keitha
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2024, hopefully the year I get out of P2P
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Post by keitha on Apr 24, 2023 12:07:47 GMT
I saw one recently an may even have mentioned it here. cashed in his pension spent it and is now complaining that because some of the pension he withdrew was "opted out" he doesn't get a full state pension AIRI "I drew my pension and spent it, no I find I don't get a full pension because of my private pension, but I spent it so I should get a full state pension" While looking at the link provided by agent69 , by chance I came across this very good explanation of the case above. Steve Webb really knows his stuff and I've always rated him highly. www.thisismoney.co.uk/money/pensions/article-11735955/State-pension-docked-20-week-contracted-happening.htmlpretty sure that's the one I saw so he has eaten his cake, now he wants another slice
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michaelc
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Post by michaelc on Apr 24, 2023 12:40:33 GMT
It's a complex area, involving potentially life-changing sums of money, where half the people taking these decisions are sub-100 IQ (almost by definition)... what could possibly go wrong?  I detect you have your mathematician's hat on here: drilling down to the nth degree comes naturally , but forget the crisps a moment and let's take a step back... Do IFAs really charge thousands for the straightforward cases most people are going to present with? Thousands to warn you about the potential scams out there, seriously? I have no knowledge in this area, but I just can't envisage most people being charged anywhere near that much. Perceiving an expert's advice as someone "telling you how you must spend your money" is, forgive me, a rather perverse interpretation surely? Can't the advice be ignored or questioned? Surely the government's motive is reasonable here - to pre-empt the very worst of mistakes? As agent69 has mentioned, you are presumably not obliged to follow the advice if you still insist on doing something dumb? The approach seems quite sensible to me, especially in light of PPI, as @bobo mentions. For pension cash-in, they have identified the worst cases, those people who, if their new venture goes belly up, could become a future drain on the state, and required them to first talk it through with an expert before potentially hitting the self-destruct button. Is that so unreasonable? Not always. The situation I know about is that if you have a DB pension worth more than 30K, you need positive transfer advice to transfer it to a DC. There are long threads on MSE where the conclusion seems it is just about impossible. It is that fact alone that has made me form the view I have about what I consider to be the murky world of Pensions Advice. As for the point about thousands to warn against scams - that came from the brief discussion I had with AdrianC a few posts back. He seem to suggest the main benefit of advice was to avoid being scammed. How two characters can totally change the meaning of one's posts! I've swapped them back above because I think its a very important point that this "advice" is not always advice at all but effectively an order.
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agent69
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Post by agent69 on Apr 24, 2023 12:53:13 GMT
Not always. The situation I know about is that if you have a DB pension worth more than 30K, you need positive transfer advice to transfer it to a DC. There are long threads on MSE where the conclusion seems it is just about impossible. It is that fact alone that has made me form the view I have about what I consider to be the murky world of Pensions Advice. As for the point about thousands to warn against scams - that came from the brief discussion I had with AdrianC a few posts back. He seem to suggest the main benefit of advice was to avoid being scammed. How two characters can totally change the meaning of one's posts! I've swapped them back above because I think its a very important point that this "advice" is not always advice at all but effectively an order. Cashing in a DB scheme is by no means impossible, although it is obviously expensive. One problem is that in the first instance your DB pension money is in a vast pot along with all the other money invested by employees in the scheme. Your company cannot pay you the cash, you have to go through an intermediary. Unfortunately, the intermediary has the same problem as the financial advisor - they are worried about being sued if they give you a load of cash and you squander it.
For this reason, many intermediaries will not take on transfers from insistent clients, who have been advised to stay in the DB scheme.
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michaelc
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Post by michaelc on Apr 24, 2023 14:52:44 GMT
How two characters can totally change the meaning of one's posts! I've swapped them back above because I think its a very important point that this "advice" is not always advice at all but effectively an order. Cashing in a DB scheme is by no means impossible, although it is obviously expensive. One problem is that in the first instance your DB pension money is in a vast pot along with all the other money invested by employees in the scheme. Your company cannot pay you the cash, you have to go through an intermediary. Unfortunately, the intermediary has the same problem as the financial advisor - they are worried about being sued if they give you a load of cash and you squander it.
For this reason, many intermediaries will not take on transfers from insistent clients, who have been advised to stay in the DB scheme.
Yeah and my DB is actually part of a hybrid DB/DC with the DB element worth not much over 30K and the DC part massively higher. Apparently I can't move the DC into a "virgin" DC wrapper without being given the ok to transfer the DB element which I'm unlikely to get. I dunno - maybe I'm an unusual case which is maybe why I'm unhappy.
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Post by bracknellboy on Apr 24, 2023 16:45:52 GMT
Cashing in a DB scheme is by no means impossible, although it is obviously expensive. One problem is that in the first instance your DB pension money is in a vast pot along with all the other money invested by employees in the scheme. Your company cannot pay you the cash, you have to go through an intermediary. Unfortunately, the intermediary has the same problem as the financial advisor - they are worried about being sued if they give you a load of cash and you squander it.
For this reason, many intermediaries will not take on transfers from insistent clients, who have been advised to stay in the DB scheme.
Yeah and my DB is actually part of a hybrid DB/DC with the DB element worth not much over 30K and the DC part massively higher. Apparently I can't move the DC into a "virgin" DC wrapper without being given the ok to transfer the DB element which I'm unlikely to get. I dunno - maybe I'm an unusual case which is maybe why I'm unhappy. If its a hybrid scheme, the implications of transfer are quite likely to be 'complicated'. You haven't really said anything about what type of hybrid it is. Even a quick read of the info at this link tends to highlight the complexity of decision making that could be needed for a hybrid. Hybrid pension schemes
Having sat on a number of calls done by chair of trustees of my (now former) employer's schemes, I can without doubt say that the questions and answers and nuances and so on and so forth regarding the Hybrid schemes always seemed to be pretty complicated (they have managed to end up with many schemes over the years as they evolved to only offering straight DC to new employees).
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michaelc
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Post by michaelc on Apr 24, 2023 17:46:01 GMT
Yeah and my DB is actually part of a hybrid DB/DC with the DB element worth not much over 30K and the DC part massively higher. Apparently I can't move the DC into a "virgin" DC wrapper without being given the ok to transfer the DB element which I'm unlikely to get. I dunno - maybe I'm an unusual case which is maybe why I'm unhappy. If its a hybrid scheme, the implications of transfer are quite likely to be 'complicated'. You haven't really said anything about what type of hybrid it is. Even a quick read of the info at this link tends to highlight the complexity of decision making that could be needed for a hybrid. Hybrid pension schemes
Having sat on a number of calls done by chair of trustees of my (now former) employer's schemes, I can without doubt say that the questions and answers and nuances and so on and so forth regarding the Hybrid schemes always seemed to be pretty complicated (they have managed to end up with many schemes over the years as they evolved to only offering straight DC to new employees). Assuming the link to the Irish Pensions Authority is broadly equivalent then mine is an underpin. For the first year when my salary was lowest it accrued some DB then for the remaining 20+ years of employment it built up the DC side only. So in order to drop the DB element and go pure DC, I think I'd need "advice" which I think I would find impossible to get. As an aside, I think I'm supposed to be able to take out 25% cash at age 55. Does that also depend on getting the right sort of advice?
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Post by bracknellboy on Apr 24, 2023 18:21:37 GMT
If its a hybrid scheme, the implications of transfer are quite likely to be 'complicated'. You haven't really said anything about what type of hybrid it is. Even a quick read of the info at this link tends to highlight the complexity of decision making that could be needed for a hybrid. Hybrid pension schemes
Having sat on a number of calls done by chair of trustees of my (now former) employer's schemes, I can without doubt say that the questions and answers and nuances and so on and so forth regarding the Hybrid schemes always seemed to be pretty complicated (they have managed to end up with many schemes over the years as they evolved to only offering straight DC to new employees). Assuming the link to the Irish Pensions Authority is broadly equivalent then mine is an underpin. For the first year when my salary was lowest it accrued some DB then for the remaining 20+ years of employment it built up the DC side only. So in order to drop the DB element and go pure DC, I think I'd need "advice" which I think I would find impossible to get. As an aside, I think I'm supposed to be able to take out 25% cash at age 55. Does that also depend on getting the right sort of advice? Yes, hands up, I hadn't spotted that was an .ie link when I looked. However it is not unlikely that the concepts are that dissimilar. And I can't be bothered to register with the other organisational 'hits' I had. The last point is a legal entitlement (well it is at the moment, but just wait for future pension raids by an exchequer), was (is?) common practise and no does not require you to provide evidence that you have taken advice. You can take out that 25% from either or both of your DB and DC*. You also do not need to take it out as a one off lump sum, and for a lot of people that may well not be the smart thing to do. This made more sense (taking a one off 25% lump sum) when DB pensions were the norm, and before pension flexibility allowed you to put a DC into drawdown (as opposed to having to buy an annuity with it). Put it this way: if you put a DC pension into drawdown, then each time you cash in/withdraw an amount you can take a 25/75% split. I should add this is a significant simplification of the position, but you can see the difference between doing that and taking a single lump sum of 25% of value upfront. For many people who are better off, they don't 'need' the 25% upfront (mortgages are settled or near settled, other assets outside of pension etc. etc.) so taking a single large lump sum at point of transfer from pension to drawdown doesn't make sense. *I am saying that in the context of a 'normal' DB and a 'normal' DC, not a DB/DC hybrid on which my ignorance is unbounded.
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agent69
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Post by agent69 on Apr 24, 2023 18:40:48 GMT
Assuming the link to the Irish Pensions Authority is broadly equivalent then mine is an underpin. For the first year when my salary was lowest it accrued some DB then for the remaining 20+ years of employment it built up the DC side only. So in order to drop the DB element and go pure DC, I think I'd need "advice" which I think I would find impossible to get. As an aside, I think I'm supposed to be able to take out 25% cash at age 55. Does that also depend on getting the right sort of advice?If you're in a DC scheme you can dip into your pot from age 55, but don't forget that once you take money from the pot you may have to comply with the recycling rules (which greatly reduce what you can pay in in future years). As far as the DB pension is concerned, you should be contacted by the people that administer the scheme well in advance of your normal retirement date (maybe about 12 months) to ask what you want to do:
- if you want to cash it in you need to notify them well in advance (you can't tell them just before retirement)
- if you want to take a tax free lump sum, you need to tell them how much (up to 25%). No need for advice to do this
- I believe the tax free sum in a DB scheme is take it or lose it. You can't defer taking the tax free sum and you can't dip into the pot multiple times (say to take 5% tax free in each of the first 5 years)
- in a DC scheme you can take 25% tax free up front, or take 25% tax free from each of the payments you receive.
The trick with a DC scheme is trying to get as much of your money withdrawn without paying tax on it. I retired early and spent several years living off savings. In this scenario you can take about £16k a year from the SIPP tax free.
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michaelc
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Post by michaelc on Apr 24, 2023 19:26:23 GMT
Thanks both - much appreciated.
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Post by bracknellboy on Apr 24, 2023 19:46:55 GMT
Assuming the link to the Irish Pensions Authority is broadly equivalent then mine is an underpin. For the first year when my salary was lowest it accrued some DB then for the remaining 20+ years of employment it built up the DC side only. So in order to drop the DB element and go pure DC, I think I'd need "advice" which I think I would find impossible to get. As an aside, I think I'm supposed to be able to take out 25% cash at age 55. Does that also depend on getting the right sort of advice?If you're in a DC scheme you can dip into your pot from age 55, but don't forget that once you take money from the pot you may have to comply with the recycling rules (which greatly reduce what you can pay in in future years). As far as the DB pension is concerned, you should be contacted by the people that administer the scheme well in advance of your normal retirement date (maybe about 12 months) to ask what you want to do:
- if you want to cash it in you need to notify them well in advance (you can't tell them just before retirement)
- if you want to take a tax free lump sum, you need to tell them how much (up to 25%). No need for advice to do this
- I believe the tax free sum in a DB scheme is take it or lose it. You can't defer taking the tax free sum and you can't dip into the pot multiple times (say to take 5% tax free in each of the first 5 years)
- in a DC scheme you can take 25% tax free up front, or take 25% tax free from each of the payments you receive.
The trick with a DC scheme is trying to get as much of your money withdrawn without paying tax on it. I retired early and spent several years living off savings. In this scenario you can take about £16k a year from the SIPP tax free.
That's correct. In re-reading my post I realise that it might have been ambiguous. It would be illogical to be able to dip back into DB. In the same way it would have been illogical to do that with DC when you were forced to buy an annuity with its entirety (-<25%) upfront. With DB you are of course making a transactional agreement with the provider as to how much they are going to pay you in perpetuity. Which obviously is affected by how much you are going to do as an initial cash withdrawal. So the amount you are going to take out as a cash lump sum needs to be agreed upfront as a one off decision, so that the reduction of your DB pension can be calculated and fixed.
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