# Arf vs Db pension



## Macjell (29 Apr 2017)

Hi , My first post due to pension decisions and unable to decide what to do! Confuses the hell out of me 
I hope below makes sense..

I am due a DB pension in 2 years approx €220 per week ,  but some of my colleagues have cashed in and moved funds to an AMRF and an ARF after they have  been approached by brokers.  Promised returns almost matching DB rate maybe €10 a week less plus they say funds will possibly grow depending on returns but they say they were good over the last 5 years.  I like the idea of leaving something behind for my family as the DB pension will cease when I pass on.  It sounds good but which is better , guaranteed DB pension or a bit less with a chance to draw the ARF AMRF. And possibly something to leave behind or drawdown if required.



Current age 58
Fund value €230000
another €30,000 in second Pension
Current have a Uk annunity €140 per month.

I also have equity of about €100000 in a house I am due to sell soon.

Your comments would be very welcome.

P.S. I would love to stop work at 60, pipe dream!!!
Thanks


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## Steven Barrett (4 May 2017)

Macjell said:


> Hi , My first post due to pension decisions and unable to decide what to do! Confuses the hell out of me
> I hope below makes sense..
> 
> I am due a DB pension in 2 years approx €220 per week ,  but some of my colleagues have cashed in and moved funds to an AMRF and an ARF after they have  been approached by brokers. * Promised returns* almost matching DB rate maybe €10 a week less plus they say funds will possibly grow depending on returns but they say they were good over the last 5 years.  I like the idea of leaving something behind for my family as the DB pension will cease when I pass on.  It sounds good but which is better , guaranteed DB pension or a bit less with a chance to draw the ARF AMRF. And possibly something to leave behind or drawdown if required.
> ...



That scared the life out of me!! How can a broker promise returns? And what recourse do your colleagues have when the returns don't live up to the brokers promise? I would like to see this brokers compliance files re advising someone to leave a defined benefit plan to invest in an ARF!

If you are considering moving, there are a number of factors to consider: 

1. What are the funding levels of your current DB scheme? If you are employed by a large company, the odds are that they will honour their pension benefits. Remember, that they are promising that they will pay you €220 a week for the rest of your life. 
2. Are you comfortable with taking some investment risk? If you invest in an ARF, all guarantees are gone. If you make poor investment decisions or spend too much, you may run out of money at a later date. That is not to say it will happen. ARF's have been available since 1999 and people have been pretty prudent with how they spend this money. 
3. Don't worry about leaving something for your family. They would prefer for you to be comfortable than taking investment risks just for them. 

Switching out of a DB scheme to an ARF is a massive decision so make sure you have explored all the options in detail before making the move. 


Steven 
www.bluewaterfp.ie


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## Conan (4 May 2017)

Fully agree with Steven. 
The most important financial planning advice when it comes to pension options is to look after yourself first. If you retire at age 60 you will have an average life expectancy of 25 years plus (depending on your state of health, family history etc). So by the time you do "pass on" it is likely that your kids(?) will be approaching retirement. 
Do not make pension decisions now based on trying to leave something to your kids. After all if you do go the ARF route and live to a ripe old age, it is likely that the value of your ARF will have significantly diminished by then.
ARFs involve a degree of risk (investment risk along the way plus the "risk" that you outlive the ARF). So you need to decide whether you want security of income or risk that on some vague "promise" that an ARF will deliver better - it might but it might not. And typically when retirees invest in ARFs they are reluctant to adopt an investment strategy which might generate a high return. Most go into "secure or low risk" funds and thus when charges are taken into account plus the requirement to draw down a minimum of 4%pa that means the fund will have to earn c5% pa just to maintain its value. That target requires taking a degree of investment risk (a significant Equity content).
Remember, look after yourself first.


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## Macjell (14 May 2017)

Thank you both very much for the reply, much appreciated as my head is all over the place. The DB scheme is as good as it gets, very large company. I am a deferred pensioner with this company. pension kicks in at 60, 2 years away

These are the figures.
DB scheme.
€11530 per annum
Wife half if I die in retirement.
Buy out value €228653

Or invest in PRB

Or ARMF INCOME €2540 4% drawdown P/A
ARF INCOME €8225 5% Drawdown P/A

They say funds returned 18% over the last few years.

I don't think I could handle watching markets for the next 25 years ! And good pints about looking out for myself.
Thank you


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## Gordon Gekko (14 May 2017)

This is a huge decision. You must remember that the broker is inherently biased in that he/she only gets paid if you give up the DB. That's not to say that you should retain the DB, but you need to think very carefully.

The mandatory draw down from the ARF is 4% rather than 5% and the AMRF drawdown is optional.

There are multiple factors to consider, for example your own health. The halving of the pension when you die could be significant given that the ARF/AMRF just become your spouse's (i.e. no reduction).

Personally, I would always take the transfer value, but that's me. The most salient line is "I don't think I could handle watching markets...". I don't know enough about your circumstances to make a meaningful recommendation, but my sense is you should stick with the DB.


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## Conan (14 May 2017)

Based on current annuity rates, a fund of c€228,653 would buy an annuity of c€7,800pa from age 60, even ignoring any spouses pension benefit. On that basis the transfer value does not look very good. You would need a transfer value probably close to €400,000 to justify such an option.
As for any intermediary telling you that "funds returned 18% over the last few years" , that is very worrying. If you invested €228,000 into an ARF you would probably adopt a lowish risk investment strategy and thus you would do well to earn 18% over a 4 year period.
I understand that the transfer value looks large but remember that retiring at age 60 means that your average life expectancy is some 25 years, and the annuity could continue for longer if you leave a surviving spouse. So do you want certainty of income for that period or risk running out of funds in the ARF?


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## Steven Barrett (15 May 2017)

Macjell said:


> Thank you both very much for the reply, much appreciated as my head is all over the place. The DB scheme is as good as it gets, very large company. I am a deferred pensioner with this company. pension kicks in at 60, 2 years away
> 
> These are the figures.
> DB scheme.
> ...



Whatever your decision, do not use this salesperson to give you financial advice. They are not giving you financial advice, they are trying to earn a commission off you. And I suspect they will be charging you 5% to transfer the funds i.e. €11,400. 

The global economy has performed very well over the last 7/8 years but that will not continue. You cannot have high returns without crashes too. The higher the rise, the higher the fall too. Either stick to the certainty of your secure defined benefit scheme or get some proper advice. And from what you told us, you have a pretty good benefit where you are. 


Steven
www.bluewaterfp.ie


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## Macjell (15 May 2017)

Steven, good points all round, On the strength of advise here from contributors I am weighted in favour to sticking to the DB. Surely prices will fall some time and knowing my luck just after I do a transfer..  5% commission seems very high, don't get me wrong everyone needs to earn and deservedly so, provided they give impartial advise.

I don't mind paying for advice privately.
regards 
mac


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## Merowig (15 May 2017)

Definitely you should stay with the DB scheme!


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## Palerider (15 May 2017)

Stick with your defined benefit scheme, it is as good as guaranteed and you can sleep at night, take the money, ignore the guys in suits trying to sell you products.


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## Steven Barrett (16 May 2017)

Macjell said:


> Steven, good points all round, On the strength of advise here from contributors I am weighted in favour to sticking to the DB. Surely prices will fall some time and knowing my luck just after I do a transfer..  *5% commission seems very high*, don't get me wrong everyone needs to earn and deservedly so, provided they give impartial advise.
> 
> I don't mind paying for advice privately.
> regards
> mac



It's the highest an insurance company will pay. I suspect the "advisor" you talked to would be charging this level of commission (high commission means high management fees to recoup what was paid out, so you more than pay for it over the lifetime of the policy). 



Steven
www.bluewaterfp.ie


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## cremeegg (17 May 2017)

SBarrett said:


> Whatever your decision, do not use this salesperson to give you financial advice. They are not giving you financial advice, they are trying to earn a commission off you.



Surely not. Aren't they all regulated and above board these days.


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## Steven Barrett (18 May 2017)

cremeegg said:


> Surely not. Aren't they all regulated and above board these days.



All regulated by a body that went into CHC, spotted the illegal movement of money between accounts and they asked CHC to have compliance checklists instead of shutting them down immediately!! It allows the cowboys to do get away with murder. 

Although, from talking to life companies, the high commission/ high fee structures are being used less and less. 

Steven
www.bluewaterfp.ie


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## Just Retired (18 May 2017)

My company pension scheme was transferred from a DB to a DC one. My employer engaged an investment firm to manage the changed situation regarding the ongoing management of the new DC Scheme. These included one to one meetings outlining what was to take place with the individual pension funds. The funds were invested in a spread of Equities,Bonds,Cash and other financial instruments. Investments were selected without duress to invest in  any particular fund(s).Annual statements were forwarded, or one could be ordered online at any time of my choosing. You could switch the funds around, and depending on certain market conditions the adviser would point out what funds to opt in or out of. The all important criteria of fund values is they may fall as well as rise were set out.
Since the Guarantee from a DB scheme of an income was now gone, the focus turned as what to do when retirement approached. Six months before that happened I decided to seek Financial Advice from an entirely different source. Before any advice was given, the company credentials and their permissions and licences to impart advice of this nature were set out. All options were advised, and based on this advice, and careful consideration and study I opted for the ARF/AMRF route at retirement time
The experience so far has been good, with annual one to one meetings with the same firm of advisers continuing their management of the ARF/AMRF portfolio.
No brokers approached me at any stage, if they tried to,the answer would be a definite NO. You have to be vigilant. It is worth paying for independent financial advice, that fee may save you from bad or risky investments, it will all have been all worth while in the long run.


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