Cashing in a DB pension

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I am looking for some other perspectives before starting down this route.

I'm 58, I have a DB pension from an old employer (left 12 years ago). This is due to pay me £14k PA (current value) from age 65. It is due to go up approximately with inflation.

I have continued to work since leaving previous employer and have built up a DC pension pot of around £125k so far. If I keep working until 65 this will rise to around £350k

Now I am thinking I would like to retire sooner than 65, maybe 62. I am now wondering whether to cash in my DB pension and join it to my DC pot.

My reasoning:

• the DB pension will only pay 50% to DH if I die first
• DH's own pension will be low. He will get full state pension but he has been SAHP and now in NMW job so his ability to build a pension pot is limited
• I want DH to be able to inherit a decent pension if I die first

I know that I will need approval from an independent financial adviser. Is there anything else I need to think about?

All thoughts gratefully received!

Many things to consider, just a few to start.

What is the transfer value?
Do you have any additional income avenues
Do you have any other financial assets
Do you have an IHT issue
Maybe consider an increased lump sum and reduced pension, this will at least ensure that you have some 'benefit' from the pot to pass to your husband

If you are concerned about a legacy to your husband, a whole-of-life policy paid for with the income from the DB pension would be an alternative option. Transfering a DB pension on death benefits is not sufficient justification anymore, and unlikely an IFA would sign off on this basis alone.

Have you investigated whether you can access you DB pension early, with a reduced benefit?

I think you'd be crazy to transfer out of a DB pension to retire only 3 years earlier than it's due to start paying. Can't you use the DC pot to tide you over from 62 to 65 when the DB starts paying out?

Who is the DB pension with? State provided pensions are non-transferable.
It is very hard and expensive to find an advisor who would be prepared to recommend this move as DB pension benefits are so valuable. Could you just take the pension earlier? It will be less but obviously you take it for more years so the overall benefit tends to be broadly similar.
can you pay additional money into you DH’s pension instead of your own to balance out the provision?

Its is almost never beneficial to move a DB pension to a DC pot - take very careful financial advice first. DC pot annuities are also unlikely to offer the same widow benefits or inflation linked rises.

Its not an accident that DB pensions are the gold standard for employees.

myself and my husband have recently looked into this for an old deferred DB pension, based on the fact that should he die, I would only receive 50%. Our financial advisor had to make the referral to a specialist company, there are apparently only a small number of financial institutions authorised to do this for DB pensions. We had to fill in goodness knows how many forms, disclose all other income streams and assets and have interviews, it’s a 4 stage process and the first 2 stages are free, after that you pay a percentage of the fund (I think about 3%) for us it was about £4500. The assessment came back that they didn’t recommend we proceed as the transfer value was too poor. Our IFA took the view that we could be insistent clients and proceed and would gain enough from investing the funds, but were quite risk averse so have decided against it. As we didn’t proceed to full transfer I don’t know if we will have to pay the fee but I have a feeling that this will still apply so we are potentially 4.5k down.

Christ no

DB pension is a private company one, not state.

Interesting that wanting to be able to pass it on to DH is not sufficient reason. That is useful to know, thank you.

Not sure how much we can put into DH's pot but that is worth thinking about. We have tended to be focused on building mine as I am a higher rate tax payer and ge barely pays tax.

What do you mean by’cash in’ a defined benefit pension?
You might be able to access it earlier than 65 but with a reduction in monthly payment
im not a pensions expert but I’m not sure you can ‘combine’ it with a defined contribution pension.
Please get accurate advice from a pensions expert…it may cost you money but in the long run it could save you thousands.

@Gall10 with company DB schemes it can be possible to exchange the future guaranteed pension for a cash sum now which gets paid into an existing DC scheme.

This can be advantageous to the pension scheme as it means they no longer need to guarantee the pension into the future.

The advantage for me would be having greater flexibility to retire sooner and having a pot to pass on to DH.

Just to add, I am not looking to buy an annuity with whatever pension pot I have. I am looking at flexible drawdown.

The Financial Conduct Authority (FCA) and the Pensions Regulator (TPR) state that it will be in “most people’s best financial interests” to keep their defined benefit pension rather than transfer it to a DC scheme.

You could speak to someone via “Pension wise” about this?

I have a DB and a DC pension and I think this offers great flexibility. One gives me a guarantee income (towards day to day expenses) and the other I can draw down as and when I need it (home improvements, holidays, etc.).

Look carefully at the T&C of the DB pension: it would be unusual if you could not take it earlier than 65.

I would be loathe to swap DB for reliance on D.C., especially in the current climate. Our economy, Russia, Trump have sent my DC pot plummeting.

As others have said, it’s very hard to find someone to sign you off to do this. I also had a (small) DB pension that I wanted to commute. In the end I decided it wasn’t worth the hassle.

What I did do however was to take the tax free lump sum as a single payment. This can be done before you start to take payments from the pension. This would then free part of the money up for you to reinvest as you choose.

Thank you everyone you have given me a lot to think about and to add to my ever more complicated pension projection spreadsheet!

ISAs are good for 'bridging the gap', plus you can start drawing down your DC pension already.

It's highly unlikely to be advantageous to cash in the DB pension at the current CETV rates, and will cost a lot in FA fees to do so.

It's great that you are considering you DH and what money he might have if you were to die first. However, it does seem a little bit strange that you are focussing entirely on him and not yourself in your reasons for the DB to DC transfer.

Yes - he would inherit more if you did the transfer and then died soon. But what if you DON'T die soon, or indeed die first at all? Instead of drawing your £14k pa DB pension together with all the security that has you will be dipping into a DC fund that has investment risk, and could eventually run out altogether if you take too much out or live a long time.

Unless you have some health reason to suspect that you are not going to live for a normal amount of time (when obviously provision after your own death becomes more pressing) I would urge you to investigate other options such as those other people have said. For example:

• You will probably be allowed to draw it early at age 62 with an actuarial reduction applied.
• You will probably be allowed to commute 25% of your pension for tax free cash, which you could then invest or leave in the bank to be available to your DH if you were to die first.

Only you will know what is right for you - but I would urge you to consider all the possible ways your retirement might pan out and not just on what happens if you die first.

There’s no way I’d give up £14k pa, index linked.

You’d need a pot of around £350k to generate a similar level of income. You have a £125 DC pot so you have flexibility.

You don't seem to be saying that you have any health issues that indicate you may die earlier. It's a nice sum to have guaranteed, I really wouldn't risk it.

It seems better to ensure that your and his dc pensions are contributed to as much as possible, then both have your expression of wish leaving the money to each other. Then whoever dies first gets the lot and he would still get the 50% db on top if it was you.

You could also consider going part time or to a less responsibility job at 63, instead of retiring completely.

My instinct is saying "don't do it"! I'm pretty sure that you'll be better off to keep the DB pension as it is.

Don't do it OP, the tax on your cashed in pension will be huge. Also I'm pretty sure you won't be able to cash it in unless an IFA writes a report saying that would be the best thing for you. Unless you're terminally I'll with a very short life expectancy no IFA will write such a report.

Thank you everyone for your thoughts and the time taken to reply.

I think you are all right. Cashing in my DB pension would be a mistake.

The suggestion to look at taking the 25% tax free lump sum was a good one. I have looked at that and at the moment I could release some of my pension fund to bridge the gap between retirement and DB pension starts.

I am now looking at retiring at 63 instead of 65. Woo hoo!

Thank you!

In your situation no one will advise you to cash it in so you’d be an ‘insistent client’ which brings a lot of practical problems and lots of places won’t manage rhe money even if they had no part in the advice to transfer. 14kpa in addition to your state pension is a great starting point for your retirement income!

She wouldn’t pay tax on it until she draws it, it gets transferred into a SIPP so it retains it’s status as a ‘pension’ until it’s withdrawn.

I do not know of any pension providers that will accept an insistent client transfer from a DB scheme, and require sign off from an authorised adviser.

Thanks again. We have decided not to explore cashing in my DB pension. We are now looking to use some of our DC pots to allow us to retire a few years earlier than state pension age.