WEBVTT - DC and DB Pension Schemes: What They Are and How They Work

0:00:03.120 --> 0:00:18.800
<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio news. Welcome to Meren Talks

0:00:18.840 --> 0:00:21.960
<v Speaker 1>Your Money, the personal finance edition of Merin Talks Money.

0:00:22.200 --> 0:00:24.560
<v Speaker 1>In these bonus podcasts, we talk about the best strategies

0:00:24.560 --> 0:00:26.880
<v Speaker 1>for making the most of your money. I'm merensum Set

0:00:26.880 --> 0:00:29.120
<v Speaker 1>Web and with Me senior reporter and Money to Soiled

0:00:29.160 --> 0:00:33.760
<v Speaker 1>author John Stappeck Hi, John hil So. Budget is over.

0:00:34.000 --> 0:00:36.000
<v Speaker 1>Things are a little more clear now. Of course, are

0:00:36.040 --> 0:00:37.559
<v Speaker 1>not any more clear at all, but some things are

0:00:37.600 --> 0:00:39.920
<v Speaker 1>a little more clear. That means we can now answer

0:00:39.960 --> 0:00:42.000
<v Speaker 1>some of the personal finance questions with a little bit

0:00:42.040 --> 0:00:44.040
<v Speaker 1>more clarity. We're not always going to be saying depending

0:00:44.040 --> 0:00:46.000
<v Speaker 1>on the budget, depending on the budget, depending on the budget.

0:00:46.120 --> 0:00:48.240
<v Speaker 1>We're now going to say depending on the next budget,

0:00:48.320 --> 0:00:50.440
<v Speaker 1>depending on the next budget, depending on the next budget.

0:00:50.479 --> 0:00:53.319
<v Speaker 1>Because we know this isn't this isn't over looking at

0:00:53.560 --> 0:00:56.240
<v Speaker 1>you know, there's incredibly high level of span, incredibly high

0:00:56.320 --> 0:01:00.880
<v Speaker 1>level of TAXI GDP, very low growth, etc. Know that

0:01:01.080 --> 0:01:02.920
<v Speaker 1>she's going to be needing more, she's going to be back.

0:01:03.000 --> 0:01:04.760
<v Speaker 1>We don't know what she's going to be wanting next time.

0:01:04.840 --> 0:01:07.960
<v Speaker 1>But it's not over, so we're always going to caveat

0:01:08.120 --> 0:01:10.520
<v Speaker 1>everything with there are more budgets to come and we

0:01:10.560 --> 0:01:12.360
<v Speaker 1>have no idea what's going to happen in them, so

0:01:12.440 --> 0:01:15.760
<v Speaker 1>everything that we say must be taken with that in mind.

0:01:15.840 --> 0:01:16.280
<v Speaker 1>Is that fair?

0:01:16.640 --> 0:01:20.440
<v Speaker 2>Oh, that's fairly fair, especially when it comes to today's topic.

0:01:21.040 --> 0:01:22.680
<v Speaker 1>Yeah, and it would be fair regardless of who was

0:01:22.680 --> 0:01:23.600
<v Speaker 1>in government, if I'm honest.

0:01:23.800 --> 0:01:23.959
<v Speaker 2>Yeah.

0:01:24.040 --> 0:01:26.440
<v Speaker 1>Right, So this week we want to talk about something

0:01:26.440 --> 0:01:30.800
<v Speaker 1>incredibly important and something that really really agitates me and John,

0:01:30.840 --> 0:01:33.960
<v Speaker 1>and you'll probably have heard us saying over and over

0:01:34.000 --> 0:01:36.839
<v Speaker 1>and over on the podcast and writing over and over

0:01:37.120 --> 0:01:40.360
<v Speaker 1>that we do anything, almost anything bar selling our children,

0:01:40.400 --> 0:01:43.920
<v Speaker 1>but pretty much anything else to have a defined benefit

0:01:44.000 --> 0:01:48.840
<v Speaker 1>pension instead of the defined contribution pensions that we do have.

0:01:49.560 --> 0:01:52.200
<v Speaker 1>So Withstafa, who's been listening to us going on about

0:01:52.200 --> 0:01:54.640
<v Speaker 1>this for a while, have finally asked the right question,

0:01:54.800 --> 0:01:57.280
<v Speaker 1>He says, I have heard you regularly wish you had

0:01:57.280 --> 0:02:00.640
<v Speaker 1>a defined benefit pension. I do have one, but since

0:02:00.680 --> 0:02:05.120
<v Speaker 1>the first of April, I have transferred for defined contribution pension.

0:02:05.640 --> 0:02:07.000
<v Speaker 1>Am I being a fool?

0:02:07.240 --> 0:02:07.360
<v Speaker 2>Well?

0:02:07.400 --> 0:02:09.600
<v Speaker 1>I have to say my first thought when I saw

0:02:09.680 --> 0:02:12.080
<v Speaker 1>that was first of April. Please God let it be

0:02:12.200 --> 0:02:15.520
<v Speaker 1>a joke. But I think I think it probably isn't.

0:02:16.120 --> 0:02:20.440
<v Speaker 1>Let's start off with defining what this actually has done.

0:02:21.040 --> 0:02:23.640
<v Speaker 1>What's a difine benefit pension. What's this thing you want

0:02:23.880 --> 0:02:27.400
<v Speaker 1>so very bad but not enough to go work in

0:02:27.400 --> 0:02:29.320
<v Speaker 1>the public sector quite badly, but not that badly.

0:02:29.800 --> 0:02:33.520
<v Speaker 2>Yeah, well there is that. So defined benefit pension means

0:02:33.520 --> 0:02:38.880
<v Speaker 2>that when you retire, you get an amount of manual

0:02:38.919 --> 0:02:43.160
<v Speaker 2>income that is proportionate to your salary over your lifetime.

0:02:43.680 --> 0:02:47.120
<v Speaker 2>So at the moment, most faint benefit pensions, they used

0:02:47.160 --> 0:02:50.359
<v Speaker 2>to be final salary now their career average. But all

0:02:50.400 --> 0:02:53.239
<v Speaker 2>that means is that over the length of your career,

0:02:53.560 --> 0:02:55.520
<v Speaker 2>it's the average your salary over that time, and you

0:02:55.520 --> 0:02:57.800
<v Speaker 2>get paid a certain amount of it once you retire.

0:02:58.080 --> 0:03:01.280
<v Speaker 2>And the important thing is that that's guaranteed and it

0:03:01.320 --> 0:03:03.720
<v Speaker 2>goes up with inflation. So you don't have to worry

0:03:03.720 --> 0:03:07.680
<v Speaker 2>about doing anything other than doing your job, and you

0:03:07.800 --> 0:03:11.799
<v Speaker 2>never have to worry about investing money for your retirement

0:03:12.200 --> 0:03:14.440
<v Speaker 2>over and above perhaps anything that you want to do

0:03:14.480 --> 0:03:18.040
<v Speaker 2>in the side. So it's just a very straightforward way

0:03:18.080 --> 0:03:22.920
<v Speaker 2>from an employee's point of view of saving for the future.

0:03:23.200 --> 0:03:25.080
<v Speaker 1>All the investment risk here, or all the risk of

0:03:25.120 --> 0:03:28.080
<v Speaker 1>having enough money to pay out the pension lies with

0:03:28.240 --> 0:03:30.880
<v Speaker 1>the employer. And when I say it lies with the employer,

0:03:30.919 --> 0:03:33.720
<v Speaker 1>I mean it occasionally lies with what you might think

0:03:33.760 --> 0:03:36.320
<v Speaker 1>of as an employer, because there aren't very many of

0:03:36.360 --> 0:03:40.160
<v Speaker 1>these schemes left around in the private sector, right, So

0:03:40.160 --> 0:03:42.560
<v Speaker 1>in the old days, pretty much everyone who had a

0:03:42.600 --> 0:03:46.000
<v Speaker 1>pension had to define benefit pension gradually because they are

0:03:46.040 --> 0:03:48.680
<v Speaker 1>very expensive. Will come on to that they've gradually disappeared.

0:03:48.840 --> 0:03:51.000
<v Speaker 1>There are now well hundred a million people in the

0:03:51.040 --> 0:03:55.000
<v Speaker 1>private sector with defined benefit pensions that are still accruing

0:03:55.760 --> 0:03:59.160
<v Speaker 1>all other defined benefit pensions. Many many millions of them

0:03:59.320 --> 0:04:02.520
<v Speaker 1>are in the public sector. So eighty two percent of

0:04:02.560 --> 0:04:05.000
<v Speaker 1>those who work in the public sector have a defined

0:04:05.040 --> 0:04:07.880
<v Speaker 1>benefit pension on the go. So when I say the

0:04:08.040 --> 0:04:11.040
<v Speaker 1>risk of these pensions rests with the employer, what I

0:04:11.120 --> 0:04:13.840
<v Speaker 1>really mean is the risk rests with the public sector,

0:04:14.000 --> 0:04:16.520
<v Speaker 1>by which I really mean the risk of their pensions

0:04:16.800 --> 0:04:21.239
<v Speaker 1>rests with you, the taxpayer, lucky. So that's how it works.

0:04:21.520 --> 0:04:23.599
<v Speaker 1>This pension income. The great thing about it, as Johnson,

0:04:23.720 --> 0:04:28.320
<v Speaker 1>it arrives every single month. You get paid regardless of

0:04:28.320 --> 0:04:30.320
<v Speaker 1>what happens. And this, of course the country goes completely

0:04:30.360 --> 0:04:33.599
<v Speaker 1>bust and other taxpayers can't continue to provide fewer retirement

0:04:33.600 --> 0:04:35.760
<v Speaker 1>This could happen, but it's not looking likely in the

0:04:35.760 --> 0:04:38.320
<v Speaker 1>immediate Do you get that money now in the private sector,

0:04:39.160 --> 0:04:42.479
<v Speaker 1>if you have a private sector dB, you may get

0:04:42.520 --> 0:04:45.160
<v Speaker 1>inflation linkage, well, you will get inflation linkage, but it's

0:04:45.200 --> 0:04:49.000
<v Speaker 1>not guaranteed to be to the actual RPI or the

0:04:49.040 --> 0:04:51.560
<v Speaker 1>actual CPI. You may have a cap which is sometimes

0:04:51.560 --> 0:04:54.160
<v Speaker 1>three percent a year or five percent a year, which

0:04:54.200 --> 0:04:58.000
<v Speaker 1>means that quite a few people in private sector defined

0:04:58.120 --> 0:05:02.080
<v Speaker 1>benefit schemes stout during that period of very high inflation.

0:05:02.160 --> 0:05:04.600
<v Speaker 1>So in periods when inflation was above ten percent, they

0:05:04.640 --> 0:05:06.400
<v Speaker 1>may have found they've only gotten up left with three

0:05:06.400 --> 0:05:08.839
<v Speaker 1>to five percent. But nonetheless that's probably better than those

0:05:08.839 --> 0:05:12.640
<v Speaker 1>words in the private sector managed on our defined contribution pensions.

0:05:12.800 --> 0:05:15.280
<v Speaker 1>So that's a defined benefit pension, and you can see

0:05:15.520 --> 0:05:19.000
<v Speaker 1>how incredibly attractive it is. There's one more thing to

0:05:19.240 --> 0:05:21.560
<v Speaker 1>add to it on its enormous attractions, which is the

0:05:21.640 --> 0:05:26.479
<v Speaker 1>amount that employers tend to contribute. In the NHS, the

0:05:26.520 --> 0:05:32.320
<v Speaker 1>employer the public sector, the taxpayer contributes around twenty four

0:05:32.360 --> 0:05:35.960
<v Speaker 1>percent nearly twenty four percent of a salary into the

0:05:36.000 --> 0:05:40.320
<v Speaker 1>pension scheme for the employee. The employee themselves will will

0:05:40.360 --> 0:05:42.360
<v Speaker 1>put in anything from five point two percent to twelve

0:05:42.360 --> 0:05:44.560
<v Speaker 1>point five percent, depending on where they sit on the

0:05:44.600 --> 0:05:47.360
<v Speaker 1>income scale. In the civil service it's pretty good too,

0:05:48.040 --> 0:05:51.320
<v Speaker 1>you get twenty eight point ninety seven percent. There are

0:05:51.400 --> 0:05:53.320
<v Speaker 1>various different schemes, but that seems to come out around

0:05:53.320 --> 0:05:55.760
<v Speaker 1>there all the time. And the low government it's fourteen

0:05:55.800 --> 0:06:00.760
<v Speaker 1>to eighteen percent. So your employer, the public sector is

0:06:00.760 --> 0:06:04.400
<v Speaker 1>putting just to be clear, it's putting a lot of

0:06:04.480 --> 0:06:09.880
<v Speaker 1>money into these schemes. Now, let's shift from that very

0:06:10.040 --> 0:06:14.000
<v Speaker 1>pleasant sounding thing. Although I will say that, and it

0:06:14.080 --> 0:06:15.800
<v Speaker 1>is fair to say this job before we go any further,

0:06:15.880 --> 0:06:17.760
<v Speaker 1>just because you're in a defined benefits game doesn't mean

0:06:17.760 --> 0:06:20.240
<v Speaker 1>you're going to spend your retirement rolling around in money.

0:06:20.240 --> 0:06:22.080
<v Speaker 1>If you were making twenty five thousand pounds in the

0:06:22.080 --> 0:06:24.400
<v Speaker 1>public sector before your retirement, you're going to be getting

0:06:24.400 --> 0:06:26.960
<v Speaker 1>considerably less than that as your pension. And I would

0:06:27.040 --> 0:06:30.000
<v Speaker 1>also say that there is a saying where because the

0:06:30.200 --> 0:06:35.280
<v Speaker 1>contribution levels from the employee are reasonably high, they can

0:06:35.320 --> 0:06:37.880
<v Speaker 1>be you know, five six seven percent. It is the

0:06:37.920 --> 0:06:40.840
<v Speaker 1>case that a lot of low earners in the public

0:06:40.880 --> 0:06:45.520
<v Speaker 1>sector opt out of their pension, and that's a major problem,

0:06:45.560 --> 0:06:47.160
<v Speaker 1>not medium owners or higher. And as they all stay

0:06:47.240 --> 0:06:49.000
<v Speaker 1>up to tend very sense of a word at the bottom,

0:06:49.200 --> 0:06:50.520
<v Speaker 1>they're going to be people who say, do you know what,

0:06:50.520 --> 0:06:53.200
<v Speaker 1>I'm only earning fifteen thousand pounds, I can't afford to

0:06:53.240 --> 0:06:55.760
<v Speaker 1>put anything into a pension, regardless of the fact that

0:06:55.800 --> 0:06:58.000
<v Speaker 1>my employment might be adding another twenty percent plus just

0:06:58.040 --> 0:07:01.560
<v Speaker 1>too much. I say, that's a problem. Lovely southing nice

0:07:01.640 --> 0:07:07.160
<v Speaker 1>isn't define contribution, define contribution pension.

0:07:07.120 --> 0:07:10.760
<v Speaker 2>Or define contributions the opposite. So really you just have

0:07:10.880 --> 0:07:14.720
<v Speaker 2>to save into sometimes call a pot, but we prefer

0:07:14.760 --> 0:07:18.760
<v Speaker 2>to call a rapper tensions rapper that carries various tax

0:07:18.800 --> 0:07:23.320
<v Speaker 2>advantages but really ignoring them. It's on you to save

0:07:23.480 --> 0:07:25.760
<v Speaker 2>up as much as you think you're going to need

0:07:26.280 --> 0:07:30.160
<v Speaker 2>to fund your retirement when you retire, and when you

0:07:30.240 --> 0:07:33.640
<v Speaker 2>retire you can use that pot in various ways, but

0:07:33.680 --> 0:07:36.040
<v Speaker 2>the point is it's not protected in any way and

0:07:36.080 --> 0:07:39.520
<v Speaker 2>there is no guarantee. All of the risk is on you.

0:07:39.800 --> 0:07:42.960
<v Speaker 2>And I think to get a sense of how much

0:07:44.080 --> 0:07:49.200
<v Speaker 2>more beneficial the defined benefit pensions are for auto enrollment,

0:07:49.400 --> 0:07:55.840
<v Speaker 2>which is define contribution schemes, your employer contribution is as

0:07:55.880 --> 0:07:59.600
<v Speaker 2>little as three percent and your your kind of contribution

0:07:59.680 --> 0:08:03.160
<v Speaker 2>will be five percent from your gross salary, and obviously

0:08:03.200 --> 0:08:07.320
<v Speaker 2>some employers are more generous than that. But the point

0:08:07.360 --> 0:08:11.080
<v Speaker 2>is that even a generous sort of like generous package

0:08:11.080 --> 0:08:14.680
<v Speaker 2>by defined contribution terms would be much lower than the

0:08:14.720 --> 0:08:18.200
<v Speaker 2>civil serve is nearly a third to your wage getting

0:08:18.200 --> 0:08:22.120
<v Speaker 2>paid by your employer on top and it's not going

0:08:22.160 --> 0:08:23.920
<v Speaker 2>into your pension scheme. But that's the point. That's the

0:08:23.960 --> 0:08:26.840
<v Speaker 2>cost to the employer for providing you with that pension.

0:08:27.160 --> 0:08:30.040
<v Speaker 2>So yeah, so the risk is all on you, and

0:08:30.120 --> 0:08:34.000
<v Speaker 2>that's that's for the entire period, including Jurdan retirement.

0:08:34.600 --> 0:08:37.200
<v Speaker 1>I mean, you're not necessarily making the investment choices. Obviously

0:08:37.240 --> 0:08:39.080
<v Speaker 1>a lot of people don't even know they have a

0:08:39.080 --> 0:08:41.920
<v Speaker 1>defined contribution pension at all. It's just a pension. But

0:08:42.000 --> 0:08:45.319
<v Speaker 1>what's happening is that their contribution and employers contribution are

0:08:45.400 --> 0:08:48.600
<v Speaker 1>being paid into a fund of some sort. Normally horribly

0:08:48.640 --> 0:08:51.040
<v Speaker 1>performing in high fever will come onto that another time,

0:08:51.280 --> 0:08:54.439
<v Speaker 1>and that the idea is that grows throughout your working

0:08:54.480 --> 0:08:56.600
<v Speaker 1>life and at the end there's a lumpsum that's enough

0:08:56.720 --> 0:08:59.280
<v Speaker 1>to pay you out a reasonable income. And we've looked

0:08:59.280 --> 0:09:02.520
<v Speaker 1>at this before. It is true that if you work

0:09:02.600 --> 0:09:06.280
<v Speaker 1>on an average income, you get a reasonable uplifting your

0:09:06.320 --> 0:09:09.160
<v Speaker 1>salary every year, and you come out the other end

0:09:09.240 --> 0:09:12.960
<v Speaker 1>having saved the maximum your employer allows them the pension

0:09:13.040 --> 0:09:15.480
<v Speaker 1>added to the state pension, you should be just about okay.

0:09:15.640 --> 0:09:19.880
<v Speaker 1>But you're just about okay without the certainty and inflation

0:09:20.000 --> 0:09:22.840
<v Speaker 1>uplift that you get with a dB. So, although it

0:09:22.840 --> 0:09:25.880
<v Speaker 1>doesn't really matter how you cut it, a dB is

0:09:25.920 --> 0:09:29.520
<v Speaker 1>a better deal for an employee than a DC or.

0:09:29.480 --> 0:09:32.800
<v Speaker 2>On that inflation point. This really is important because even

0:09:32.840 --> 0:09:36.640
<v Speaker 2>if you get an annuity, which most define contribution people

0:09:36.720 --> 0:09:39.240
<v Speaker 2>don't at the moment, you still aren't going to be

0:09:39.240 --> 0:09:41.520
<v Speaker 2>able to buy one that buys you the kind of protection.

0:09:41.640 --> 0:09:42.959
<v Speaker 2>I mean, I was hauping to look at the civil

0:09:43.000 --> 0:09:47.360
<v Speaker 2>service pension before we came on as well, and we're obsessed.

0:09:48.720 --> 0:09:52.560
<v Speaker 2>And during the they can have very inflationary period. So

0:09:52.559 --> 0:09:56.200
<v Speaker 2>they got ten point added to the pension in April

0:09:56.280 --> 0:10:00.120
<v Speaker 2>last year because that was the reference period. So no

0:10:00.280 --> 0:10:02.360
<v Speaker 2>one in the private sector, I mean, if you did

0:10:02.360 --> 0:10:04.320
<v Speaker 2>get ten point one percent would be interested to hear it.

0:10:04.360 --> 0:10:07.199
<v Speaker 2>But I don't think anyone would have unless you get

0:10:07.200 --> 0:10:11.880
<v Speaker 2>some very obscure dB set up from a long time ago.

0:10:12.400 --> 0:10:14.720
<v Speaker 2>So it really is a major and major benefit, and

0:10:14.720 --> 0:10:17.840
<v Speaker 2>that would be extremely expensive to putures in the open market,

0:10:18.280 --> 0:10:19.480
<v Speaker 2>even if it was possible we do.

0:10:19.640 --> 0:10:22.199
<v Speaker 1>So. The one thing that might have made a DC

0:10:22.760 --> 0:10:26.920
<v Speaker 1>more attractive than a dB, and maybe something to do

0:10:26.960 --> 0:10:28.520
<v Speaker 1>with my stuff is shift. We don't, by the way,

0:10:28.600 --> 0:10:30.679
<v Speaker 1>know anything about my stuff as actual situation. Why he

0:10:30.720 --> 0:10:32.880
<v Speaker 1>shifted from pension to pension. We don't know whether that's

0:10:32.880 --> 0:10:35.640
<v Speaker 1>actually about changing jobs. We don't know whether a positive

0:10:35.640 --> 0:10:38.160
<v Speaker 1>decision or not. We have no idea what happened there

0:10:38.400 --> 0:10:40.160
<v Speaker 1>was just all we have is the question that he

0:10:40.200 --> 0:10:43.040
<v Speaker 1>asked us. So no judging here, no judging here. But

0:10:43.559 --> 0:10:49.080
<v Speaker 1>until this latest budget, it was possible to leave your

0:10:49.120 --> 0:10:54.360
<v Speaker 1>defined contribution pension effectively your step to your airs tax free.

0:10:54.800 --> 0:10:58.160
<v Speaker 1>So they did not pay tax on receiving it. They

0:10:58.320 --> 0:11:00.520
<v Speaker 1>and if you were under seventy when you died, they

0:11:00.520 --> 0:11:01.880
<v Speaker 1>paid no tax on it at all.

0:11:02.600 --> 0:11:04.360
<v Speaker 2>Over seventy five, sorry.

0:11:04.160 --> 0:11:07.880
<v Speaker 1>Under seventy five and five over seventy five, he paid

0:11:07.920 --> 0:11:10.800
<v Speaker 1>your personal rate of income tax on withdrawing money from

0:11:10.840 --> 0:11:14.360
<v Speaker 1>the pension. There, I John, yeah, yeah, So that made

0:11:14.400 --> 0:11:18.280
<v Speaker 1>it a very attractive thing to do, and financial advisors

0:11:18.280 --> 0:11:20.720
<v Speaker 1>had begun over the last decade or so to advise

0:11:20.760 --> 0:11:24.560
<v Speaker 1>people to leave their money inside their pension and spend

0:11:24.559 --> 0:11:27.079
<v Speaker 1>all the money that they had outside that pension first,

0:11:27.080 --> 0:11:29.440
<v Speaker 1>because that was the most tax efficient way to leave

0:11:29.480 --> 0:11:32.840
<v Speaker 1>money to their heirs. So that was one reason why

0:11:32.960 --> 0:11:35.000
<v Speaker 1>a lot of people, I mean a lot of people

0:11:35.200 --> 0:11:38.400
<v Speaker 1>transferred from dB to DC, and particularly when interest rates

0:11:38.440 --> 0:11:41.400
<v Speaker 1>were extremely low and so the capital value of defined

0:11:41.400 --> 0:11:44.240
<v Speaker 1>benefit pensions was very high, you could shift that into

0:11:44.280 --> 0:11:47.520
<v Speaker 1>a DC wrapper and think to yourself, this is great,

0:11:47.559 --> 0:11:50.120
<v Speaker 1>My airs are going to be rolling around in cash,

0:11:50.160 --> 0:11:52.640
<v Speaker 1>which of course lots of them, but not anymore.

0:11:52.840 --> 0:11:56.200
<v Speaker 2>Yeah, we talked about this the other week. But the

0:11:56.280 --> 0:12:00.680
<v Speaker 2>thing is, when this first happened, it seemed regious, and

0:12:00.760 --> 0:12:03.280
<v Speaker 2>it did seem like something that was bound to be

0:12:03.360 --> 0:12:07.520
<v Speaker 2>cracked down on eventually. It's unfortunately it's taking a government

0:12:07.640 --> 0:12:09.640
<v Speaker 2>this long to do it, so that it has become

0:12:09.760 --> 0:12:12.240
<v Speaker 2>part of a lot of people's retirement planning and it

0:12:12.280 --> 0:12:15.480
<v Speaker 2>really does change it. I mean, you know, there was

0:12:15.559 --> 0:12:17.719
<v Speaker 2>a point where, like you say, advisors were saying, right,

0:12:17.720 --> 0:12:19.640
<v Speaker 2>you'll put money on your pension, but don't touch your

0:12:19.679 --> 0:12:23.000
<v Speaker 2>pension until last whereas now you're probably going to be

0:12:23.000 --> 0:12:25.600
<v Speaker 2>better to actually take your pension before say your eyes

0:12:25.640 --> 0:12:29.640
<v Speaker 2>are because although your eyes will attract inheritance tax, the

0:12:29.720 --> 0:12:34.160
<v Speaker 2>actual money will then be free of income tax once

0:12:34.240 --> 0:12:36.360
<v Speaker 2>you know you're withdrawing it. If you've passed it on

0:12:36.480 --> 0:12:40.560
<v Speaker 2>to a spouse, it's not a spouser and inherited. Whereas

0:12:40.559 --> 0:12:42.400
<v Speaker 2>the thing with the pension is that not only is

0:12:42.440 --> 0:12:44.880
<v Speaker 2>i HD taken out when they take the income from it,

0:12:44.960 --> 0:12:48.840
<v Speaker 2>that'll get tax too. So you're like, kind of makes

0:12:48.840 --> 0:12:51.480
<v Speaker 2>the sequencing completely different from what a lot of people

0:12:51.480 --> 0:12:53.839
<v Speaker 2>will planned. So that's you know, there's gonna be a

0:12:53.880 --> 0:12:56.080
<v Speaker 2>lot of interest and knock on effects from this, and

0:12:56.120 --> 0:12:58.680
<v Speaker 2>most of them are not going to be, you know,

0:12:58.840 --> 0:13:01.000
<v Speaker 2>ones that people feel very happy about if they had

0:13:01.040 --> 0:13:03.640
<v Speaker 2>been relying on this as a plan in two.

0:13:03.840 --> 0:13:05.760
<v Speaker 1>Yeah, so the thing to do now is to do

0:13:05.840 --> 0:13:07.520
<v Speaker 1>gifts out of income, to take money out of the

0:13:07.559 --> 0:13:09.360
<v Speaker 1>pension and hand it on on the gifts out of

0:13:09.400 --> 0:13:11.760
<v Speaker 1>income exemption actively, isn't it.

0:13:12.120 --> 0:13:15.160
<v Speaker 2>Yeah? Yeah, And yeah, let's say, oh, those kind of elements.

0:13:15.160 --> 0:13:18.360
<v Speaker 2>I'm sure that people who will charge you a lot

0:13:18.400 --> 0:13:21.800
<v Speaker 2>of money to explain to you about doing Yeah.

0:13:23.600 --> 0:13:25.920
<v Speaker 1>Yes. The other group of people who might not be

0:13:25.920 --> 0:13:29.040
<v Speaker 1>particularly impressed by this, of course, is the platforms, because

0:13:29.080 --> 0:13:31.840
<v Speaker 1>nothing an investment platform more. Indeed, a fund manager really

0:13:31.880 --> 0:13:35.000
<v Speaker 1>kind of likes more than sticky money. So the idea

0:13:35.040 --> 0:13:37.080
<v Speaker 1>that people were very gaen to keep as much money

0:13:37.120 --> 0:13:40.960
<v Speaker 1>as possible inside their pension rappers for as long as

0:13:41.000 --> 0:13:45.320
<v Speaker 1>possible was very attractive for financial product providers. So they

0:13:45.400 --> 0:13:47.640
<v Speaker 1>might be markedly irritated by this, but possibly not as

0:13:47.679 --> 0:13:50.680
<v Speaker 1>irritated as people who moved out of dB into DC

0:13:50.800 --> 0:13:53.600
<v Speaker 1>in order to leave their money tax free. So I

0:13:53.600 --> 0:13:56.000
<v Speaker 1>think that's it. Is there anything that we've missed out

0:13:56.120 --> 0:13:56.480
<v Speaker 1>of that?

0:13:57.080 --> 0:13:59.280
<v Speaker 2>I mean, I suppose. The other point to remember is

0:13:59.320 --> 0:14:02.840
<v Speaker 2>that if you want to transfer from a defined benefit

0:14:02.880 --> 0:14:06.120
<v Speaker 2>pension to a defined contribution pension, you will struggle to

0:14:06.160 --> 0:14:09.320
<v Speaker 2>find an advisor who will give you advice on that.

0:14:09.800 --> 0:14:12.480
<v Speaker 2>And the reason for that is because the FCA comes

0:14:12.480 --> 0:14:15.240
<v Speaker 2>down like a ton of bricks or anyone who hasn't,

0:14:15.720 --> 0:14:18.439
<v Speaker 2>you know, completely made sure that it's definitely the right

0:14:18.520 --> 0:14:20.520
<v Speaker 2>thing for the client. So the risk of miss selling

0:14:20.640 --> 0:14:23.040
<v Speaker 2>or being accused of miss selling is extremely high. And

0:14:23.080 --> 0:14:26.720
<v Speaker 2>the reason for that is because for the vast majority

0:14:26.760 --> 0:14:29.720
<v Speaker 2>of people, define benefit pension is a lot better than

0:14:29.720 --> 0:14:32.680
<v Speaker 2>a defined contribution pension. I know you occasionally see people

0:14:32.760 --> 0:14:36.040
<v Speaker 2>trying to make contrarian arguments kind of online about this,

0:14:36.120 --> 0:14:38.360
<v Speaker 2>but you know, it really is one of those things

0:14:38.360 --> 0:14:41.920
<v Speaker 2>where you have to have a very very weird set

0:14:41.960 --> 0:14:45.160
<v Speaker 2>of circumstances for the DC to be better than the dB.

0:14:45.760 --> 0:14:47.000
<v Speaker 2>Certainly as far as I can.

0:14:46.920 --> 0:14:49.880
<v Speaker 1>See, well, there was a point. That point no longer exists,

0:14:49.920 --> 0:14:52.480
<v Speaker 1>but I only mildly disagree with you, junks. I wouldn't

0:14:52.480 --> 0:14:53.840
<v Speaker 1>want it to more than that. But there was a

0:14:53.920 --> 0:14:58.000
<v Speaker 1>point back when interest rates were insanely low, and of

0:14:58.040 --> 0:15:01.960
<v Speaker 1>course to lower the interest rate, the value of the

0:15:02.480 --> 0:15:05.840
<v Speaker 1>assumed the capital sum that pays out your dB. So

0:15:05.920 --> 0:15:08.800
<v Speaker 1>there was a point when interest rates were extremely low

0:15:08.880 --> 0:15:12.800
<v Speaker 1>that pensions that would have provided a very small stream

0:15:12.800 --> 0:15:15.840
<v Speaker 1>of income were suddenly worth a very large sum of capital.

0:15:15.920 --> 0:15:18.000
<v Speaker 1>So there was a moment in the interest rates I

0:15:18.000 --> 0:15:19.760
<v Speaker 1>got when you could argue, and I think I might

0:15:19.800 --> 0:15:22.240
<v Speaker 1>even have argued there was a point when it was

0:15:22.600 --> 0:15:25.240
<v Speaker 1>reasonable to do it, but it was a pretty short window.

0:15:25.320 --> 0:15:27.560
<v Speaker 1>I remember modern Wolf in the Ft he did it,

0:15:27.600 --> 0:15:29.720
<v Speaker 1>and that called a lot of conversation. But of course,

0:15:29.760 --> 0:15:31.840
<v Speaker 1>you know he'd done his maths pretty well, done his

0:15:31.880 --> 0:15:32.520
<v Speaker 1>math pretty well.

0:15:33.600 --> 0:15:35.040
<v Speaker 2>Yeah, I was a great taming call.

0:15:35.440 --> 0:15:38.960
<v Speaker 1>Yeah, yeah, anyway, but now it's rather more complicated with

0:15:39.040 --> 0:15:41.440
<v Speaker 1>rates where they are and possibly staying higher for longer.

0:15:41.560 --> 0:15:44.880
<v Speaker 1>But that's a conversation for a different part of this podcast.

0:15:44.960 --> 0:15:47.120
<v Speaker 1>I think that's kind of it so much tofi there

0:15:47.160 --> 0:15:49.760
<v Speaker 1>you are. I don't think we can answer the question

0:15:49.960 --> 0:15:52.960
<v Speaker 1>was it foolish to move? Because we don't know your circumstances.

0:15:53.000 --> 0:15:56.560
<v Speaker 1>But I think what we would say in general, in general,

0:15:56.640 --> 0:16:00.000
<v Speaker 1>is that John and I would still even after this conversation. Really,

0:16:00.000 --> 0:16:10.280
<v Speaker 1>I really love a dB patchion. Thanks for listening to

0:16:10.320 --> 0:16:12.480
<v Speaker 1>this week's Maren Talk to Your Money. If you like us, show,

0:16:12.560 --> 0:16:15.080
<v Speaker 1>rate to review, and subscribe wherever you listen to podcasts

0:16:15.160 --> 0:16:17.080
<v Speaker 1>also be showed follow me in John on x or

0:16:17.080 --> 0:16:21.840
<v Speaker 1>Twitter at marinsw and John Underscore Steffecht. This episode was

0:16:21.880 --> 0:16:25.200
<v Speaker 1>produced by SOMEERSIDI, production support and sound design by Moses

0:16:25.200 --> 0:16:27.960
<v Speaker 1>and Questions and comments on this show and all our

0:16:28.000 --> 0:16:31.000
<v Speaker 1>shows always welcome, and that's particularly the case, by the way,

0:16:31.040 --> 0:16:33.120
<v Speaker 1>on these personal finance ones, because John and I are

0:16:33.160 --> 0:16:35.440
<v Speaker 1>not IFAs and we are not accountants. So if you

0:16:35.480 --> 0:16:38.280
<v Speaker 1>know something we don't know, do please write in and

0:16:38.440 --> 0:16:41.400
<v Speaker 1>let us know. Our show email is merin Money at

0:16:41.440 --> 0:16:42.880
<v Speaker 1>bloomberg dot Net,