DB Pension Scheme closing

T

TheBigD

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Looking for some advice here.

My firm's DB plan is closing on the 31st Dec due to it becoming unsustainable. The firm is making a once off capital injection to bring the scheme back into surplus, closing the scheme and all future service will be through a DC plan.

In my situation I'm due to leave the firm in a few weeks so I'm looking at the options available to me for my past service and trying to select the best one.

The options are:
1) Transfer accrued benefits to a new DB plan that is closed to future service contributions. This will give a pension of €5535 p.a. on my retirement at 65. This plan has a statutory revaluation based on the CPI capped at 4%.
2) Transfer value to a bond or PRSA. The transfer value is €28.6K.

My initial thoughts are that option 1 is the best as to get a pension of €5.5K p.a. I would need to invest €120K currently. I do need to balance this with the risk that the new DB plan might not retain a surplus in the years ahead.

Thoughts?
 
The Big D.

(need your age to comment better but here goes a view)

Option 1.
If you are close to 65 = great option.
Option 1.
If you are not near 65 , is this 5,535 what you will get @ 65? or is it 5,535 + cpi after you retire?. If it is 5,535+ cpi , say in 25 years time it is very little.But would be good if you are close to retirement.
Option 1.
Since it is an active plan , you avoid most of the charges.
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Option 2.
Value today k28 , it takes circa k14 for every K1 pension you want @ 65.
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Given the (shuffle) and (fear) over Defined schemes caution is needed,
however the new EU rules will protect D B schemes to guaranteed 50% on them and company failing.
So @ worst Db looks better on the info you have given.
 
Thanks Gerry, I'm 36 and the €5.5K is the annual penson on retirement at 65, with an annual increase to reflect inflation,capped at 4%.
 
Big D

You have to weigh up the pros and cons of both. The biggest being "will the scheme still be there in 29 years time?"

When calculating the transfer value, the actuaries assume that if you invest it yourself, you will get a return of 7%. I don't know why this isn't changed on (probably because The Pensions Board couldn't be bothered) but it is unrealistic to think you will get those returns.

I blogged on this very subject last week. It may be of use to you. http://bluewaterfp.ie/2013/12/09/defined-benefit-pensions-should-i-transfer-out/
 
SBarrett said:
Big D

You have to weigh up the pros and cons of both. The biggest being "will the scheme still be there in 29 years time?"

When calculating the transfer value, the actuaries assume that if you invest it yourself, you will get a return of 7%. I don't know why this isn't changed on (probably because The Pensions Board couldn't be bothered) but it is unrealistic to think you will get those returns.

I blogged on this very subject last week. It may be of use to you. http://bluewaterfp.ie/2013/12/09/defined-benefit-pensions-should-i-transfer-out/
Click to expand...

Good summary.
Don't forget that due to the unwinding of the discount rate, the transfer value itself will increase by a net of approx. 5% per year if left within the scheme as well. ( TV discount rate - reval rate). He would do well to achieve this outside.
Whether you can get to take it again at a later stage is not guaranteed, but may be possible to negotiate.
 
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