Tax - incoming Labour govt

[thebarns]

Ikethespike,

Now I know this does not apply to all defined benefit schemes, it appears various different defined benefit schemes have different rules.

However the option has been there for a number of years and taken by many to transfer their defined benefit accrued pension rights into a defined contribution scheme, again at some very significant values using multipliers well in excess of 16/20 as these accrued pension rights are given a CETV, Cash Equivalent Transfer Value, I think.

So it has been perfectly possible to get the best of both worlds for those transferring large defined benefit pension accrued rights into defined contribution pension schemes.

[ursaminortaur]

I find it difficult to compare the value of a defined contribution pension versus a defined benefit pension. On the second death there is no remaining value in a defined benefit pension, but as I understand it, there may well be significant value remaining in similar circumstances in a defined contribution pension and this should be taken into account in some way.

But that is further complicated by the fact that the value in a DC pension is only available to be inherited if the pension hasn't been accessed or is in drawdown. If instead it has been used to purchase an annuity then inheritence will either be very restricted eg to a spouse via a joint life policy or non-existent.

[ursaminortaur]

Ikethespike,

Now I know this does not apply to all defined benefit schemes, it appears various different defined benefit schemes have different rules.

However the option has been there for a number of years and taken by many to transfer their defined benefit accrued pension rights into a defined contribution scheme, again at some very significant values using multipliers well in excess of 16/20 as these accrued pension rights are given a CETV, Cash Equivalent Transfer Value, I think.

So it has been perfectly possible to get the best of both worlds for those transferring large defined benefit pension accrued rights into defined contribution pension schemes.

Legislation makes it impossible to transfer unfunded public sector DB pensions to DC schemes - since the government were worried that a lot of people in such schemes would want to take advantage of Osborne's pension freedoms which would have meant that it would have to have found an awful lot of money at short notice to pay the transfer values. For other DB schemes it is possible but the requirements for doing so when the transfer value is greater than £30,000 are expensive and onerous and now a days getting to be almost impossible as qualified advisors will usually recommend against the transfer and pension providers are reluctant to accept transfers which go against that advice.

[XFool]

I find it difficult to compare the value of a defined contribution pension versus a defined benefit pension. On the second death there is no remaining value in a defined benefit pension, but as I understand it, there may well be significant value remaining in similar circumstances in a defined contribution pension and this should be taken into account in some way.

Ah. I think the way it (usually) works is that you only take into account such factors that are consistent with ones' political prejudices.

[thebarns]

Ursaminortaur,

I’m a few years retired now but around 2017-2019, without breaching client confidentialities, there were many transfers out from defined benefit schemes from a well known defined benefit private sector pension scheme, at large CETV values, the fee involved being an irrelevance for high 6 figure and low 7 figure values.

Again it was a factor of low interest rates and gilt yields and the huge expense that trustees/actuaries of these defined benefit schemes were faced with if they had to pay out the promised guaranteed pensions, which is why they would offer such large transfer values, again showing that the open market multiplier was way above 10/16/20.

I appreciate some public sector defined benefit schemes do not permit this transfer out.

[mc2fool]

I’m a few years retired now but around 2017-2019, without breaching client confidentialities, there were many transfers out from defined benefit schemes from a well known defined benefit private sector pension scheme, at large CETV values, the fee involved being an irrelevance for high 6 figure and low 7 figure values.

That was they heyday of DB->DC transfers, indeed I did mine in 2018 with a minimum of faff and using a no-transfer-no-fee IFA charging just 1%, as did several other Lemons.

But the FCA have tightened up things considerably since then and, as ursa says, it's now almost impossible to get a recommendation to transfer out of a DB scheme and equally almost impossible to find a SIPP etc provider that will accept an "insistent" client (i.e. one that wants to transfer against advice). If you know of IFAss that will readily advise for a transfer and/or SIPPs that accept insistent clients then please post the info in the Pensions - Practical Problems board, as the matter comes up fairly regularly there!

[XFool]

That was they heyday of DB->DC transfers, indeed I did mine in 2018 with a minimum of faff and using a no-transfer-no-fee IFA charging just 1%, as did several other Lemons.

If you don't mind me asking, why did you want to transfer out of a DB pension scheme?

After all, they are 'gold plated, "bloated", munificent, overgenerous' etc.

[mc2fool]

That was they heyday of DB->DC transfers, indeed I did mine in 2018 with a minimum of faff and using a no-transfer-no-fee IFA charging just 1%, as did several other Lemons.

If you don't mind me asking, why did you want to transfer out of a DB pension scheme?

After all, they are 'gold plated, "bloated", munificent, overgenerous' etc.

The real answer is that I didn't (don't) need the pension income and preferred to have the dosh in hand (well, in a SIPP) to pass on as I wish (to charity, if I don't need it all for care before I pop), and actually "don't need it" is one of the acceptable factors in favour of a transfer.

In addition mine wasn't so gold plated, etc. It was from an old job and was only about 60% GMP and of that only ~17% was post-88 GMP (so ~10% of the total) and there were no statutory increases on the non-GMP part, and while the original company I worked for had been quite generous with discretionary increases on the non-GMP part, and the company that took it over gave some, the company that then took over that company hadn't given any in the two decades since it acquired it and was giving no sign of ever doing so. The practical upshot of which is that, as you know and can figure, increases would be on just the 10% post-88 GMP part, so just a tenth of CPI up to 3%, so a max of 0.3%.

[XFool]

...Thanks for explanation.

[88V8]

If you don't mind me asking, why did you want to transfer out of a DB pension scheme?
After all, they are 'gold plated, "bloated", munificent, overgenerous' etc.

...increases would be on just the 10% post-88 GMP part, so just a tenth of CPI up to 3%, so a max of 0.3%.

The latest increase in my well-funded DB was 3%. Accrued 77-99.
Five mergers/takeovers later there is little likelihood of discretionary increases.
Still, a degree of certainty is not to be sniffed at and while I wouldn't say we need it, I'm very glad to have it.

V8

[kempiejon]

I think my accrued annual DB pension increased by 3.1% this year and will be up 10% next year as inflation CPI is measured each September.
I do remember checking the small print several years ago and I don't think it's capped and I think it applies to the whole amount. Now what should I do with that extra £450?

[mc2fool]

...increases would be on just the 10% post-88 GMP part, so just a tenth of CPI up to 3%, so a max of 0.3%.

The latest increase in my well-funded DB was 3%. Accrued 77-99.
Five mergers/takeovers later there is little likelihood of discretionary increases.
Still, a degree of certainty is not to be sniffed at and while I wouldn't say we need it, I'm very glad to have it.

Each individual's pension and their situation will be different, and I was only answering for mine. I felt that the certainty of a maximum of 0.3%pa increases was worth sniffing at. But I'm more than happy to accept that other people's opinions may vary.

[dealtn]

That was they heyday of DB->DC transfers, indeed I did mine in 2018 with a minimum of faff and using a no-transfer-no-fee IFA charging just 1%, as did several other Lemons.

If you don't mind me asking, why did you want to transfer out of a DB pension scheme?

After all, they are 'gold plated, "bloated", munificent, overgenerous' etc.

It will depend on what was offered. Like most things there is a price.

If you had a "gold plated ..." of £1,000 a year of future income and you were offered £10,000 as a transfer value would you swap it? What if the offer was £1,000,000?

[Alaric]

I find it difficult to compare the value of a defined contribution pension versus a defined benefit pension.

The simplest solution would be to have two separate sets of rules. For a defined benefit scheme, there would be maximum benefits and for defined contribution, a maximum annual contribution. Sure you would get arbitrage between the two, but why not let employers decide what they can afford?