Dates that may be referenced on your statement are as listed below. These are when changes took place to how benefits are revalued when in deferment, or increased when in payment: Social Security Act 1985 (Effective for Leavers on or after 1 January 1986) - Introduced revaluation to preserved benefits in excess of Guaranteed Minimum Pension (GMP) earned after 1 January 1985. Social Security Act 1990 (Effective for Leavers on or after 1 January 1991) - Revaluation extended to cover the whole of the member's pension, in excess of the GMP. Annual increase applicable was the increase in the Retail Price Index (RPI), capped at 5% (sometimes known as 5% Limited Price Indexation - LPI). Pensions Act 2008 (Effective for Post 6 April 2009 accrual) - Allowed schemes to reduce the revaluation percentage from RPI capped at 5% a year (as above) to RPI capped at 2.5% for pensions accrued after 6 April 2009. Pensions Act 2011 (Effective 6 April 2011) - Consumer Prices Index (CPI) replaced RPI as the basis for the minimum statutory revaluation. Rules for the pension scheme will determine whether this change was applied to benefits.
Thanks for making a DB pension specific video, Chris! I am unsure why other UK UA-camrs don't make more of these - considering there are millions of us in these scheme.
I'm 55 in June, I'm taking my 25% lump sum, and then again with my second one at 60. Lifes for living, I knew so many people who didn't get to my age. Don't let it sit in the fund, enjoy it now. Obviously don't totally skint yourself in the process 🎉🎉
I am also 55 1st June so perhaps we should celebrate that we made it that far🥳 because most DB ( and like you I have two) have Normal Retirement Age of 60 and 65 I plan to wait a bit longer till I take my 25% tax free money as it still grows every month.
My DB is due at 65, an ex colleague his pension pays at 62 but he is retiring April 24, a few years early as he can wait for the DB to pay out. I’ll be taking the maximum TF from my DB scheme for two reasons, 1) it gives me the emergency fund we all need, 2) a relatively modest drop In guaranteed income, as my wife would only get 50% should I die early the lump sum would also benefit her ( and my kids)
@@porschecarreras992cabriole8 if I take mine at 55 I also get 5 years annual pension more than if I'd waited until 60, although at a reduced rate. I worked out that I'll only be worse off after I'm 73. That's what made me do it sooner. At 73 I may not be fit enough to enjoy my extra cash.
55 was too early for me but where the option presents itself, I am choosing to not have inflation protection in the annuity because the inflation protection is often limited e.g. to 2.5% and it creates a significant reduction in the annual amount of the annuity, as Chris described in the video. This is for a number of reasons: around 50% of my income will be from the state pension, so I'm hoping that will continue to be increased with inflation (as long as the tax personal allowance is increased, rather than remaining static - which would be a reduction in real terms), so that most of my essential outgoings will be protected; any surplus in the early years can be invested to help counteract inflation in later years; I am expecting discretionary spending to decline in later life; I also have a small DC pot that can be called upon if necessary, if not, it should continue to grow and be a small but hopefully useful, inheritance for my children.
i am not fortunate to have any employers who offer a DB scheme, but my wife worked in the NHS for about 10 years so it something that is at the back of my mind for the future, your video sheds light on situation, thanks Chris. Keep up the great work
Very lucky to have 2 DB schemes, that was the norm when I started work at 16. 45 years later these 2 DB pensions pay all my bills and I have a DC pension that covers the luxuries. If it were possible I’d like to see a national DB scheme like they have in many European countries, it seems a much better system than the 100% DC pension has been foisted on our young people.
Hi Chris brilliant and very relevent, i was off 6 options for a mix of DB and DC and was very puzzled by how much tax free cash i could get via commutation, i did a crazy excel sheet and fugured out that each option from the providers point of view were more or less equitable, it was just a question of how one wanted to take it. A tricky thing was working out the tax. My initial thought was min DB and max PCLS. But suprisingly in the end I considerd max DB to better for me personally. What also swung this was that a % of DB would be passed on to my spouse which I thought was really valuable.
It sounds like you put a lot of thought into analysing the options, which is great. There isn’t a right or wrong way of taking benefits, just an option that is best for you personally.
@@jamesmcfadyen7547I would agree, if you have done your analysis of needs and wants V possible incomes and use a decent safety factor either low growth rates / modest income needs should be OK. While the Government is pushing raising retirement age how many of us want that? Work till your almost too knackered to then enjoy life! I’ve just retired 3 months short of 64th birthday, was planning to Retire this April so it was just a few months early, don’t miss it at all. Have a DB scheme paying out Feb 25, no need to draw from it early.
Yes as people have alluded to above, it can sometimes be worth exploring taking benefits early with the reductions factors figured in. If modelled out sensibly there’s no problem with this.
I wanted to swap my DB to a DC scheme as I wanted to retire at 55 however to do this would of cost me £1000s in fees and on top of that these pension companies wanting to manage my sum of money so in the end I stuck with the DB reluctantly which i retired with.
I can understand the £1000s in fees tbh - the risk of transacting such business is extremely high and that is the premium. If advisers can get any insurance at all (which is becoming less and less likely), the excess on any claim would be around £50k. Many advisers who are still active in this area now just self insure, but with the average claim size on a DB cases around £350k, it’s a huge risk. With that in mind, a five figure fee is probably fair I’m afraid. That fee would technically have to be charged though regardless of the outcome, because the FCA do not allow contingent charging. That means the adviser could tell you that the advice is to remain where you are, and the fee would still be payable. There’s an insight into why few advisers operate in that area anymore! With regard to ongoing management though, you’d never to be bound to anybody. Once it is in DC it is then easy to transfer away and nobody could prevent you from doing so. Exit fees are not allowed anymore.
I managed to transfer a DB pension to DC pension through Pensionhelp who are based in Manchester. They don't have any ongoing advice and you can do what you want with the transferred pension. The cost was 3% of the cash equivalent transfer value which was in my opinion reasonable. I managed to transfer when interest rates and gilt yields were very low which made the CETV multiple very high, so a no brainer.
I have a DB pension which had a transfer value of £146k when I received a written quote from the administrator 4 years ago, today the latest quote is £112k and the annual pension £1500. I'm going to see a financial advisor and have something signed before I can transfer it over to a SIPP and or buy an annuity which would give £4500 annually ( not inflation proof, of course).
Worked at same company since I was 16 years old ,I'm 55 next year ,got a year to decide what to do regarding my pension ....it is a mine field ...Great video as usual.
Great video. Like many of your listeners I have a mix of dB and DC pensions. The most important thing in my view is understand the computation ratio. At 1:12 assuming you are younger and in good health taking the 25% is probably a bad idea. At 1:23 as per my scheme taking the cash is very appealing as it will protect the capital for inheritance
Hi Chris, I hope you are well. You made a great video talking about the Fidelity Index World fund. I think it is a great fund for a UK investor who is looking for a simple 100% global equities passive fund, also I think it makes a good benchmark to compare against some other funds. Have you come across a similar passive global fund? Thanks and keep up the great work
You invest part of Income over a long working life and the return you get for your investment is called ‘charity’ Benefit.How kind and convenient. Investments and Returns comes to mind.
An interesting informative video with subject matter that I have not seen elsewhere. I am fortunate to have a DC pension in payment having taken early retirement and several years into the future will have a DB pension in payment and then a few years later on the state pension. I was aware of the different elements to my DB pension (GMP & non-GMP) and their different increases in deferrment. However, what I wasnt aware of is that there is no tax free cash that can be taken from the GMP element, so thank you for that information. What I find difficult to determine is the decision whether or not to take the tax free cash from my DB pension. As per everything else I suppose that this depends on individual circumstances. Is guaranteed future higher income (although taxed) more important every year than the initial tax free cash and reduced DB pension income ? Can the initial tax free cash be invested (in GIA & ISA) and grow more than the differential higher pension income - probably, but not guaranteed. I suppose a bird in the hand is worth two in the bush - if I go for the tax free cash then I have it and can then do what I want with it and it is in my estate to be passed to my spouse, children or anybody else for that matter. A question that I have concerns DB pension crystallisation and the pension lifetime allowance assuming that this will be reintroduced in the future if there is a change in government. If a tax free crystallisation limit is brought back in say before my DB pension started, if this limit were likely to be breached at some future date would it be worthwhile crystallising my entire DC pension now whilst there is no LTA in legislation ?
I'm lucky enough to have a defined benefit pension through my job although I've only been paying in for 10 year's to buy an annuity of the same value would cost a fortune I was really surprised .It gives the option of a 25% lump sum and a generous yearly pension in line with inflation and pays out a widows pension .
I was just forced to retire early because of ill health. It was a bit of a surprise to find out how much you get taxed when you retire due to ill health. The tax charge bill was so large that I had to give up a major lump of pension income to take a lump sum to pay the tax bill. Not only was the multiplier for the lump sum poor I have also lost indexed linked income for life. My retirement has not started well. I do wonder if many people realise you get taxed so harshly if you are forced to retire early because of ill health.
I’m not sure I understand why you’ve paid all that tax? Have you been paid your full pension pot as an ill health lump sum due to severely impaired life expectancy?
@@chrisbourne-retirementplanner I had Tier 1 LGPS pension for ill health but HMRC say I am not ill enough to avoid tax. I paid 45% on the full Tier 1 Ill Health enhancement. I had a 6 figure tax charge for exceeding the annual allowance.
the standard opinion seems to be that DB is amazing and anyone who has one is lucky. honestly this just makes me much prefer a DC pension. much simpler, you keep the capital, you decide.
And you retain the risk. We are prone to cognitive biases, one being the optimism bias. Until you’ve suffered significant asset loss for a prolonged period (2-3 years of consecutive falls), it’s difficult to appreciate the true value of guaranteed pension income.
I was in a local gov scheme between 1991 and 2001 - I guess this is why there are 2 fund references - an FO and a PO. the statement I receive are severely lacking in detail!
My final salary pension was originally supposed to be retire at 65, however somehow the government has move that back retrospectively to 67. 2 years of pension robbed. Now I don’t work in local government so I cannot contribute to increase it. Makes my blood boil when people say it’s gold plated given I signed up to retire at 65 and paid into to it and they are stealing my pension and by not giving pay rises during austerity years meant my pension was devalued by inflation as it’s not index linked until you retire.
Hi David. Some schemes have now aligned the normal retirement age with state pension. I mentioned this in the video somewhere. You should find that the majority of your benefits are being revalued in line with inflation every year, as explained in the video. It isn’t just when benefits are in payment that they increase. You may also be able to still access your benefits at 65, but reduction factors would probably be applied.
Good stuff Chris. Don’t suppose you know where I can get a list of the Government Section 148 Orders? HBOS DB scheme increases by these each year from date of leaving until NRD. Thanks in advance
Hi Chris, thank you for the amazing content on the channel. I took 25% commutation from a DB pension in 2017. Since then I’ve been paying into a SIPP, can I also take 25% tax free from the SIPP? Thanks again for the great channel!
Thanks Damon - glad the content helps! Yes, you can take tax free lump sum from a SIPP as well providing you haven’t already used up the full Lifetime Allowance. It can also be worth checking whether a transitional tax free amount certificate would entitle you to higher tax free lump sum. I would read up on this and seek advice if unsure.
8 minutes. ... and people have previously commented that DC pensions are complicated! This is horrendous and just shows how adjustments in legislation and in scheme rules compound complexity. In contrast, buying an annuity using all, or part, of your DC pension pot is relatively simple and, whilst you are young, it appears to provide poor value relative to drawdown, it does provide massive risk mitigation. Edit: having now watched the remainder of the video (very good) the choices for a single pension are not too complicated but the choices available do seem to vary considerably depending on the scheme rules and each scheme has different rules, so when it comes to making decisions on each scheme, we're back in the mire: normal retirement dates - 60, 62.5, 65, state pension age, can, or cannot, retire early, or late. I have three DB pensions from the first 20 years of my career, each one having different rules, so all the options have made it difficult. One particular pension had higher benefits pre age 62.5, lower benefits from 62.5 to 65 and then increased from age 65 - I never did work out what was going on there and I couldn't afford to retire before age 62.5, so no, it wasn't a no-brainer!
If I have multiple pensions with multiple employers what happens if I take a lump sum with one does it affect the others if I want to remain in the schemes
Hiya Chris, great video, very informative, i had a retirement pack from my DB pension last year at age 59 and was offered £17500 per year for life, I’ve just received another one now that I’m 60 and the offer has dropped to £15500, is this normal as at a minimum it should have grown by 4% as I was taking it a year later and the early retirement factor is 4% each year.
if you trigger a DB scheme and take tax free cash, does that trigger MPAA? if not, can you take the tax free lump sum and pay it into your pension/SIPP to protect it from IHT?
DB scheme pensions don’t trigger the MPAA. You probably wouldn’t be able to pay the tax free lump sum back into another pension as this would be classed as recycling of tax free lump sum, which isn’t allowed. Check out the five rules of recycling lump sum - if the answer is yes to all of them, you break the rules and the contribution would be classed as an unauthorised payment, with a tax penalty applied.
Hi Chris - thanks for the video. What is not clear to me is if I can “transfer” tax free allowance between pensions. For example, if I have two pensions a) SIPP and b) final salary scheme. For simplicity let’s assume that that they are £100k each (£200k total) at the time when I am 57 and reach my minimum pension age. Can I at this point use my 25% tax free allowance i.e. £50k but take it all out of the SIPP leaving the final salary untouched and just start to take normal income from the final salary scheme at the age 65?
The barrier to being able to transfer out a DB pension is stupidly difficult to negotiate ( and made deliberately too expensive as an extra deterrent), obviously it's not right for every one but if you get a good offer from your scheme it's well worth considering and comes with the unique benefit that if you pre-decease a partner they will be able to continue to draw your full pension rather then the 50% most schemes offer, also you can take the 25% tax free each year as part of your income which reduces your tax bill across your whole retirement.....
Yes I’m afraid a lot of poor advice has made being active in this area too expensive for most advisers now. A lot of PI insurers won’t touch it, so it’s not viable for many advisers to remain active. It is a shame because in certain circumstances, a transfer could be the best option.
This is a huge frustration and it's compounded by the fact that many of those advisors that are still in the market will insist on managing your whole DC pot, not only the portion that had been transferred. Furthermore, because rising interest rates have also increased annuity rates from their recent lows, the transfer values (CETVs) have reduced considerably (typically by 40%). This has also reduced the size of the 25% tax-free PCLS that can be taken. To cap it all, the CETV is not equal to 4x the tax-free lump sum. I would love to hear an explanation of why that is the case. It seems that the customer is stymied at every turn!
@@davem.4003very much agree. The cost to transfer a small pot is ridiculous and keeping the small DB pension is also ridiculous if it only pays a couple of thousand a year which will be taxed. DC pension and ISAs are far more tax efficient when you retire especially with tax thresholds being frozen for the foreseeable.
depending on the individual scheme some increase by RPi other CPI. Mine was RPI and was increased by 25% ish over 10 years. I am happy with the certainty and spousal benefits (plus it was based on a generous 60ths)
Yes it is possible for schemes to increase benefits by more generous amounts at their discretion. DB scheme benefits can certainly give much peace of mind.
My deferred benefits pension states that I have a pre-97 and/or post 97 excess of £6900 & a Guaranteed Minimum Pension of £487. Then in another area on the website, under quote history it states my deferred pension in the scheme at the start of the year is £15000. so which is the figure I use as a basis of what I will get paid at normal retirement age (in this case its defined as 62)?
The £15k is probably your overall figure. That may be the projection when you retire. The lower figures could be what you were entitled to when you left the scheme and will have since been revalued. I wouldn’t know for certain without looking.
Quick question, can a private pension provider refuse a policy holder to make increased monthly payments into their pension, unless they prove in writing they have consulted an independent financial adviser.
I’ve never personally known one to do this Chris, but that’s not to say they can’t. It doesn’t sound like something a direct to consumer platform provider would do. Is it a company related scheme?
@@chrisbourne-retirementplanner thanks for the reply, it's a private pension I have had for 30+ years, noting can be done on line, phone calls and in writing only. 6 years ago I made a request for additional monthly funds to be paid in, long story short, they refused unless I could prove in writing I had consulted a financial adviser. I've just challenged them again on this, as I've tried again to put in additional payments, this time over the phone I was told it wouldn't be an issue. So my thinking is, I have been prevented from growing my pot over the last 6 years, looking at making a formal complaint and compensation based on the monthly about I initially instructed.
Hello Chris, I don't know if you know of this big pensions issue, but there is a long delay with my HL SIPP this year in allowing me to claim my annual UFPLS withdrawal. They sent me a form a few weeks ago ready for the new tax year and then said it was void due to new government regulation changes. Then did the same again last week. I'm still waiting for a valid UFPLS request form and am rapidly running out of last year's cash! Is this a UK-wide phenomenon, and how come it hasn't made national news? Thanks, Nick
@chrisbourne-retirementplanner thanks Chris, I wonder why it would only affect HL if, as they say, it was last minute UFPLS legislation changes being rushed in by the government. Anyone else had delays? I applied late March and still no sign of any cash into May :( I'll be on the street soon...
Anything that they say they may do is pure speculation, as you can’t trust any politician to do what they say they will, unless of course it benefits them directly !
Scare tactics all pension regardless of type are taxable that is why you have a tax free lump sum they are taxed as income so if you go over your annual allowance either if you work or you take more annual income from your pension than your personal allowance
Who can say? No one knows what the future holds and no one can say what any party would do. Apart from anything else and regardless of any policies stated in their manifesto, there could be Global influences that could not be predicted (how many would have predicted the global financial crisis, the Covid pandemic, or the war in Ukraine and the ensuing energy crisis, even a couple of years ahead of them occurring? Realistically, all we can do is plan on the basis of what we know and then adjust our plans to respond to changing circumstances. From a political perspective, any party's policy decisions will be influenced by their impact on voters - a positive impact will increase their chances of reelection and obviously a negative impact will reduce chances of reelection. This is the risk of a democracy, because it doesn't always work for the greater good and sometimes certain groups have a greater influence on public opinion than others.
My DB scheme, with one specific employer, closed and a separate AVC was contributed to. Apparently this gives benefits such as being able to take tax free cash from the AVC element without affecting the DB amount, is this normal ?
@@mark_just_mark yeh check your scheme rules normally there are multiple options. You can take 25% of DB and then 25% of AVC value separately. Or you add the DB scheme to the AVC scheme value to get a total value and then you can take 25% (which can all be taken from the AVC leaving DB fully in tact. Check the details tho and each scheme varies
It is something I’ve seen numerous times before yes. Essentially there can be DB and DC benefits as part of the same scheme, and this can mean you can take proportionately more of your DC pot tax free than you would normally be able to.
The majority of defined benefit schemes have closed as they cost the company too much and we’re to good for the employee . I was with BT and they closed their DB scheme in 2016 and employees had to contribute to a private pension …
I worked for fifty years long hours low pay retired now because I worked for so long I get less of a government pension than someone who couldn't be bothered to get off their arse and get a job they get the rest made up on benefits
@@chrisbourne-retirementplanneras a compassionate country we should assume that benefits have been paid for the right reasons and this clearly shouldn’t prevent someone from claiming further benefits (which is what a State Pension is after all) when they reach that age. Those individuals’ benefits included NI contributions that ‘paid for’ the State Pensions of those receiving at the time. I had a period of unemployment between jobs during which I had a couple of months getting ‘unemployment benefit’ …..should I not? We should challenge our elected representatives to ensure they manage efficient departments, plugging tax loopholes and stop giving lucrative contracts to their mates rather than victimise those who’ve needed benefits because they’ve been unable to contribute taxes in the way others have. I’m 52 and have two more years to get my 35 years of full NI for my State pension………. but……I could take a DB pension at 50……should I wait until I’m 54 and I’ve paid ‘enough’ NI for myself? Stop working, take the pension, find tax efficient ways to minimise my exposure and therefore avoid tax AND NI? I could recycle my PCLS via a SIPP in my wife’s name to double dip my tax relief as well. There are moral choices as well as legal ones.
Dates that may be referenced on your statement are as listed below. These are when changes took place to how benefits are revalued when in deferment, or increased when in payment:
Social Security Act 1985 (Effective for Leavers on or after 1 January 1986) - Introduced revaluation to preserved benefits in excess of Guaranteed Minimum Pension (GMP) earned after 1 January 1985.
Social Security Act 1990 (Effective for Leavers on or after 1 January 1991) - Revaluation extended to cover the whole of the member's pension, in excess of the GMP. Annual increase applicable was the increase in the Retail Price Index (RPI), capped at 5% (sometimes known as 5% Limited Price Indexation - LPI).
Pensions Act 2008 (Effective for Post 6 April 2009 accrual) - Allowed schemes to reduce the revaluation percentage from RPI capped at 5% a year (as above) to RPI capped at 2.5% for pensions accrued after 6 April 2009.
Pensions Act 2011 (Effective 6 April 2011) - Consumer Prices Index (CPI) replaced RPI as the basis for the minimum statutory revaluation. Rules for the pension scheme will determine whether this change was applied to benefits.
Thanks for making a DB pension specific video, Chris! I am unsure why other UK UA-camrs don't make more of these - considering there are millions of us in these scheme.
You’re welcome. Hope it’s useful reference.
I'm 55 in June, I'm taking my 25% lump sum, and then again with my second one at 60.
Lifes for living, I knew so many people who didn't get to my age. Don't let it sit in the fund, enjoy it now. Obviously don't totally skint yourself in the process 🎉🎉
I am also 55 1st June so perhaps we should celebrate that we made it that far🥳 because most DB ( and like you I have two) have Normal Retirement Age of 60 and 65 I plan to wait a bit longer till I take my 25% tax free money as it still grows every month.
My DB is due at 65, an ex colleague his pension pays at 62 but he is retiring April 24, a few years early as he can wait for the DB to pay out.
I’ll be taking the maximum TF from my DB scheme for two reasons, 1) it gives me the emergency fund we all need, 2) a relatively modest drop In guaranteed income, as my wife would only get 50% should I die early the lump sum would also benefit her ( and my kids)
@@porschecarreras992cabriole8 my birthday is 1st June, a good year that!
@@porschecarreras992cabriole8 if I take mine at 55 I also get 5 years annual pension more than if I'd waited until 60, although at a reduced rate. I worked out that I'll only be worse off after I'm 73. That's what made me do it sooner. At 73 I may not be fit enough to enjoy my extra cash.
55 was too early for me but where the option presents itself, I am choosing to not have inflation protection in the annuity because the inflation protection is often limited e.g. to 2.5% and it creates a significant reduction in the annual amount of the annuity, as Chris described in the video. This is for a number of reasons: around 50% of my income will be from the state pension, so I'm hoping that will continue to be increased with inflation (as long as the tax personal allowance is increased, rather than remaining static - which would be a reduction in real terms), so that most of my essential outgoings will be protected; any surplus in the early years can be invested to help counteract inflation in later years; I am expecting discretionary spending to decline in later life; I also have a small DC pot that can be called upon if necessary, if not, it should continue to grow and be a small but hopefully useful, inheritance for my children.
i am not fortunate to have any employers who offer a DB scheme, but my wife worked in the NHS for about 10 years so it something that is at the back of my mind for the future, your video sheds light on situation, thanks Chris. Keep up the great work
Thank you. I’m glad to hear it will be helpful!
Very lucky to have 2 DB schemes, that was the norm when I started work at 16. 45 years later these 2 DB pensions pay all my bills and I have a DC pension that covers the luxuries. If it were possible I’d like to see a national DB scheme like they have in many European countries, it seems a much better system than the 100% DC pension has been foisted on our young people.
It’s certainly valuable and comforting to know that basic living costs can be fully covered, no matter what happens.
Hi Chris brilliant and very relevent, i was off 6 options for a mix of DB and DC and was very puzzled by how much tax free cash i could get via commutation, i did a crazy excel sheet and fugured out that each option from the providers point of view were more or less equitable, it was just a question of how one wanted to take it. A tricky thing was working out the tax. My initial thought was min DB and max PCLS. But suprisingly in the end I considerd max DB to better for me personally. What also swung this was that a % of DB would be passed on to my spouse which I thought was really valuable.
It sounds like you put a lot of thought into analysing the options, which is great. There isn’t a right or wrong way of taking benefits, just an option that is best for you personally.
Brilliant as I have 2 final pensions first one due at 60 second at 65 I am currently 54
Take it when you can as early as possible..
Received my finally salary pension at 42 .
@@alangordon3283for medical reasons? Is there another way?
@@jamesmcfadyen7547I would agree, if you have done your analysis of needs and wants V possible incomes and use a decent safety factor either low growth rates / modest income needs should be OK.
While the Government is pushing raising retirement age how many of us want that? Work till your almost too knackered to then enjoy life!
I’ve just retired 3 months short of 64th birthday, was planning to Retire this April so it was just a few months early, don’t miss it at all. Have a DB scheme paying out Feb 25, no need to draw from it early.
Yes as people have alluded to above, it can sometimes be worth exploring taking benefits early with the reductions factors figured in. If modelled out sensibly there’s no problem with this.
I wanted to swap my DB to a DC scheme as I wanted to retire at 55 however to do this would of cost me £1000s in fees and on top of that these pension companies wanting to manage my sum of money so in the end I stuck with the DB reluctantly which i retired with.
I can understand the £1000s in fees tbh - the risk of transacting such business is extremely high and that is the premium. If advisers can get any insurance at all (which is becoming less and less likely), the excess on any claim would be around £50k. Many advisers who are still active in this area now just self insure, but with the average claim size on a DB cases around £350k, it’s a huge risk. With that in mind, a five figure fee is probably fair I’m afraid. That fee would technically have to be charged though regardless of the outcome, because the FCA do not allow contingent charging. That means the adviser could tell you that the advice is to remain where you are, and the fee would still be payable. There’s an insight into why few advisers operate in that area anymore! With regard to ongoing management though, you’d never to be bound to anybody. Once it is in DC it is then easy to transfer away and nobody could prevent you from doing so. Exit fees are not allowed anymore.
I managed to transfer a DB pension to DC pension through Pensionhelp who are based in Manchester. They don't have any ongoing advice and you can do what you want with the transferred pension. The cost was 3% of the cash equivalent transfer value which was in my opinion reasonable.
I managed to transfer when interest rates and gilt yields were very low which made the CETV multiple very high, so a no brainer.
I have a DB pension which had a transfer value of £146k when I received a written quote from the administrator 4 years ago, today the latest quote is £112k and the annual pension £1500.
I'm going to see a financial advisor and have something signed before I can transfer it over to a SIPP and or buy an annuity which would give £4500 annually ( not inflation proof, of course).
Worked at same company since I was 16 years old ,I'm 55 next year ,got a year to decide what to do regarding my pension ....it is a mine field ...Great video as usual.
Thank you John. Sounds like the video is quite well timed!
Great video. Like many of your listeners I have a mix of dB and DC pensions. The most important thing in my view is understand the computation ratio. At 1:12 assuming you are younger and in good health taking the 25% is probably a bad idea. At 1:23 as per my scheme taking the cash is very appealing as it will protect the capital for inheritance
Quite right. Thanks for your comment.
Hi Chris, I hope you are well. You made a great video talking about the Fidelity Index World fund. I think it is a great fund for a UK investor who is looking for a simple 100% global equities passive fund, also I think it makes a good benchmark to compare against some other funds. Have you come across a similar passive global fund? Thanks and keep up the great work
You invest part of Income over a long working life and the return you get for your investment is called ‘charity’ Benefit.How kind and convenient. Investments and Returns comes to mind.
An interesting informative video with subject matter that I have not seen elsewhere.
I am fortunate to have a DC pension in payment having taken early retirement and several years into the future will have a DB pension in payment and then a few years later on the state pension.
I was aware of the different elements to my DB pension (GMP & non-GMP) and their different increases in deferrment. However, what I wasnt aware of is that there is no tax free cash that can be taken from the GMP element, so thank you for that information.
What I find difficult to determine is the decision whether or not to take the tax free cash from my DB pension. As per everything else I suppose that this depends on individual circumstances.
Is guaranteed future higher income (although taxed) more important every year than the initial tax free cash and reduced DB pension income ?
Can the initial tax free cash be invested (in GIA & ISA) and grow more than the differential higher pension income - probably, but not guaranteed.
I suppose a bird in the hand is worth two in the bush - if I go for the tax free cash then I have it and can then do what I want with it and it is in my estate to be passed to my spouse, children or anybody else for that matter.
A question that I have concerns DB pension crystallisation and the pension lifetime allowance assuming that this will be reintroduced in the future if there is a change in government. If a tax free crystallisation limit is brought back in say before my DB pension started, if this limit were likely to be breached at some future date would it be worthwhile crystallising my entire DC pension now whilst there is no LTA in legislation ?
I'm lucky enough to have a defined benefit pension through my job although I've only been paying in for 10 year's to buy an annuity of the same value would cost a fortune I was really surprised .It gives the option of a 25% lump sum and a generous yearly pension in line with inflation and pays out a widows pension .
Yes the value of that future security can’t be underestimated.
I was just forced to retire early because of ill health. It was a bit of a surprise to find out how much you get taxed when you retire due to ill health. The tax charge bill was so large that I had to give up a major lump of pension income to take a lump sum to pay the tax bill. Not only was the multiplier for the lump sum poor I have also lost indexed linked income for life. My retirement has not started well. I do wonder if many people realise you get taxed so harshly if you are forced to retire early because of ill health.
I’m not sure I understand why you’ve paid all that tax? Have you been paid your full pension pot as an ill health lump sum due to severely impaired life expectancy?
@@chrisbourne-retirementplanner I had Tier 1 LGPS pension for ill health but HMRC say I am not ill enough to avoid tax. I paid 45% on the full Tier 1 Ill Health enhancement. I had a 6 figure tax charge for exceeding the annual allowance.
the standard opinion seems to be that DB is amazing and anyone who has one is lucky. honestly this just makes me much prefer a DC pension. much simpler, you keep the capital, you decide.
And you retain the risk. We are prone to cognitive biases, one being the optimism bias. Until you’ve suffered significant asset loss for a prolonged period (2-3 years of consecutive falls), it’s difficult to appreciate the true value of guaranteed pension income.
Surely a guaranteed income is simpler!
I was in a local gov scheme between 1991 and 2001 - I guess this is why there are 2 fund references - an FO and a PO. the statement I receive are severely lacking in detail!
Take lump sum and stick into dividend shares.
My final salary pension was originally supposed to be retire at 65, however somehow the government has move that back retrospectively to 67. 2 years of pension robbed.
Now I don’t work in local government so I cannot contribute to increase it.
Makes my blood boil when people say it’s gold plated given I signed up to retire at 65 and paid into to it and they are stealing my pension and by not giving pay rises during austerity years meant my pension was devalued by inflation as it’s not index linked until you retire.
Hi David. Some schemes have now aligned the normal retirement age with state pension. I mentioned this in the video somewhere. You should find that the majority of your benefits are being revalued in line with inflation every year, as explained in the video. It isn’t just when benefits are in payment that they increase. You may also be able to still access your benefits at 65, but reduction factors would probably be applied.
Actually, you haven't been robbed as you can take your local authority as early as 55
Good stuff Chris. Don’t suppose you know where I can get a list of the Government Section 148 Orders? HBOS DB scheme increases by these each year from date of leaving until NRD.
Thanks in advance
Hi Chris, thank you for the amazing content on the channel. I took 25% commutation from a DB pension in 2017. Since then I’ve been paying into a SIPP, can I also take 25% tax free from the SIPP? Thanks again for the great channel!
Thanks Damon - glad the content helps! Yes, you can take tax free lump sum from a SIPP as well providing you haven’t already used up the full Lifetime Allowance. It can also be worth checking whether a transitional tax free amount certificate would entitle you to higher tax free lump sum. I would read up on this and seek advice if unsure.
Ah thank you, I have used my LTA and I assume then that element if the LTA affecting tax free withdrawals hasn't been abolished?
Our DB finished in 2016 when the government changed the rules, so I hadn’t left the scheme- the scheme closed.
Yes, happened a lot.
8 minutes. ... and people have previously commented that DC pensions are complicated! This is horrendous and just shows how adjustments in legislation and in scheme rules compound complexity. In contrast, buying an annuity using all, or part, of your DC pension pot is relatively simple and, whilst you are young, it appears to provide poor value relative to drawdown, it does provide massive risk mitigation.
Edit: having now watched the remainder of the video (very good) the choices for a single pension are not too complicated but the choices available do seem to vary considerably depending on the scheme rules and each scheme has different rules, so when it comes to making decisions on each scheme, we're back in the mire: normal retirement dates - 60, 62.5, 65, state pension age, can, or cannot, retire early, or late. I have three DB pensions from the first 20 years of my career, each one having different rules, so all the options have made it difficult. One particular pension had higher benefits pre age 62.5, lower benefits from 62.5 to 65 and then increased from age 65 - I never did work out what was going on there and I couldn't afford to retire before age 62.5, so no, it wasn't a no-brainer!
Yep. That is what you get from continuous legislative and regime change.
If I have multiple pensions with multiple employers what happens if I take a lump sum with one does it affect the others if I want to remain in the schemes
No your other schemes are not affected. There is a limit on the total amount of tax free lump sum you can take in your lifetime though.
Hiya Chris, great video, very informative, i had a retirement pack from my DB pension last year at age 59 and was offered £17500 per year for life, I’ve just received another one now that I’m 60 and the offer has dropped to £15500, is this normal as at a minimum it should have grown by 4% as I was taking it a year later and the early retirement factor is 4% each year.
@@karlgriffiths4380 It’s not common for the income under a DB arrangement to drop. I would contact the scheme for an explanation.
@@chrisbourne-retirementplanner Thank you
if you trigger a DB scheme and take tax free cash, does that trigger MPAA? if not, can you take the tax free lump sum and pay it into your pension/SIPP to protect it from IHT?
DB scheme pensions don’t trigger the MPAA. You probably wouldn’t be able to pay the tax free lump sum back into another pension as this would be classed as recycling of tax free lump sum, which isn’t allowed. Check out the five rules of recycling lump sum - if the answer is yes to all of them, you break the rules and the contribution would be classed as an unauthorised payment, with a tax penalty applied.
@@chrisbourne-retirementplanner could you pay it into your wifes pension instead?
@@darrencowie1178 Yes, as long as your wife has sufficient income to substantiate the contribution.
@@chrisbourne-retirementplanner Thanks Chris - love the channel.
Hi Chris - thanks for the video. What is not clear to me is if I can “transfer” tax free allowance between pensions. For example, if I have two pensions a) SIPP and b) final salary scheme. For simplicity let’s assume that that they are £100k each (£200k total) at the time when I am 57 and reach my minimum pension age. Can I at this point use my 25% tax free allowance i.e. £50k but take it all out of the SIPP leaving the final salary untouched and just start to take normal income from the final salary scheme at the age 65?
@@tomsul yes your benefits can be taken independently of each other.
The barrier to being able to transfer out a DB pension is stupidly difficult to negotiate ( and made deliberately too expensive as an extra deterrent), obviously it's not right for every one but if you get a good offer from your scheme it's well worth considering and comes with the unique benefit that if you pre-decease a partner they will be able to continue to draw your full pension rather then the 50% most schemes offer, also you can take the 25% tax free each year as part of your income which reduces your tax bill across your whole retirement.....
Yes I’m afraid a lot of poor advice has made being active in this area too expensive for most advisers now. A lot of PI insurers won’t touch it, so it’s not viable for many advisers to remain active. It is a shame because in certain circumstances, a transfer could be the best option.
This is a huge frustration and it's compounded by the fact that many of those advisors that are still in the market will insist on managing your whole DC pot, not only the portion that had been transferred. Furthermore, because rising interest rates have also increased annuity rates from their recent lows, the transfer values (CETVs) have reduced considerably (typically by 40%). This has also reduced the size of the 25% tax-free PCLS that can be taken. To cap it all, the CETV is not equal to 4x the tax-free lump sum. I would love to hear an explanation of why that is the case. It seems that the customer is stymied at every turn!
@@davem.4003very much agree. The cost to transfer a small pot is ridiculous and keeping the small DB pension is also ridiculous if it only pays a couple of thousand a year which will be taxed. DC pension and ISAs are far more tax efficient when you retire especially with tax thresholds being frozen for the foreseeable.
depending on the individual scheme some increase by RPi other CPI. Mine was RPI and was increased by 25% ish over 10 years. I am happy with the certainty and spousal benefits (plus it was based on a generous 60ths)
Yes it is possible for schemes to increase benefits by more generous amounts at their discretion. DB scheme benefits can certainly give much peace of mind.
My deferred benefits pension states that I have a pre-97 and/or post 97 excess of £6900 & a Guaranteed Minimum Pension of £487. Then in another area on the website, under quote history it states my deferred pension in the scheme at the start of the year is £15000. so which is the figure I use as a basis of what I will get paid at normal retirement age (in this case its defined as 62)?
The £15k is probably your overall figure. That may be the projection when you retire. The lower figures could be what you were entitled to when you left the scheme and will have since been revalued. I wouldn’t know for certain without looking.
Quick question, can a private pension provider refuse a policy holder to make increased monthly payments into their pension, unless they prove in writing they have consulted an independent financial adviser.
I’ve never personally known one to do this Chris, but that’s not to say they can’t. It doesn’t sound like something a direct to consumer platform provider would do. Is it a company related scheme?
@@chrisbourne-retirementplanner thanks for the reply, it's a private pension I have had for 30+ years, noting can be done on line, phone calls and in writing only. 6 years ago I made a request for additional monthly funds to be paid in, long story short, they refused unless I could prove in writing I had consulted a financial adviser. I've just challenged them again on this, as I've tried again to put in additional payments, this time over the phone I was told it wouldn't be an issue. So my thinking is, I have been prevented from growing my pot over the last 6 years, looking at making a formal complaint and compensation based on the monthly about I initially instructed.
Hello Chris, I don't know if you know of this big pensions issue, but there is a long delay with my HL SIPP this year in allowing me to claim my annual UFPLS withdrawal. They sent me a form a few weeks ago ready for the new tax year and then said it was void due to new government regulation changes. Then did the same again last week. I'm still waiting for a valid UFPLS request form and am rapidly running out of last year's cash! Is this a UK-wide phenomenon, and how come it hasn't made national news? Thanks, Nick
I haven’t come across the same issues with other providers Nick.
@chrisbourne-retirementplanner thanks Chris, I wonder why it would only affect HL if, as they say, it was last minute UFPLS legislation changes being rushed in by the government. Anyone else had delays? I applied late March and still no sign of any cash into May :( I'll be on the street soon...
Is it true Labour are going to tax final salary limp sums and go after pension funds.
Anything that they say they may do is pure speculation, as you can’t trust any politician to do what they say they will, unless of course it benefits them directly !
Scare tactics all pension regardless of type are taxable that is why you have a tax free lump sum they are taxed as income so if you go over your annual allowance either if you work or you take more annual income from your pension than your personal allowance
Who can say? No one knows what the future holds and no one can say what any party would do. Apart from anything else and regardless of any policies stated in their manifesto, there could be Global influences that could not be predicted (how many would have predicted the global financial crisis, the Covid pandemic, or the war in Ukraine and the ensuing energy crisis, even a couple of years ahead of them occurring?
Realistically, all we can do is plan on the basis of what we know and then adjust our plans to respond to changing circumstances.
From a political perspective, any party's policy decisions will be influenced by their impact on voters - a positive impact will increase their chances of reelection and obviously a negative impact will reduce chances of reelection. This is the risk of a democracy, because it doesn't always work for the greater good and sometimes certain groups have a greater influence on public opinion than others.
My DB scheme, with one specific employer, closed and a separate AVC was contributed to. Apparently this gives benefits such as being able to take tax free cash from the AVC element without affecting the DB amount, is this normal ?
Yes quite a few schemes will have this as option
@@alexporter7003Need to investigate further, is it 25% of DB Scheme value or 25% of DB scheme plus 25% of AVC?
@@mark_just_mark yeh check your scheme rules normally there are multiple options. You can take 25% of DB and then 25% of AVC value separately. Or you add the DB scheme to the AVC scheme value to get a total value and then you can take 25% (which can all be taken from the AVC leaving DB fully in tact. Check the details tho and each scheme varies
It is something I’ve seen numerous times before yes. Essentially there can be DB and DC benefits as part of the same scheme, and this can mean you can take proportionately more of your DC pot tax free than you would normally be able to.
The majority of defined benefit schemes have closed as they cost the company too much and we’re to good for the employee . I was with BT and they closed their DB scheme in 2016 and employees had to contribute to a private pension …
DB is a boomers privilege...an another one. Now I would need to contribute at least £1000/month to DC to be able to get near to DB pension scheme.
I worked for fifty years long hours low pay retired now because I worked for so long I get less of a government pension than someone who couldn't be bothered to get off their arse and get a job they get the rest made up on benefits
The most scandalous thing is when people qualify for a state pension from a lifetime of claiming certain benefits.
@@chrisbourne-retirementplanneras a compassionate country we should assume that benefits have been paid for the right reasons and this clearly shouldn’t prevent someone from claiming further benefits (which is what a State Pension is after all) when they reach that age. Those individuals’ benefits included NI contributions that ‘paid for’ the State Pensions of those receiving at the time.
I had a period of unemployment between jobs during which I had a couple of months getting ‘unemployment benefit’ …..should I not?
We should challenge our elected representatives to ensure they manage efficient departments, plugging tax loopholes and stop giving lucrative contracts to their mates rather than victimise those who’ve needed benefits because they’ve been unable to contribute taxes in the way others have.
I’m 52 and have two more years to get my 35 years of full NI for my State pension………. but……I could take a DB pension at 50……should I wait until I’m 54 and I’ve paid ‘enough’ NI for myself? Stop working, take the pension, find tax efficient ways to minimise my exposure and therefore avoid tax AND NI? I could recycle my PCLS via a SIPP in my wife’s name to double dip my tax relief as well.
There are moral choices as well as legal ones.
How are you getting less of a pension? No good moaning about others…….did you not plan for your own future?
@@ianjames3078 I did but the people who never worked also get the oap pension and benefits I just get oap pension with no benefits
Were you not paying NI for 50 years?