Imperius Wealth

DB Transfer Case (Jan 2020)

DB Transfer Case (Jan 2020)

DB Transfer Case (Jan 2020)

The member (aged 51 yr) was a senior executive at a multi-national firm (‘Firm X’) with some 25 years continued service. The company was acquired by a rival in late 2019, (‘Firm Y’). He was a member of Firm X’s Defined Benefit pension and was offered the opportunity to take a once-off Transfer Value of €1.595 million in exchange for giving up his Defined Benefit pension annual payment of €77,500 from Firm X. (payable for life from age 60).

  • The transfer multiple was some 20.5x (€1,595m /€78,500) an attractive offer.


Our client had a normal retirement date of age 60 but was still actively working and now pensionable (with Firm Y) and had no plans to retire before age 60. 

Concerns

  • That the DB scheme pension would not provide any inflation protection into the future years.
  • Firm X’s commitment to future funding of the DB Pension scheme, their financial strength, a DB payment is a promise but not a guarantee.
  • Our member (as a deferred pensioner) his pension claims ranked lower in payment priority behind existing pensioners.
  • Securing the full benefit of the pension value, for his wider family (rather than the 50% spousal provision). 

He requested Imperius Wealth to explore the alternative available. Our research compared the different options and presented recommendations to the member.

Action taken

  • We carried out a detailed Fact Find review of the member and his wife’s financial circumstances. Any transfer value must be considered in the light of the person’s individual’s circumstances. We prepared a Cashflow modelling plan, showing the Family Income / expenses and Retirement Income (comparing the DB and the Transfer value options) modelled each year until aged 90.
  • We used the services of an independent Actuary to prepare a written report to review and verify the veracity of Firm X’ s Transfer value offer, outline the client’s options and the benefits he may waive and in relation to the transfer value to calculate the annual investment hurdle rate required to match the DB Income promise.
  • Adviser reviewed the latest scheme actuarial valuation report to form an opinion on the scheme’s financial health.
  • We calculated & secured a transfer value of 20.5x their DB pension (favourable interest rates back in 2020) and invested the transfer value into a Personal Retirement Bond in the client’s name. This retained the capital value as part of the family estate.
  • With some 10 years before retirement, we recommended and advised an allocation of the transfer value in a ‘Low-Medium Risk’ pension portfolio
  • The PRB fund continues to accumulate and is forecast to allow the client to take a tax-free lump sum of c. €440k (maximum) while contributing a further €1.5 million to a post-retirement fund (ARF /annuity).

We believe that this four-eyes approach (Adviser & Actuary) enhances the client’s comfort with the evaluation process, in what is for most individuals and their family a very significant financial decision.

For all the above reasons, advising a client on the benefits or drawback of their DB Pension V’s   A Transfer Value is some of the most detailed and important advice that a financial adviser engages in.

If you would find above information relevant and would like to discuss further, please contact one of our financial advisers at hello@imperiuswealth.com to arrange a callback.

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