Defined Benefit/defined contributions - pensions

[lovemydog]

DH has received a letter from a previous employer offering the chance to transfer his benefits on an enhanced basis to another provider. The transfer value is almost 100k. Am I right in thinking it is always best to leave the pot in a DB arrangement rather than a DC one? He has about 20 years worth of contributions in DB pensions (this job and a couple of others and is now in a new job with a DC pension.) And no matter whether he stays there or not, realistically any future job will have a DC pension. He is minded to transfer into his current employer's scheme, I say no. We have DCs of 21 (working, living at home) and 17 (off to uni in September, we hope). I work, earning approx 25k per annum. Any advice?

I think you are right about staying in DB schemes. No more advice than that, although my financial advisor keeps rattling on about SIPPs, and I suppose they might be worth looking into

Definitely worth getting advice from an IFA I think as this really depends on the circs of the DB and DC schemes involved.

FWIW here is my wild stab in the dark:

Stick with the DB - risk is that the pension pot isn't adequately funded? That depends really on who your DH worked for. You can look into this on the Pension Fund accounts (DH should get annual statements?) There is a reason why they are now as rare as hens teeth - they are vv expensive to maintain - so unless you are pretty sure yours has strong cast iron gurantees to stay long term (blue chip company) could be worth taking the money. Often DB Pensions trustees want to get peopleout of their funds and will offer good transfer deals to get you out. But an IFA should be able to work out if this really is worth the deal.

Move to DC - risk is that the investment is then in the hands of new employers Pension Fund advisors, could go up, could go down.

Personally (as someone in a DB scheme now closed to new employees) I would stick with the DB scheme, but that is because I am very confident that the scheme is well funded and the company is very stable/secure

Don't transfer without speaking to an IFA (not something I usually recommend but invaluable in these circumstances). An IFA will be able to tell you what level of investment return the £100k would need to achieve between now and retirement to acheive the same pension as from the DB Scheme, so that you can judge whether that sort of return is achievable bearing in mind your attitude to risk. If you are happy to take the risk that you might be worse off, and can afford to take that risk with your pension savings, then you may want to transfer, if you want the comfort of knowing what you will get at retirement then stick where you are.

Generally companies are looking to save significant sums of money by making these offers, even if they are "enhanced" transfer values. That should set alarm bells ringing, as if the company saves money it is because they are offering members a bad deal.

If the company goes bust then the scheme will usually go into the Pensions Protection Fund if it doesn't have enough cash to pay benefits - the PPF doesn't pay full benefits but generally pays 90% of the pension you would have received, up to cap.

Hope that helps.

I work in the pensions department of my Company and I agree with all that's been said so far. Never transfer out of a DB scheme unless you are 100% satisfied that it's the right thing to do.

If anyone comes to me and asks to transfer out of our DB scheme (closed to new employees but still open to accrual) and advise them against it. These "enhanced" special offers to try and get you to come out of a DB scheme are there to help the Company, not you. Pension Administrators try to push these schemes on us as a Company (as it reduces our pension liability and saves us money) but so far we've resisted trying to encourage people out of a DB scheme as it's usually the wrong choice for the individual and we are not out to swindle our ex and current employees.

So, just to be clear, the Company offering the deal is doing it for their benefit, NOT yours.

Thanks all, I agree that the company is offering this for their benefit, not DH's. He has decided to leave things as they are and not transfer into his current DC scheme. I think he thought it would 'simplify' things as he has several pensions stretching back over the past 25 years. He only left DB schemes 2 years ago so most of his pension fund to date is in blue chip DB schemes so has been quite lucky to date. And of course if the worst happens there is always the PPF.

100k is really not a lot in pension terms. Stick with the DB scheme.