The Deferred DB Transfer at 58

Starting point

Safeguarded DB benefits carry a strong presumption that transfer is unsuitable unless the adviser can justify it with clear, documented evidence. The advice must be given by a Pension Transfer Specialist and supported by an Appropriate Pension Transfer Analysis (APTA) and Transfer Value Comparator.

What Alan gives up

• £18,500 a year from 65, RPI-linked to a 2.5% cap, plus a 50% spouse's pension and PPF protection.
• He gives up longevity protection, investment risk being borne by the scheme, and scheme charges.
• The CETV multiple is £410,000 ÷ £18,500 = 22.2 times. That is not a statutory test, but it implies a high critical yield before drawdown can match the safeguarded benefits.

The funding arithmetic

His liquid assets outside the DB scheme are £260,000 + £85,000 = £345,000. He needs roughly £42,000–£45,000 gross to produce £36,000 net. Clearing the £90,000 mortgage and bridging ages 60–65 at about £42,000 a year consumes around £300,000 before charges and before any allowance for adverse markets. That would leave very little at 65, when the DB pension and later the State Pension start. A 4–5% sustainable drawdown rate on £410,000 would produce only about £16,000–£20,500 a year, below the indexed DB pension, and without the spouse's pension.

Evidence required

Scheme statement and rules, early retirement factors, CETV and TVC, APTA, health and life expectancy, spouse's needs, full expenditure, other assets, capacity for loss, attitude to risk, tax position (PCLS, Money Purchase Annual Allowance), death benefits, employer covenant and PPF eligibility, and whether the scheme offers partial retirement or flexible options.

Likely conclusion

The transfer is unlikely to be suitable on these facts. The secure, indexed income and spouse's benefit are valuable, and the plan consumes most of his capital before age 65. The advice must still be personalised and must consider alternatives such as early retirement from the scheme, part-time work, downsizing or reducing target spending.

First test the scheme itself

Ask for the scheme's early retirement terms. If Alan can take the DB pension at 60 on an actuarially reduced basis, that may provide secure income earlier, possibly with a spouse's pension. Compare the reduction with the cost of bridging from his own capital.

Use the DC pot and ISA in a planned order

A possible structure, subject to cash-flow modelling:

• Take only the 25% pension commencement lump sum from the £260,000 personal pension - about £65,000 - and add about £25,000 from the ISA to clear the £90,000 mortgage. Taking lump sum only, without drawdown income, avoids triggering the Money Purchase Annual Allowance.
• Use the remaining £195,000 DC pot and the remaining £60,000 ISA to fund the five years to 65. At about £42,000 gross a year, the DC pot lasts roughly four and a half years, with the ISA covering the shortfall and providing a buffer.
• From 65 the DB pension starts at £18,500; from 67 the State Pension adds £11,500. That gives about £30,000 gross, leaving a gap against £36,000 net, so some ISA capital or part-time earnings will still be needed.

Be honest about sustainability

Retiring at 60 on £36,000 net is tight without the DB transfer. The answer is not to transfer; it is to change one of the variables: work to 62 or 63, reduce spending to £30,000–£32,000, downsize, or take scheme early retirement. Model a bad-markets scenario: if the DC pot falls 20% in year one, the bridge fails. Keep two years' spending in cash or short gilts and review annually. Do not use equity release to solve a short-term cash-flow problem.

Advice process

• The transfer advice must be given by a Pension Transfer Specialist, with an APTA, TVC and a suitability report explaining why transfer is suitable despite the presumption.
• Consider abridged advice first if Alan does not want full advice; abridged advice can only result in a statement that transfer is not suitable or that full advice is needed.
• If full advice says do not transfer and he insists, follow the firm's insistent-client process: a separate meeting, clear written risk warnings, a cooling-off period, confirmation in writing, and evidence that he understands the loss of safeguarded benefits and the spouse's position. Consider inviting his wife to a meeting.
• Record capacity, the alternatives discussed, the critical yield, charges and the receiving scheme.

Before any transfer

Check the receiving scheme is legitimate and not a scam; warn about pension scams and consider Pension Wise. Confirm the destination charges, investment strategy and drawdown sustainability. Check the MPAA if income is taken. Check FSCS limits and the loss of PPF protection.

Ongoing

Document the firm's policy, notify the professional indemnity insurer if required, and set a review programme. Contingent charging is banned, so the fee must be agreed independently of the transfer proceeding. Consumer Duty requires evidence that the advice delivers fair value and does not cause foreseeable harm.