Cashing in a DB pension

[GnomeDePlume]

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!

It depends on what’s being offered. My DH cashed in 12k per year from the age of 60 for 635k.

1% of clients are apparently approved as suitable for DB transfers. No approval = no transfer. They changed the rules to stop people doing it, conveniently when cetvs were at an all time high, they’ve now halved.
The £30k threshold is ridiculously low, it needs to be £100k at least.
There is much talk of a workaround on the MSE pension forum but nobody has actually been able to do it, which tells you how difficult it is.

@GnomeDePlume I would try to get a few years worth of pension in DH own name. Does he work FT? I was going to suggest he up his hours & you go PT while you wait for your pension to kick in. Do you have children?

@converseandjeans DH's job is physical and NMW. He is 60 and while very fit now we neither of us know how long that will last. He is starting to gather up aches and pains. A new knee is likely to be needed soon (knees don't run in his family).

One of his brothers has recently had a serious, possibly terminal, cancer diagnosis at 65 and that has given us pause for thought.

I have been main earner since DCs were tiny and DH spent some years as SAHP. Unfortunately the nature of my job makes P/T unworkable. Also the maths doesn't work, for every hour I cut back DH would have to work four to make up the money. I think that might kill him and I do like the old sod so I don't want that.

DCs are all adults now with their own lives. Two are married, one still lives with us. We are in a relatively cheap housing area so downsizing wouldn't release a lot of capital.

We are going to look at all our pensions and have a proper think about the lump sum options.

Up until now I have ignored this potential as all the people I know who have taken lump sums seem to have frivolled (to my mind) the money on things like once in a lifetime holidays. This got stuck in my mind as lump sum=cruise, I don't want a cruise so saw no need for a lump sum!

The standard position for IFAs is that transferring DB pension to a DC pot is not suitable for the vast majority, you’ll be giving up a guaranteed income payable for the rest of your life that increases with inflation, once you’ve transferred out and taken money from your DC pot you’re just withdrawing until you run out of cash. If you get advice you have to pay the fees whether they recommend the transfer or not, (FCA banned contingent charging), if the IFA doesn’t recommend a transfer and you still want to go ahead you’ll be an insistent client which may mean you struggle to get a provider to accept the transfer, ( insistent clients often complain after they run out of money and realise they’ve made a poor choice). Why not take TFC and a reduced annuity?

The suggestion to look at taking the 25% tax free lump sum was a good one

You won't be able to take the 25% lump sum from your DB pension until you are actually taking the pension (the lump sum has to be taken in connection with you taking the DB pension, and paid within a (roughly) 18-month window of the pension starting. You may be able to look at cashing in part of your DC pension to bridge the gap, though. A mix of DB and DC gives you a great combination of flexibility and stable/guaranteed income, so I'd say you're doing the right thing leaving the DB where it is.

@SonoPazziQuestiRomani thank you, that is good to know about the possibility of a lump sum from the DB pension. So far I haven't looked at that at all.

My thinking is that we drawdown 25% from my DC pension pot to take advantage of the tax free element to bridge the gap between me retiring and my DB pension coming in which will be at the same time as DH's state pension comes in.

We will have a couple of leaner years when we first retire but in addition to pension we should have some savings to help tide us through. While I am still working I will make sure DH gets the bigger DIY jobs done!

I'm an accountant (corporate not personal) so I'm not frightened by crunching the numbers but other than paying in dutifully I don't have a lot of actual knowledge.