Defined Benefit (DB) pensions: What you need to know

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0:48Inflation is the ravage, is the burglar of retirement. The chances now somebody living to 100 is one in four. People don't realise what it is that they've got. Financial advisor Peter Lawler has over three decades of experience with defined benefit schemes. Understand the value of that guaranteed income. Don't look at the transfer fund. In our industry, we have too much jargon. My daughter's in the NHS, she's trained to be an anaesthetist and she says, you know, it's very, very confusing. She knows how to knock people out, not crunch the numbers.

1:22We've got you here today to talk about defined benefit DB schemes. I actively avoid talking about them because they're so heavily regulated, they're so complicated and so valuable. And I have no experience in them, to be blunt, that I've always been just like, you know, seek professional advice. And in general, you probably should hold on to that thing because it's gold-plated. We've put questions to our audience and we want to go through this quite systematically today, if we can, so that people can understand what they are, what the benefits are, what they can do with them. And we want to start with a question, if we can.

1:55Do you want to read that one out there? Yeah, I just shine. One of our audience members wrote this in. He said, I have a DB pension and I feel like the education behind them is non-existent. I didn't even know it was a DB pension before watching your videos. I know a lot of my colleagues feel the same. And it's the terminology. It's the, in our industry, we have too much jargon. Yeah. Okay. Or acronyms for various things. Again, it's a pain. So a DB pension, a defined benefit can come in a number of guises. the key thing is there is an element of guarantee that that's the most important thing so um for members of the public if they have their annual benefit statement and it says in there that it is guaranteed then what that means is is that that element of the pension is not subject to um investment performance in the stock market all of that investment performance all of that risk is taken on by the employer because what a db pension is is actually an employer giving an undertaking that upon your retirement i will guarantee to pay you x and x might be 180th for each year of service 160th for each year of service 145th for each year 160th of their income at retirement or for the number of years they've worked so for example if if i am accruing saving pension benefits with the employer on a 160th basis and I've worked for 20 years when I come to retire depending upon what the definition of final salary is I will have one third of my final salary as a pension guaranteed for the rest of my life and the the key point is in that situation part of that pension will be subject to increases with inflation now you might turn and say oh pete that's a load of garbage you know inflation for the next 12 months um is only 1.7 that's what has been the rise in public sector pensions which we'll come on to later i'm sure is 1.7 last year it was 6.7 and the year before that it was 10.1 when not being politically incorrect list trust put a foot in it you know so when she put a foot in it most people were cheering because it went up to 10.1 and then therefore that guaranteed that the inflationary increases for the April of the following year was 10.1, then 6.7, and now it's down to 1.7.

4:29So it is really, really important for the public to understand that when they're looking at their annual benefit statement, they understand what it is that they've got. So if a scheme was 80th, realistically, that person's never going to earn their full salary because they would need to work at that place for 80 years, wouldn't they, to get their full salary at retirement. so if they did 40 years they might get half yeah that's right which would be like if they worked from 20 to 60 at the same organization and that's and that's traditionally you know going back years ago some people did they went in some places went in as a boy and came out as a man much much later or a girl and coming out as a woman you know from that basis but yeah so 40 80ths okay of service would give you half of whatever the definition of final pensionable earnings might be now for example that might be your last year of of earnings before you retire could be one in the last five it could be three in the last five could be an average of that it could be anything as as defined by the scheme rules just on that as well there's a another type of pseudo um final salary scheme that's come about now because they're also called defined benefit or final salary scheme um and that is a career average revalued earnings scheme or a care scheme as some people call it care so a care scheme is basically that each year you earn a a fraction of your salary your pension earnings as a pension and then that is revalued and that's put in a box and revalued every year and then in at retirement all the boxes are added up and that's your pension which is different to 1 60th of a future pension that I have.

6:18Yeah the DB the defined benefit the benefit you receive is predefined defined contribution how much you end up is defined by your contributions and investment performance over the period. Correct. Who's most likely to have one of these DB or final salary schemes in your experience? So a lot of public service people so the army, navy, air force, civil servants, teachers, NHS, all have defined benefit final salary schemes with some sort of guarantee. There's recently been a lot of changes within that environment because of what is something called the McLeod judgment. So the McLeod judgment was basically that the government back in 2015 said, oh we can't afford this, we better change some of this and they changed everyone into a scheme which was a career average scheme which was less of an accrual and extended the retirement age to state pension age or age 67 whichever was the later a judge called victoria mcleod and she only stopped sitting last year and took the government to court and said this is The goalpost is not fair.

7:35Yes, because you've let the older people stay in the old final salary scheme, but the younger people have been moved into this career average scheme, and it's less favourable. And the Court of Appeal agreed with her, and the government had to unravel everything and put people back in the position they would have been had this discrimination not taken place on the 1st of April 2015. 1.1 million people are impacted in the NHS 1.1 million and the cost of it all is just phenomenal the admin cost they're trying to save money and they just end up costing the taxpayer loads an admin by moving a goalpost around that's correct and in some cases they have been overpayment in taxes and they're being refunded the one thing that like i think that people don't understand about the public sector is the pension is is is a way of competing with the private sector in terms of pay right so the public sector my friends who are doctors could earn a lot more money doing other types of jobs or even just working in the private medical sector but their pension like they're all saying well it gets such a good pension it's like a real pull for me so if they start messing with that the public sector becomes a lot less attractive doesn't it uh absolutely and and um in fairness to him take my hat off to him jeremy hunt in the budget of um 2023 changed quite a considerable amount of things towards um the nhs so traditionally um people arrived at age 60 in in the old final salary scheme could take their benefits but were restricted on what they could come back and how they could work but because waiting lists increased dramatically obviously post-covid and so forth um they decided to do away with that and now what happens now is that um we have occupational drawdown now within the nhs or um which is basically that those people in the 1995 or 2008 scheme can take their benefits go back to work still work on the same basis that as they were last friday as long as they reduce their pensionable earnings by 10 for the next 12 months so so in theory you could be a 60 year old doctor i'm going to age you a little bit okay only a little bit but a 60 year old doctor and you could take your benefits go back to work and as long as your pensionable earnings are reduced by 10 you can have your salary and your pension for the same job okay and you can continue to have benefits under the 2015 scheme which you then can take up your 60th birthday do you find that that tends to be a good deal for most people that are offered that um i had a meeting with um a doctor client that we were dealing with and have been dealing with and uh last um friday and he will um he will be taking his benefits which are 74 000 pound a year guaranteed pension that guaranteed pension is um index linked on a non-restrictive basis for cpi so for example i go back to my 10.1 sorry what's cpi oh so sorry consumer price index as um so that is what is the increases by every Now I know what the X is for, boys.

11:08Thank you. Yeah, we didn't eject you out. We didn't eject you out of it. So from that perspective, it's unlimited. Whereas some final salary schemes, so members of other final salary schemes, generally speaking, it would be consumer price index, open brackets, CPI, up to maximum or retail price index. up to a maximum of 5%. So that is restricted. Or even 2.5 % consumer price index. So some of that, but whereas in the public sector, and the point you made a couple of moments ago, is absolutely valid. It was and traditionally has been a way of rewarding those people for working, inverted commas, in the public sector.

11:59So is it just public sector workers that have DV schemes? No. a number of individuals will have db schemes on a historic basis so the bbc has a defined benefit scheme various building societies and banks will have defined benefit schemes but it may be that they aren't open to further accrual you know savings in those db schemes whereas the public sector, they do have defined benefit guaranteed pensions. I had a teacher, I believe, that approached me and asked me a question I couldn't advise on, where they seem to be implying that the school body that they worked for were offering them a defined contribution scheme with a high contribution rate if they signed away the benefit to their defined DB scheme.

12:50So they basically said they're offering me like 12 % match if I waive my DB. Do you think that's a good deal? That's what they asked me. I was like, look, go seek professional advice. So what's happened anecdotally is that a lot of public schools have had issues with the funding. And obviously with the impact of VAT on the fees earlier on this year, it's been significant as an issue for them. So, obviously, a lot of those were part of the teacher's pension scheme. So they were being asked by the teacher's pension scheme to pay in money as a percentage of the entire payroll. That was quite onerous, to say the least.

13:38okay so a way around that would be well if i i'm i know the 12 per annum okay each year okay that if i pay in i can keep control of that because i can control what salaries go up by as well whereas under a final salary scheme defined benefit pension scheme um a professional known as an actuary calculates what the contribution levels need to be every in theory three years now the problem is is that if if investment performance within the fund or if there are certain assumptions that they've historically made were wrong then the employer is asked to increase their funding well that becomes a bit of a headache for an employer from that perspective so what some of these schools have come up with is that they've turned around and said I'll tell you what we'll do.

14:34We'll put in 12 % or 15%, but you only have to put in 6%, don't worry, right? Or 7 % or whatever it might be. And we'll put that in. Now, it sounds a lot because, you know, putting in 20 % of your salary sounds a lot of money. But obviously, that is a physical amount of money that goes in. And as you've already said, that is subject to investment return, charges it's more complicated whereas the db pension if i keep on working i know that i will have x amount 160th 180th whatever it might be each year of my final salary the other thing about the the teacher's pension scheme is that there are different definitions of final pensionable earnings and they give the better of and one of those is the consecutive three years within the last 10 years of working so it is so the teachers and have a better definition of working than nurses it varies so each scheme has its own definition of pensionable earnings what does that three in ten mean so consecutive three years yeah okay in ten what what were your best three years of pensionable earnings ah and then the average and then the average of that yeah so it might not be one year and then i or it's so it really is quite important to understand what the definition is what if you're part-time throughout that period though so it again will depend upon what the definition is within scheme i apologize about being a little bit blase about it and vague but if i use the nhs as an example they provide a whole time equivalent but it would be for you know our audience individuals to check to see what would happen before they reduce their their pensionable salary.

16:21I would, you know, err on the side of caution before you think about doing that because it will be dependent upon what the scheme rules say. Last time we recorded, Tomein, you were having some real dramas with your accountant. So how's that been going, mate? They're sacked. So drama sorted. They're a big corporate firm. They didn't really reply to my emails very quickly, like took a week or two at times. And they charged me way too much. I mean, I've got pretty simple taxes and yeah, they were charging me thousands. They saved me some money, but yeah, I had to move on. Slow and expensive. Pretty much, yeah.

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19:12Are they all the same age? So the scheme rules will dictate the age at which you can take benefits. For example, in the NHS, the 1995 scheme has a retirement age of age 60. The 2008 scheme has a retirement age of 65. And the 2015 scheme is a retirement age of 65 or state pension age, whichever is the later. But each scheme will have its own unique rules. I've seen retirement ages of 62. I've seen retirement ages of 63. It just really depends upon what the scheme rules say. Will people that have multiple schemes have multiple retirement ages then? So they could have one that kicks in at 60, one at 60.

19:56And that's what's happening at the moment in the NHS, yeah. So going back earlier on, we spoke about being able to do occupational drawdown in the NHS at the moment. so you can take your 1995 benefits at age 60 and continue to have benefits paid to you and accruing and saving benefits in the 2015 scheme all the way through to the later retirement age. However, there's going to be a change in legislation in 2028 whereby the minimum pension age is increasing to 57. It'll be 17 was the time you get to. So it's going to increase to 57. so um back in 2010 um it increased from 50 to 55 and in 2028 it's increasing so that it is 10 years below state pension age it's scandalous that they drag it up with the state pension age yeah in my opinion yeah yeah you know like give me access it's my pension the state pension i can understand but dragging that up with it i think yes it it it is the fear of um um ruin and and being reliant upon the state um you know that that's that's the big thing about it um from that perspective but it is really important to understand that although the pension might become payable earlier um the schemes just don't aren't that generous and say oh we'll let you have that and we'll pay you the same amount as we would when you were 60 years of age no no don't work like that what what would they would do if they would reduce the amount of money that would be paid it's what is referred to as an actuarial reduction so basically they will calculate what the pension that would be payable potentially and make a deduction from the retirement age to the age that you would take so for example you know if you took it five years early we'll make a reduction of 20 percent because obviously the scheme is going to be paying it that longer much longer to you um you know that's that's a really important aspect as well so as far as ages are concerned um yes you can take it early um but sometimes as well scheme rules may insist that you've left the employment as well so it just varies on scheme rules and i mean you know we had a question um from someone we got it here is it mark yeah mark wrote you know how can i retire early on a DB scheme.

22:24And I think what you're hinting at there is if you take the DB scheme, well, not hinting, you're saying that if you take it early, you're likely going to get a worse overall payment. Would you find that you end up in the same position as a net position if you lived to an average life expectancy or is it quite a big impact? So if you think about it, and it'll vary, but I can give you an example because this is quite a common theme, okay? So two of you, right, okay? So you take your pension at age 55 and you've had it reduced. And that pension comes into payment. So let's call it 10 grand just for discussion purposes.

23:05And every year that 10 grand is increased by consumer price index. On the other hand, you've waited until age 60. So your pension might start off at£13 ,000 or£14 ,000. but you've already had five years worth of of payments so there will be a crossover point at a future date i'm 50k ahead of him potentially he came on yeah so there's a there so there'll be a crossover point at a future date depending upon uh how long you live as you rightly say now what that then comes down to is individual choice you know what's your health like what do you think how long do you think you're going to live for so there is a crossover point but you know the the key thing is it it depends upon personal circumstances how much do you need like you know why keep working for five years if you're like that's enough and i can go and i want to retire you know also stocks and shares isa i think is like a really good product to supplement these kind of db schemes potentially you could focus on building up a stocks and shares isa and the flexibility that has to bridge the gap between when you want to stop and when your db scheme kicks in or whatever the big thing i'd be saying to anybody we do it every time is what is the situation regarding your state pension you know the state pension now um you know i'm being triple locked as well you know how long that will last for you know who knows we won't get it i mean i think i think the theme is we won't get it yeah you know but people people now not with all of this stuff you know we'll retire at 90 yeah but but you know it's the the amount that will be paid If you look at a joint household, somebody in a civil partnership or a husband and wife or whatever it might be, that is nearly£23 ,000 a year coming into the household.

24:56Allegedly, you require£30 ,000 to£35 ,000 as a couple to have a decent living in retirement. But if you've got£22 ,000, you only need to bridge that then£13 ,000. is that does the db or what other assets can bridge that for you from that point of view um and it is you're spot on it's down to personal circumstance you know if i've had a gutsful and i've had enough of working you know you've got you've got to have um you've got to have something to get out to bed for in the morning haven't you and if that drive goes and you know alternatively the winters over here you know they are pretty dreary aren't they i wouldn't i don't blame people for going to Spain or Granada or whatever.

25:37Yeah, there's a lot of that in this room. I'm in England, I'm not going anywhere. Everyone else is like, oh, Spain's looking real nice. Maybe that's an age thing. You think so? I don't know. Or maybe it's a UK thing, I don't know. I mean, it's sunny here now, no one's talking about leaving anymore, are they? But I feel like we get through winter and people are just desperate and then we get a few weeks of sun and we go, oh, you know. It's not so bad, man. UK's pretty good, actually. Well, my colleague, John, he um he he hates the Edinburgh winters so he goes to Lanzarote for three months and he hires an Airbnb and that's that's what he does and he's done it for the last couple of years to try and overcome the Scottish winters yeah I mean there's some proper winters we we went we went to Durham University and that is a cold place like the wind around Durham oh my god and then like the whole month of December you can't drive to uni because like they're so the snow's so deep so you got the The roads are darn light.

26:28You don't realise it's like a different country up north sometimes, how cold it gets. I mean, you notice a couple of degrees. Did you come down on the train today? Yes. Yeah, you notice a couple of degrees, don't you? You're coming east. Yeah, yeah, yeah. You notice a couple of degrees when you leave God's country all the time. Yeah, yeah, yeah. Yeah, you cross the wall. We've just got the air cut a couple of degrees higher than you. Yeah, yeah. Okay, what about then the other way around about extra contributions? so we talked there about taking the benefit early i know some people are you know can put more in is that right so um buying years maybe yes so there's a couple of ways um but most most of the ones these days and the jet in general um it's what is known as added years so in other words going back to our example earlier of 20 years um and i'm and i'm i'm saving up on a 160th basis then I could obtain more years okay because obviously it's a big advantage to me because it's you know you expect to have a higher salary later in your life and towards retirement than you do when you're 35 or 40 as an example buy them when they're cheap but yeah so from that perspective it it used to be that you could buy a guaranteed pension most of them now are defined contribution basis so in other words you're just putting money into what is known as an additional voluntary contribution an avc pot and the advantage of that might be that those might be cheaper than doing your own personal pension although at present in the marketplace there's pressure on charges and so forth and they've come right down you know as far as that's concerned The other obviously advantage of funding a personal pension plan, if limits allow, is that I can take that independently of my final salary scheme.

28:26So, for example, if I know I'm going to carry on working until I'm age 60 under my final salary scheme, I could potentially access my personal pension plan earlier after 2028 at 57. if that's what i wanted to do or i could go part-time or something of that nature you know however there are there are caveats there that need to be looked at which is that if you take income if you take tax-free cash it's fine but if you take income from your personal pension plan then you're restricted on the amount of money purchase annual allowance the money purchase annual allowance and there i was going to see mppa but i knew you're learning now i'm sharp now you love it man everyone likes the button everyone wants it so people sit there go you've not hit the button you mentioned earlier that um i think before that the government tried to i can't remember who you said tried to change the laws on db pensions uh one of our listeners wrote in named john can the government just change their mind and make them disappear so so the the employer is the one that would change the DB pension so they might um close the pension scheme down to what is known as future accrual so I I could issue a note this saying right with effect from the 31st of August this year and there'll be certain things within the rules okay um we are no longer uh allowing you to accrue benefits within that pension scheme and there are various regulatory requirements that have to be gone through um for that and that that is really really important and there's a whole list of um through a process that they have to go by okay to give notice and so forth and then your pension would be paid up as it's referred to at that date and that what could then happen would be that from that date onwards it would increase by inflation or something of that nature and it all depends what on what basis the scheme is wound up as it's referred to i can then replace that scheme with a money purchase scheme and i would then turn around and say right on that basis i'm now going to contribute 15 of your salary pensionable salary and i can define what salary means so i can i can um not include overtime qualify down in absolutely so you're thinking of stakeholder and employ employ workplace pensions and so forth so from from that perspective um it is really really important and i i have great sympathy because um you know i've been in pensions now since 1987 okay and some of those born well there we are let's see i thought about it then so so from from from that um i've seen some drivel there's you know they talk about the um speaking plain english and so forth or welsh or scottish whatever we want to talk okay but but in some of the wording and terminology and some of the paperwork that i see for clients it's unbelievably complicated i called you scottish before didn't i i realized you're welsh You're joking.

31:28No, that's what I said when you jumped over the wall. I'm sorry to offend you. That's why when you said you come across, you come in, so I was like, he's going a weird way. Yeah, he's going east. He's going east. No, no, no. I was like, holy shit. You know the coffee you just drunk there? Was it a rum minute or something? Yeah, yeah, yeah, yeah. I'm going to say yes. Sorry about that. No, it's because I came across the seven, the River Seven. Yeah, yeah. Yeah, well, I'm only saying it because people in the audience will be like, he said the wall. Typical English, man. I think the whole world is England.

32:03We're all united, guys. We love Wales. We love Scotland. But yeah, well, we might have to try and cut all of that out or I look like an idiot. But carry on, sorry. Carry on. Are we talking about geography or something? Yeah, yeah. No, let me have a think. The change in the employer. Oh, yeah, so their ability to just change the goalpost. So the scheme would be wound up. Yeah. And then it all depends what the replacement scheme would be brought in. More than likely, it would be money purchase or defined contribution. And, you know, it's quite certain because money purchase stands for what the money will purchase as far as an annuity is concerned.

32:40But now you don't have to buy an annuity. Years ago, you had to buy an annuity when you were 75. Would you then be in two separate schemes? Correct. So you've got like, you've got your old pot and your new pot. That's correct. And so your old pot would be a defined benefit, final salary scheme, and potentially, let's just say, at the date the scheme was wound up, let's just say for discussion purposes it was 10 grand, that would increase each year by inflation. Okay? Until a time in the future when you came to take those benefits and that's what you'd be paid, as an example. And then over here, your new pot, as you've described it, you've paid money into that over the years.

33:24So, obviously, where I come from, you know, Scotland. You did say Edinburgh. You said Edinburgh. You said my business partner leaves Edinburgh. So I was like, oh, yeah, he's coming all that way today. But we work remote. So I work in Cardiff and he works in Edinburgh. And he's got a broad Welsh accent as well. But that's another one. Oh, okay. I'm just confused everyone.

33:49So the British Steel pension scheme. okay so british steel closed the pension scheme and set up a brand new defined contribution scheme okay as an example so various schemes or want to wind up because they want to get rid of that liability because it is a it's an open checkbook okay so the the issue with certain scenarios is that potentially unions could be involved or you know and they would be in involved with a negotiation of what it is because as you said earlier on okay and it is a great way to describe it the pension scheme is is it is a deferred salary basically you know it's a salary that i'm going to pay you 10 15 20 years down the line and um the important thing is is that that'll be guaranteed as long as i'm in existence i.e the employer now there is a a means by which that is protected and that's known as the pension protection fund and the potential protection fund takes on schemes that can't meet liabilities in in basically there are various categories of that and so forth okay and there i won't bore the audience with what takes place but there is a government lifeboat scheme that that does guarantee uh the payments in certain circumstances but those will be you know um important to understand do you think that that provides a level of reassurance to people in the schemes now that in 20, 30, 40 years that they can rely on on those schemes?

35:23Well, to a certain extent, yes. But the point is, and you know, one of the earlier questions was, who has these schemes now? Very few smaller employers have these schemes now. But do you think people within, say, the public sector can be confident that their schemes will exist and, you know, have that reassurance? I think so, yes. And what's clear there is that they can't really change the rules on the scheme as it is. They can more just say, that scheme's now done and you're in a new one. So you haven't got to worry that they're going to pull the rug from you. Well, that's the interesting part, because to a certain extent, they haven't pulled the rug.

36:00They've just amended the basis. They just make them worse or less generous. Well, less generous, yeah. But equally, Listress has got a lot to answer for in the nicest possible way. So if we just look at the NHS pension scheme for a moment, okay? So the old 1995 scheme, which was a final salary scheme, was basically I will give you 1 80th for each year of service, okay, as a pension, and I'll give you 3 80ths as a lump sum at your normal retirement date. So all those people who joined the scheme back in prior to 2008, that's what basically... If you were there for 10 years, you got 30 years worth?

36:43You had 38 years. Yeah, 38 years. So if you were on 80 grand, you'd have a lump sum of 30 grand and a pension of 10. Yeah, okay. At your retirement age. Okay.

36:56However, they then changed that in the 2015 scheme so that it is now 1.54th. They couldn't make it even more complicated, could they? So it's 1.54th of that year's pension. just popping in here to clarify that what peter means here is 154th of that year's pensionable earnings so i described earlier on that that pension then is put into a box okay and that box then has an increase each year in uh by inflation and then each year that pension that you've earned is put into a box and then at the end 15 years down the road okay 15 boxes will be added up and that's what your pension will be and you see it every year on your statement and it's in a line so you know 15 each each year a pension will have been accumulated but you don't benefit from that effect of your income being high at the end of the year and uprating all of your pension correct years basically but what it is is that the the government in that particular example um increase each box of the pension that you've earned by consumer price index plus one and a half percent so when liz and quasi you know did that put their foot in it put their foot in it or fouled up things okay some people were crying some people weren't okay um in the nhs the following year that that pension went up by um 11.6 percent that one pension so if i earn two thousand pound that pension now has had is now worth two thousand two hundred pound give or take um and then every year the two thousand pound pension that i earned will have more inflation added onto it but you don't have inflation on inflation it's just the pension that gets inflation but every box gets inflation added on every year okay so if i'm earning let's just say um 108 000 pound a year I'm earning£2 ,000 a year pension plus inflation so after 10 years I'll be guaranteed a pension of £20 ,000 if my pension if my salary doesn't change but I have an inflation on those every year so it is quite on the one hand it's quite generous but the reason why they've reduced it is because, and extended the retirement age, is because under the old scheme, okay, I used to have a pension and a lump sum, okay?

39:26Under the new scheme, it's just a pension. So if I want to give up some of my pension to get a lump sum, tax-free lump sum, I have to give up£1 ,000 of pension to have£12 ,000 of lump sum. Now, you might think, well, that's a no-brainer. But it isn't, because how long are you going to live for? what's more important to you? That's the cast-dying guaranteed£1 ,000 increasing each year by inflation. So what is it that you want compared to£12 ,000 here and now? So it all depends what people want. But the key thing is... They don't make it easy for people, do they? I mean, you just explained that to us, and I'm a bit like trying to wrap my head around it, and people are just trying to do their jobs.

40:08And they're like, oh, we're just going to fandangle your skin into this new thing, and people are like, what the hell is going on? I agree. And my daughter's in the NHS, she's trained to be an anaesthetist. And she says, you know, it's very, very confusing. She knows how to knock people out, not crunch the numbers. So she says, I do that when I talk to people, that's another story. So from that perspective, it is really, really important to understand what you have. Where can people, do you think, get that information about their particular scheme in a way that's digestible, do you think? So the annual benefit statement, you know, they should take a note of it.

40:46And generally, it'll show what the difference is in an annual base, what the words that I use, what have you accrued, okay? So there's an accrual rate. So the accrual rate is how much pension do you earn each year? So the example I've given, the 154th or 180th or 160th, that's the accrual rate, for want to have been a description. but the key the key thing is is to understand that um the final so as a 1995 definition is concerned okay so every year they show that you've earned that pension okay under the old 1995 scheme but the final definition is the last three years of pensionable earnings and a lot of people don't realize that so they come to the end and and all the figures that they've been quoted before actually mean nothing because it's the last three don't take a pet to pay quite in those final years or go part-time no well part-time they get it gets a whole time equivalent yes yeah but you want to get a little pay rise or something oh absolutely or a clinical excellence award or something of that nature but you know excellence award ceas so those are pensions bonuses for doing certain work for the hospital something of that nature as best way and simplest way to describe it but you know the the key point is a defined benefit is a very very valuable um in any guise in any shape form all of the schemes that exist are still great schemes yeah for for certain individuals and and obviously with other individuals they they may want to you know take a different view and that's understandable as well but they've got to understand what it is that they that they potentially are going down the road of and unfortunately um there have been a lot of scams in recent years.

42:35Horrible scams. So I was going to say, why do you hear so much about people transferring out of DB schemes then? Is that part of the scams or is it just an offer that they have to decide if they want it or not? So Pensions Freedom came in and was announced back in 2015. And with the public sector, they said, yeah, we're going to allow Pensions Freedom so you can take out whatever you want to from your defined contribution pot or your personal pension. okay um um but um with effect from april 2016 um certain public sector unfunded public sector schemes can't transfer out so you can't transfer out to the nhs you can't transfer out to the teacher scheme but hang on i pay i pay money in monthly what do you mean it's unfunded because the bill is picked up by us you know us the taxpayer taxpayer yeah paying on an annual on an annual basis basically there isn't a fund as such there's nobody well yeah but it's all you know the the government or the treasury write out the check for all public sector pensions in payment so so what what happened was is that um pensions freedom as it was referred to came along and uh people didn't have to buy an annuity as i mentioned earlier on you know there was a tragic case back in um in the day whereby um a farmer shot themselves when they were 74 years and 260 days so that his wife could have the pension fund and not not have to buy an annuity you know there's tragic stories like that so um pension flexibility came along and um you were allowed to take out to the the fund um what what what you what you wanted okay previously that wasn't the case you were restricted on the amount that you could you could take out so lots of people then turned around and said oh wow i'd rather have the ability to take out 20 000 one year then 30 000 the next year then 20 000 then 30 or 40 000 i'd much rather that than that boring 10 grand a year guaranteed consumer price index um increasing pension i'd much rather have other 40 you know grand so you saw a huge rush towards transferring out because of flexibility so if you read suitability reports at the time you know so why do you want to transfer out then oh i want to transfer out for greater control or greater flexibility well what does that mean you know what does flexibility mean oh well i want to take out money as and when i want to don't buy a car or yeah and but i want I want to be able to vary the amounts that I withdraw.

45:16So it saw a huge increase in transfers post-2015. Now, what the problem is with transfer values is how they calculate it. What happens is that interest rate and guilt deals dictate really what, and give you a flavor for what transfer values are going to be so when interest rates were down at towards zero okay transfer values were very very high and the peak was about 2019 there or thereabouts okay and you were seeing significant transfer values because basically what it is so if you asked a scheme for a transfer value the scheme what it does behind the scenes is it increases your pension at the date of leaving to your retirement date.