[Closed] Pension Transfer Advice Fees

I am doing this myself (for my wife) and posted a similar thread a few days ago.

Have you asked the firm holding the Sainsbury fund directly what their fee is withdraw it? Mrs C has 7 old defined contribution pensions we are putting into a sipp. All 7 are zero cost to transfer. Doing it ourselves.

Your is defined benefit though and quite old so it might be different I guess.

Advising you to transfer out of defined benefit in to an unknown potential loss carries potential liabilities for the advisor, which is reflected in the fee, IIRC. It isn’t to do with the hours of work involved.

Ignore this post.

https://forums.moneysavingexpert.com/discussion/6137969/db-pension-transfer-statutory-advice/p3

Jeez, what a racket

Apologies @convert @Tomb not realised you'd posted. Thanks for the advices.

Jeez, what a racket

Suggest you look up the British Steel pensions scandal and then, possibly, revise your comment.
There have been several other pensions threads on the forum - you might benefit by reading them.

Thanks @frankconway I will read them, and this is new to me. I agree that British Steel was a disgrace. But in this case, fees of £3-6k on a tiny fund, where I am clear what I want, we've replaced one form of racketeering for another. I'm being forced to pay for advice I don't want, and at a hefty rate for it.

At the mid point of that range, I'm going to be charged for 30 hours work at £150 an hour. You cannot tell me that there is 30 hours work in assessing my fund, my overall position and my attitude to risk there.

What is the Sainsbury pension projected to pay and what other benefits does it offer- any life cover? It may be worth leaving as is to save the fees and consolidating the others.

I’m in a similar boat- a few pensions from various jobs. One is defined benefit from Cadbury- I’m likely to leave it as it is payable at 60.

ETA: you can tell we’re getting old, never had pension threads when I first stumbled on STW in 2004!

@fb-atb I think its currently about £800 a year. No other benefits, no life assurance. In my overall life planning I'd just prefer to simplify & consolidate.

You're not paying for the IFA's time or work. You're paying for a very expensive insurance policy that is covering the likely costs when you discover in 15-20 years time that you would have been better off staying in the DB scheme and the advisor misadvised you and the insurance policy you've bought has got to pay you the difference between what you have and what the DB scheme would have provided you with for the next 40 years. Nobody wants this liability as it's almost certain to happen which is why you get charged a lot for someone to take on this liability.

@wwpaddler yes I get that. I should be able to sign away that liability, and make an informed choice as a rational individual on such a small pot.

You can't just sign it away. For you to sign it away someone's got to accept it and that is what costs.

Think of it this way - some clever actuary at the pension fund has worked out that they will be better off paying you £47K now than paying you £800 per year for however long your retirement is. What are the odds of them being wrong and you being right?

£47K - £6K fees is still more than the £29K you thought was a good deal originally.

The wholesale cost of a report to the adviser is somewhere between £650 and £1000. The work involved is the same for a small transfer as a large one.

@mefty thats interesting. Does that include the insurance premium?

No, it doesn't cover any compensation for the IFA who is the one at risk.

But in this case, fees of £3-6k on a tiny fund, where I am clear what I want, we’ve replaced one form of racketeering for another. I’m being forced to pay for advice I don’t want, and at a hefty rate for it.

Yep, you're stuck in no man's land, eg my IFA won't touch anything below £200k as they'd make a loss on it. Their fees (insurance, compliance etc) are pretty much fixed and the fee they charge (1%) means that unless funds are over a certain amount, it's simply not cost effective to deal with them.

I should be able to sign away that liability, and make an informed choice as a rational individual on such a small pot.

The problem here is that 99% of people saying they understand the risk don't really understand pensions, annuities etc. They just see a large sum and go 'free money' not realising that it's not free, it's in exchange for a guaranteed pension decades away - when it might make a big difference to someone's retirement. Which is why, very wisely, you're not allowed to just take it now without advice. The big problem is that a lot of that advice is bad advice eg British Steel.

This may be a case where a report recommends a transfer though, which is pretty rare, a £800 pension indexed at an inflation rate of 2.5% takes 37 years for the total payout to exceed £47,000.

I write DB transfer reports for a living and can tell you between adviser and paraplanner time, it's way more than 30 hours work. This is the most heavily regulated and complex area of financial advice so you are paying for expertise as well as time; not many IFAs have the permissions required to carry out this work.

As of 1st October there was a massive regulatory overhaul of DB transfer advice and you must be charged a flat fee whether the advice is to transfer or stay. Previously charges were mainly taken on a contingent basis from the fund if transfer was recommended. Where it was to stay, you may previously have been charged less.

Fees now are in the region of £6-10k between firms although I believe there are a couple of big firms offering this for around £3.5 k.

This may be a case where a report recommends a transfer though, which is pretty rare, a £800 pension indexed at an inflation rate of 2.5% takes 37 years for the total payout to exceed £47,000.

Pension timescales matter though. What if inflation goes to 15%. I had a mortgage at 13% bac in the day. A few years of high inflation 20 years from now might make the buyout look less of a bargain.

Depends on the age of the person being paid I suppose. Somene age 40 has another 40 years ahead of them. A lot can happen in 40 years.

What if inflation goes to 15%.

The simple answer is no one knows so any report is based on a whole load of best guess assumptions. I transferred a DB pension out (which had lost all the DB benefits via the Insolvency fund) and I'm basiclally taking a bet on inflation over the next 15 years as to whether or not I'll do better investing it myself or having stayed in the scheme. As it was less than 20% of my overall pension pot, it isn't going to be a big thing if it turns out I got it wrong...

Playing devils advocate.

Why not leave everything where it is?
If the pension fund is performing well in these times that would be a factor in favour. The people investing the fund may have access to income/growth streams not accessible to us lesser mortals.
It may be possible to consolidate at retirement with less expense I seem to think H&L - ocaa - offer this but would need to check and cba its not my problem.

If you are consolidating in a SIPP do you need to still get an IFA to sign it off or is it just the Final Salary while all the others will transfer free by the SIPP provider?

The other thing to consider is the likelihood of the companies you hold the pensions with either going bust or selling off the pension fund to one of the hedge funds that buy them?

Pension timescales matter though. What if inflation goes to 15%.

It depends on how you invest your lump sum, plenty of ways to partially alleviate inflation risk. Also dont underestimate the financial impact of inflation on pension funds themselves, since Maxwell there has been a government directed switch to bonds which are disastrous in high inflationary times so the pension funds would be under significant financial pressure.

, since Maxwell there has been a government directed switch to bonds which are disastrous in high inflationary times so the pension funds would be under significant financial pressure.

Do you mean low inflation? Bond yields normally track interest rates IIRC.

Biggest problem recently has been QE which has suppressed bond yields and pumped up equities...

Bond yields normally track interest rates IIRC.

But they lag so you are continually playing catch up because of the long term nature of the instruments. Bonds also suffer when there are negative real interest rates like there have been as a result of QE etc. (EDIT: Although you benefit from the lag on the way down)

@bigdugsbaws

I write DB transfer reports for a living

Are you based in Scotland ?

Yep, based in Scotland.

Basically, whilst a member of a DB scheme you don't need to worry about bond yields or in fact any investment risks as these are all bourn by the scheme. As soon as you transfer, you take on all those risks, something to consider with current market volatility.

A big mistake people make is looking at the deferred pension verses the transfer value and think the latter represents excellent value for money, it doesn't. The deferred pension revalues from the date of leaving till the date of retirement, so the real value of this income can be significantly higher. GMP benefits can revalue at fixed rates of up to 8.5% per annum, that mounts up quickly!

A big thing for me is if you take the money out and invest it you can pass it on to your kids. If you leave it in you get your pension then your wife gets a reduced pension when you die then the pension fund keeps what’s left when she dies (in effect).

The other benefit taking it out is you can drawdown more when your younger. Who needs a big pension when your dribbling into your soup. It would just go on care costs.

pension doofus here, just trying to understand it a bit more......

as i understand it, the OP has a DB pension that will pay him/her £800 p/a. after seeking a transfer value they have been told it would be a £47,000 pot.

so a guaranteed £800 per year until death (half to partner on your death, all gone when partner dies), or gamble on a £47,000 pot, no guarantees, may lose the lot, may double it, can transfer to family on death.
that right?

i dont quite understand what bigdugspaws post.

A big mistake people make is looking at the deferred pension verses the transfer value and think the latter represents excellent value for money, it doesn’t. The deferred pension revalues from the date of leaving till the date of retirement, so the real value of this income can be significantly higher. GMP benefits can revalue at fixed rates of up to 8.5% per annum, that mounts up quickly!

deferred pension. isnt that just 'not drawing a pension when you can, to make it a higher monthly payment the longer you leave it?' which isnt either of those 2 options? or is the deferred pension the DB pension?

wouldnt the OP's situation mean thered be 50 odd years worth of £800's until broke even, assuming everything stays as it is? no way would i want to accept that, id want to take the £47,000 and 'gamble'. (doesnt seem much of a gamble to me).

apologies if ive misinterpreted this, like i say im financially clueless and bigdugspaws post is above my level of understanding. wouldnt mind it explaining in laymans terms?

thanks

My turn next with the stoopid question. Lets say for example we convert a DB pension to a CETV and 'take' the cash, do we have to invest that money by way of SIPP, annuity etc or can we simply drawdown on that lump inside some kind of wrapper? As far as I can tell we can have a drawdown pension but that captial still has to be invested which will of course carry an element of risk.

I'd like to know if that CETV can be converted into a drawdown but not invested therefore carrying no risk?

You have to keep the transfer out of a DB in a pension wrapper which could be a drawdown pension. Drawdown pensions have a range of investment options from high risk to low risk and they will have "cash funds" which are very low risk though still invested. The problem with not investing is that inflation is likely to have devalued your pension fund over time.

Great, thanks for that. So essentially a DB could be converted to a CETV which is then in turn converted to a 'cash fund' within a drawdown wrapper. I'd want it to be as low a risk as possible so getting little interest on the captial would be 'ok'. Is there anywhere I can read up on this to give me a clue as to returns vs a more traditional investement?

Juanking, if you're risk averse transfer is unlikely to be in your best interests. Why not just draw the scheme pension?

You could essentially leave the fund uninvested but as pointed out, your fund would still be subject to inflationary risks. You are also unlikely to get a positive transfer recommendation in this scenario.

Going back to deferred pension, this is the accrued benefit you had at the date of leaving the scheme. In our £800 per year Vs £40k example, I was making the point that for example if you left the scheme in 2010 and the normal retirement date was 2025, your £800 of deferred pension will revalue so by 2025 could be £2000 per year. This is guaranteed and generally inflation proofed income. To purchase the same benefits via an annuity on the open market is very expensive in comparison.

If you are scared of risk, then leave the pension in it's DB state.
I transferred out £750k and have it invested spread across various risks in a SIPP.
It's future value was 10k a year but that would have been more like 20k a year at retirement age (60)
I did it because I had 2 offshore pensions in SIPPS anyway so was used to what they did, and also it offers huge flexibility in how and when I use my money.
It also means I retire at 55 with no loss of income.

It can be worth it in many many ways, but if you are scared of the market then don't do it.
I used an IFA for the transfer then took over running it myself straight away without an IFA.

Works fine for me. I am looking at doing another one soon as well.

Going back to deferred pension, this is the accrued benefit you had at the date of leaving the scheme. In our £800 per year Vs £40k example, I was making the point that for example if you left the scheme in 2010 and the normal retirement date was 2025, your £800 of deferred pension will revalue so by 2025 could be £2000 per year.

ok but looking at the OP.......

I worked for Sainsburys when I left university 30 odd years ago.

......it looks like theyre about 50ish, so maybe about 5 years from being able to take a pension, this one may even not be able to be drawn until 65/67? is that right?
and if we assume then that the £800 is just a snapshot of what it would be now, and in 5 years time it may be £1000 for instance, then thats still rubbish isnt it?
and if theyre 50 now, then that makes it even worse to me, as the £800 would take 50+ years to break even.
AND..... assuming the £800 would probably grow over the years, so too would the £47k transfer value wouldnt it?
im sure i must be missing something, thats why im not an IFA 😀

£47K – £6K fees is still more than the £29K you thought was a good deal originally.

its gone from 29k to 47k in 18 months, i still cant see a way that the £800 p/a is anywhere near enough to even have to think hard about what to do.

also, cynical old me wonders if the pension companies are thinking that its so difficult to transfer a DB pension, that it cost so many thousands of £'s, that they can drop the annual payment considerably, knowing that most will find it too difficult/expensive to take the transfer and just accept the (in this case) £800.

Ok, to add some context:

48 year old male in remission from lymphoma therefore wish to finish work as soon asap

In a DB pension scheme, if I continue working for another 7 years (55) then the pension would be ~£28k. I am penalised 3% per year every year I access the pension before 65 resulting in a 30% reduction.

The current CETV is £1mm which would equate to me having to live until 90 (35 years) to essentially drawdown that £1mm @£28k pa all assuming 0% growth.

Assuming I'm not going to get anywhere near 90 the spouse pension is greatly reduced and once she shuffles off then remaining pot will disappear hence the attraction of retaining that pot to make is inheritable.

£1mm?

EDIT: im guessing you mean £28k pa DB, or transfer value of £1,000,000?

Sorry, yes, $28k pa DB @55 but a current CETV of £1m.

Once your pot is near a million you have to start worrying about the tax treatment as you are close to the lifetime tax free amount. This is another advantage of DB pensions, the tax rules undervalue their capital value - a cynic might suggest that is because the guys writing the rules benefit from them.

Mefty, my actual LTA is currently @£500k but current CETV is £1m. Am I correct, for tax purposes, the LTA amount @500k is used and NOT the CETV value which is currently £1m?

The regulator views compromised health as a valid reason to consider transfer but you also need to have the tolerance and capacity to take on those risks.

Remember that £28k income escalates every year, even at a modest 2.5% p/a that would be £59k at age 75. If you were to draw down from an uninvested cash pot of £1m that would take you less than 26 years to exhaust matching scheme income escalating at 2.5%

I would guess that you would fall outside the DB valuation rules if you transfer out so the CETV would be in point, that would be logical, but not something I have ever looked at so could be completely wrong.

Remember that £28k income escalates every year, even at a modest 2.5% p/a that would be £59k at age 75

does it? i thought that the figure they gave you on retirement day was the figure you get for life, that it was set. thats a bit better then if it goes up annually.....

Thanks BDB, really useful thing for me to factor in. I suppose I'm thinking my main call on funds will be for the first 15 years from 55 to 70 by which time my state pension will have kicked in then from 70 onwards spend will be greatly reduced. I do have other investments and an old pension currently worth £100k but lots to think about.

does it? i thought that the figure they gave you on retirement day was the figure you get for life, that it was set. thats a bit better then if it goes up annually…..

Normally, with DB, pensions there is an RPI / CPI based escalation built in, so it increases year on year to roughly match the cost of living. You also likely get a 50% pension for a surviving spouse. Exact terms depend on the scheme, but most DB schemes are pretty generous.

Sorry guys but can i jump in with a query please? I currently have my employee pension plus another 3 from previous employers- although one is noted as a SIPP and the other 2 are Personal Pensions? I went to see an IFA last week and they were suggesting my money isn't invested in the best way and also that the recommendation I had from Portafina wasnt much better ( this was indicated on a graph showing last 5 years performance etc against their current recommended funds) whilst they said there were no guarantees they suggested that i should consider consolidating the 3 pots and look at better investment opportunities based on my attitude to risk etc. with their help.

They quoted £5k for the initial advise based on a pot ( excluding current employer) of £260k and then 1% for active management per annum- is this reasonable or should I consider other avenues ?

Hope that makes sense- I consider myself averagely intelligent but the pension world seems designed to confuse.......

They sounds like SIPPs ie just cash pots with your name on, in which case you can just consolidate them yourself, just fill in one form per SIPP. Picking a handful of funds to invest in based on your risk profile is pretty straight forward, you could crowd source the set on STW....

£5k seems very steep for that (IMO).

Pop Larkin, sounds like all your pensions are defined contribution or DC pots. The level of research and time to advise on this type of pension is vastly less than defined benefit pensions (DB). Unlike DB pensions over £30k, there is no statutory requirement to seek advice and if you are financially savvy, you could consolidate these yourself for no charge. However, you indicated you are not so advice would be recommended.

£5k sounds rich for this type of advice,I would suggest half that would be more reasonable.

In relation to ongoing charges, you have no obligation to take this service and you've got to challenge the IFA what you are getting for your 1% a year to make this value for money; roughly £250 a month is a lot for potentially a short report saying your funds are doing well 😉

@juanking

In your situation I would transfer out in a heartbeat.

To be blunt, if it all goes tits up for you, your family get the lot , free of inheritance tax.
It also gives you the freedom to spend more sooner and be far more flexible.

Thats not strictly true brads, if you die within 2 years of transfer HMRC can treat the transferred sum as part of your estate for IHT purposes.

@juanking, the first part of the transfer process is 'triage', this is basically an impartial education on the potential benefits, drawbacks and risks of pension transfer. Most firms offer this service free of charge and it is intended to help you decide whether transfer may meet your objectives before engaging in the expensive advice process.

Thanks boys. Even though this is 7 years away it's at the forefront of my mind as we are all currently under consultation in work and if I were made redundant I'm toying with the idea of doing something fun instead of working.

I would have adequate funds to clear mortgage and see us to 55 but of course this would only be possible if I have sufficient provision for retirement.

I too am in Scotland, sounds like we could do a collective consultation!

Apologies for the delay but thanks footflaps and bigdugsbaws