Transferring into DB pension?

[southeastlady]

I worked in an office as PA for about 15 years and have a pension pot of around £110,000 built up.

Last year I became a Police Officer so joined the police pension scheme which is a defined benefit scheme (no longer final salary for new joiners unfortunately it’s now a career average related earnings scheme)

I am able to transfers my previous DC pots into the police pension scheme so just wondering if that would be worth doing?

Any thoughts would be appreciated

Money Saving Expert has some pension experts on the pension forum. Might be worth posting there. Pension Wise also offer free, independent advice.

I think that transferring in is a good option but offers less flexibility when you are older.

Speak to your police pension scheme administrator. They will be able to get the details of your previous arrangement, and then tell you what the transfer will buy in the police scheme (which will be an amount of annual pension payable from your police scheme retirement age). You can then compare that with the projected outcome if you leave the pot where it is.

Things to think about:

• if you transfer then you will only have one pension arrangement payable from the police normal pension age. There might be penalties for taking it earlier. If you keep separate then you will have the flexibility of taking your other pot before your police pension becomes payable (subject to the retirement age and rules of that scheme).
• if you have to retire early from the police your pension could be paid at that point - if you’ve transferred then that early payment will include the transferred in pension.
• once in payment the police pension will automatically increase in line with inflation whereas your other scheme probably won’t or it will depend what choices you make at retirement.

Hope that helps but the first thing is to get your police scheme to tell you what the transfer will buy and then you will have more information to help you make a decision.

Can you get a quote for what you’d get if you transferred in? This is what I did when I transferred an old pension into my civil service one. I had to get a transfer value quote from the old provider, then the civil service pension scheme told me what that would buy me and I was able to decide if it was worth it (which it was).

New Civil Service Pension schemes are linked to Retirement Age, so think carefully about loss of flexibility on the private pension if you transfer.

Depending on your age (and promotion prospects) you may still have a long time yet to contribute to the Police Fund, which will still be favourable and keep your private pension flexibility.

Also interested to hear thoughts from others on this same topic.

Personally I’d keep it separate. My pension is awful but I’ve got at least another 30 years of work. Just transferred to public sector and I was about to transfer in but I’ve decided to keep it separate and use it as a bridging pension to take early retirement without getting hit with deductions from the db scheme.

Thank you all. I joined at 38 and the retirement age is 60
I have around £105,000 to transfer in and they have said that will get me £6,000 a year of police pension

Assuming you do retire at 60 and live to 83 (which is about the average life expectancy for a woman) you would get around £138k in pension paid out from the transfer. Also bear in mind that the pension will automatically be inflation linked. It might also provide ongoing benefits to a spouse or partner (you would need to check that). That seems a pretty good deal to me, but you would need to compare to projections from your previous arrangement to see what they predict that you could get from that pot.

But you might not live for 23 years after retirement and if you die early and don’t have a spouse/partner who would be entitled to receive a pension under the police scheme rules then the money would just be lost (possibly some lump sum might be paid in the event of your death). Also, you would lose the flexibility of having a DC pot - once it’s in the police scheme you can’t choose to take it earlier without penalty and you can’t take it as a lump sum. Keeping it separate means you potentially could take it as a lump sum at 55 (subject to tax) and then use that to bridge the gap until the police pension comes in at 60. Depends how much you want to keep working after 55 really.

Only you can decide what’s going to suit your lifestyle best - would you rather have the guaranteed income from the transfer but lose the flexibility of when and how to take it, or keep the flexibility?

Thank you, with the new police pension scheme they brought in from 2015 you can take a lump sum at 55

Yes you can, by giving up some of the annual pension. However you can’t take the whole lot as a lump sum.

If you keep it separate then as it’s a DC pot you would have the option to take the whole lot as a lump sum if you wanted to (subject to tax). You need to think about how and when you want to take your benefits and whether the flexibility of having separate pots is worth more to you than the guaranteed income from the police scheme.

And taking the police pension from 55 will incur early payment penalties if the normal pension age is 60.

unfortunately it’s now a career average related earnings scheme

CARE schemes are exceptionally good. Nothing to sniff at.

If someone is offered £6k per year pension for £105,000 they should bite their hand off.

To buy an annuity of that value to proved such an income would cost twice as much.

Rememeber the police scheme will be index linked and have spouse pension too.

Yes, it’s good to have some flexibility for early retirement etc. Perhaps you could transfer most of the pot and keep some in it? Or is it possible to rebuild a pot of DC pension r e main flexible ?

I’d certainly be. Considering t he transfer,

There are a couple of key points to consider in transferring DC pots into DB schemes.

1. You, generally, get a far better pension than using the DC to buy an annuity. Most public sector DB schemes provide inflation proof, without limit, annual increases and are often twice what you can buy on the open market.

2. However, you are buying a "promise" to pay YOU for YOUR lifetime. Once the "pot" has been transferred you lose all rights over that money and so it can have implications for your beneficiaries upon your death. With a DC "pot" if you have not bought an annuity with it then that money can be passed to your heirs. With the DB scheme your heirs might get nothing (most do have "family" benefits that pay out for a partner and dependent children), or a reduced pension in their own right. (Partner for life, children until 17/18 etc).

I just transferred a pension pot of around £90k into the civil service pension. It bought me £7k p.a (I am older than you).

For me, it was a good deal because I also have another defined contribution pension which I am adding to each month to bridge the gap between 60-68. Knowing that I will have a guaranteed inflation linked income at 68 is comforting though.

However, I am not sure I would do it if it were my only pension (I wouldn't want all my eggs in one basket!). I would also look at paying extra into the police pension to increase your DB pension that way and weigh up the two options (I.e how long would it take you to build it up buying extra years).