETV. I'm asking in more generic terms....
Hard to provide generic terms. DB required an authorised and regulated advice process from a PTS which we have via the two adviser model. What I was trying to help you understand was whether the DB CETV was above or below £30,000 as this will make a big difference.
@@cameronjamespensiontransfer sorry the terminology threw me it was below £30,000 (mid 20s)
should the platform provider for the DB scheme provide all this information for me? I have a simple yearly statement with a basic estimate of amount - I don’t know if thats an estimate in today’s money and that will grow with inflation; I don’t know if I can take earlier/later and what effect that’ll have on the amount; I don’t know if that includes a lump sum and how much; I don’t know if it’ll pass to my wife and what %. I tried contacting them and they said I was too young to talk to! (I’m a few years away from 55) - but I want to be aware of my DB scheme details so I can plan other aspects of retirement including that info.
Your trustee will (and must) legally have all this information on file for your pension. Obtaining the information, well, that's often another story.
Here at CJ, we have 5 full-time staff whose job it is to email and call the ceding schemes day in and day out every working day of the year to gather the information for our clients. It can at times take 5-6 information request attempts for our team to gather all the required information. I know clients who have told me they gave up on the ceding scheme as they found them too difficult and frustrating to deal with.
What I would recommend you to do is to request from your scheme your CETV. You are permitted one free one every 12-months, by law. However, even requesting a CETV is frequently not enough. There are many specific factors (early/late retirement, commutation factors etc) to request.
Do you know what the rough value of your DB CETV or proposed annual pension is from your NRD?
Feel free to drop me an email on dominic.murray@cjfinance.co.uk if you would like to chat in more detail or you can book a slot here calendly.com/dominic-james-murray/catch-up-30min.
We can help you to gather all the required information from your scheme without charge. It called a Letter Of Authority. Once we have all the information, we share it with you. For you to understand your scheme details in greater detail.
Here to help if you need!
So if a DB scheme is closed to future accrual, that means its frozen but will rise with the schemes inflation metric?
Ie it will not be linked to your future salary increases.
Hello
Thank you for your comment.
It can depend on the Scheme, but in the vast majority of cases, when you formally left the Scheme and became a Deferred member, that will be the date at which they use for your final salary. So if you earned £30k annually on the day you left the Scheme, even if you stayed at the employer and eventually earned £100k, they would us £30k as the assumption.
From that date your deferred income, based on that final salary, will increase with various assumptions depending on the years and rules during that time, but tied to inflation and/or fixed rates. The idea is that the amount of money will keep up with the cost of living, although it will often outpace the cost of living during those years due to fixed elements.
I presume you have a DB Scheme and are looking at your retirement options?
Don't final salary schemes generally only aim to keep up with inflation and not beat it? Whereas you can invest your DC pension in equities, beat inflation over the long term and leave anything you don't spend to your family. Seems like the better option to me.
As has been stated remaining in the schemes is best for most people worth noting that a final salary pension will never run out while a dc pension can. The only reason I can think of to transfer out is if life expectancy is low.
Hello
Thank you for your comment.
Many final salary schemes will have multiple levels of growth that apply to different periods of employment, both during the deferred stage i.e. before you take the benefits, and when in payment, so there will be lots of different assumptions used, with a blended growth rate. However, that rate will typically be higher than your average inflation reading, due to fixed rates, and also certain minimum levels.
All schemes are different, but on average you would expect the level of increase to be slightly higher than inflation.
Whilst equities have indeed beaten inflation over the long term, you are not taking into account sequencing risk, which is that returns don't go in a straight line, and having to take funds in bad down years means that the long term viability of the pot is reduced.
For the vast majority of people, especially now with valuations much lower, keeping the DB will be the best option. One rule of thumb we like to bring up is the 4% rule. The 4% rule implies that if you want to take the same level of benefits from a pot that you would have with the DB, the CETV, net of all fees, will need to be at least 25x the income. Then you take into account that the 4% rule doesn't include fees, and that you might live much longer than 30 years, and you get into the realms of needing closer to 30x. Although figures will depend on each scheme, and other variables.
With multiples now around 20x or lower, if you were looking to transfer to try and match the scheme, you would all but certainly run out of money considerably before you die, and if you have some bad luck, much earlier. DB's should rarely be transferred, especially now, for "spreadsheet" reasons. This is why transfers are rarely advised when there is no ill health or tax reasons.
I hope that helps.
CJ Team
I stopped paying into my company DB scheme with ITV, in 2002 having paid in around £8000 in contributions when i left. Fast forward to 2021, at age 55, i took an enhanced offer of £530,000 and invested it in a diverse medium to high risk portfolio, this year it has started to yield good returns. To those that say you should never cash in an inflation linked gold plated lifetime pension, think again !
Hello
Thank you for your comment. Yes, back in 2021, when transfer values were nearly double what they are now, there were a lot of people who transferred out, and will have zero regrets, but doesn't necessarily mean that it was good for everyone.
We have had plenty of clients in 2021 who did what you did and are very happy, but if your scheme offered you only, say £300k, if that, now, would you be so keen? Probably not, so sometimes need to remove your own experience when looking at these things, as the landscape has changed so much.
But, sounds like you are very happy! Do you have an ongoing adviser, or did you go it alone?
@@cameronjamespensiontransfer
Hi, thanks for the reply, i used a FA for the transfer process and the company i am now invested with, (TP) offer the complete management package of advice and investment. I appreciate that i did hit the sweet spot as it were, back in 2021 when enhanced offers had peaked and yes, if i were making that same decision today i would probably have remained in my final salary pension.
Great timing then!
How are you finding TP? We hear mixed things, so would be interesting to hear about your experience. We also do free reviews for prospective clients, comparing their fees, performance and ongoing financial planning value add, so always feel free to book in to speak with one of our advisers should you want one.
Great content as always. What if I’m living overseas though? Would the advise generally be the same to leave DB pension in the UK?
Hello
The advice is in the majority of cases is to retain the DB Scheme but, all else being equal, there can be additional aspects that make living overseas a stronger rationale, but it is all individual. Of course, just because you are advised to keep the DB, doesn't mean you have to, you are only obliged to obtain advice, not follow it, but it does make it more challenging, and reduces your options.
What stage are you at, have you obtained a CETV, or just looking at your options as you near retirement?