Deferred db scheme

phoenix53

Registered User
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23
First of all apologies if my terminology is not correct in this post. I am member of a db scheme. As I have left the company my pension is deferred to age 60.
Every year I request a leaving service benefits statement because someone told me I should, so I do. The statement shows an estimated pension paid at 60 and a transfer value.
My question is, if I were to transfer the money to a buy out bond and then buy an annuity at age 60, would the pension I could buy be the same as if I had left it with the co until pension age of 60, all things being equal. If you decided at 60 you shouldn't have transferred out, the fund has grown etc, would the annuity rate you are given at 60 be the same rate the co would buy your pension at? Hope that makes some sense. Thanks
 

Conan

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1,180
If you retain the right to the Scheme DB, then you have certainty as to your pension income at age 60. The amount of deferred pension should be indexed between when you left and age 60. The “certainty” is dependant on the Scheme remaining fully funded into the future.
If you take the Transfer Value and invest it into a BOB then you give up the Defined Benefit. How much it will grow in the future will obviously depend on where you invest it and how markets perform. At age 60 you then have a choice:
- buy an Annuity (similar to a DB pension)
- invest it into an ARF.
If you use the BOB to buy an Annuity, the amount of Annuity will depend on the size of your BOB fund, the type of Annuity you buy and Annuity rates at that time. But there is no guarantee that the Annuity you might buy will equal the DB pension you gave up. It might be higher or lower.
So you must decide whether you want to retain the relatively guaranteed DB pension OR take the Transfer Value, invest it (you will have to decide what level of investment risk you want to take) and then when you get to age 60 (or later) decide whether you want to convert the resulting value into buying an Annuity or investing it into an ARF. The Annuity rate that you might be able to access should be similar to what the Scheme can access if you hold onto the DB . However thst depends on whether the Scheme would actually buy an Annuity in the open market or simple pay you a pension out of the Scheme (without offloading the risk to an Annuity provider - insurance company).
The real issue at this stage is what is the Transfer Value being offered and whether it really represents “value for money”. So if you took the Transfer Value and invested it to age 60 (and assuming a certain rate of investment return) what might that grow to at age 60.And then what Annuity might that buy at age 60 (assuming you used current Annuity rates). You should seek expert advice before considering the Transfer Value route.
Hope this helps.
 

phoenix53

Registered User
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23
That is a great help thank you. I didn't know a pension could be paid from a scheme without purchasing an annuity. I suppose there is no point of transferring out if my intention would be to buy an annuity at 60. its only 3 years away. We are having a financial review done at the moment but I don't want to be railroaded into doing anything I would later regret. I like to think things through so thanks so much for taking the time to reply.
 

Cameo

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120
Most DB schemes would pay income which would be very generous compared to buying an annuity In the open market.

The one caveat depends on the financial position of the fund, it’s possible that future benefits could be cut.

I’d be wary of anyone saying a BOB would be a better option unless there was compelling evidence that the scheme was in financial difficulty.
 

Marc

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1,188
Or the member is in poor health
Or the scheme represents a small part of their overall wealth
Or they plan to emigrate
Or they are close to the Standard Fund threshold

 

Cameo

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120
I guess the op framed the question in terms of how an income payable from a db scheme compared to what might be available by purchasing an annuity from the proceeds of a BOB do not sure the reasons listed above are relevant

think they’re considerations if you want to take a transfer value instead of the income form the dB scheme
 

Conan

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If the OP is close to retirement (suggested 3 years away), the state of health would be important, potentially.
So if the DB pension is a “single life pension” (ceasing on the members death and with no spouses pension ) and the individual was in poor health, then the Transfer Value might be an option for investing into an ARF (the value of which could be inherited as a continuing ARF by a surviving spouse).
 

johnkieran

Registered User
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12
So you must decide whether you want to retain the relatively guaranteed DB pension OR take the Transfer Value, invest it (you will have to decide what level of investment risk you want to take) and then when you get to age 60 (or later) decide whether you want to convert the resulting value into buying an Annuity or investing it into an ARF.
Can they leave this decision until just before they retire? In other words retain the DB benefit and get a TV in theory the day before retirement age 60. If that can be done are you not now in the best position to make an informed decision?
 

Conan

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Possibly. But it all depends on the TV offered by the scheme and how much the Trustees want to offload the DB liability. In 3 years time they might not be willing to offer a TV.
 

johnkieran

Registered User
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12
Possibly. But it all depends on the TV offered by the scheme and how much the Trustees want to offload the DB liability. In 3 years time they might not be willing to offer a TV.
So is it always at the discretion of the scheme trustees whether or not they offer a TV at any given time?
Or will the rules of individual schemes determine this?
 

Conan

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No. It’s a matter for the Trustees (a proxy for the Employer) whether they offer a TV at any stage. Some Schemes will look for the opportunity to offload the DB promise, others not. It can depend on how well funded the scheme is.
 

phoenix53

Registered User
Messages
23
Most DB schemes would pay income which would be very generous compared to buying an annuity In the open market.

The one caveat depends on the financial position of the fund, it’s possible that future benefits could be cut.

I’d be wary of anyone saying a BOB would be a better option unless there was compelling evidence that the scheme was in financial difficulty.
That is what I was wondering Cameo, would the DB scheme pay better than taking the transfer value and trying to buy an annuity yourself?
 

Cameo

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120
if i was you I would compare what the expected income from the DB scheme is against

the annuity payable based on current open market rates is, I’d assume no future growth rate in transfer value but use your age in 3 years time. (and spouse’s if applicable)

but as per some other comments; you need to consider marital status. for exampe if you are single a single life rate may be better than what the scheme offers if it assumes a spouses pension

that would be my starting point but I’d also get profission all advice, I would not invest the BOB in anything risky if you need the income in three years time.
 

Conan

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1,180
One possible point to bear in mind is that if the TV could be transferred to a PRSA (subject to certain conditions), on retirement you could possibly take 35% of the fund value as a lump sum (tax free up to €200,000) which might be higher than the equivalent lump sum under the DB Scheme. With the balanced you can either buy an Annuity or invest in an ARF. This might only be worth considering if the 25% tax free is significantly higher than the Scheme lump sum. Again, expert advice might be required.
 
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