I’m looking to transfer a defined benefit pension into a defined contribution pension.

The transfer value is over £30k, so I have to take the advice of an IFA and provide evidence of this.

The thing is, I’m perfectly happy with my decision and am aware of the risks, so don’t want to pay for ‘advice’.

Is there any ‘better call saul’ type IFAs that can just do the sign off? I assume not as they will be taking on some risk.

Any IFAs on here that would be willing to discuss this? – email in profile.

is that a legal thing or just a policy by the company? I transferred recently but just signed to say i was taking my own decision, but it wasn’t as much as that (few thou only)

Maybe approach a local IFA to say you don’t want advice but see if he’ll sign off on having advised you you should take advice but you didn’t want to and therefore risks are entirely yours. £20, one signature?

its a legal thing I believe once its over £30k you have to provide evidence that you’ve spoken to an IFA.

Following thread with interest – I’m in the same position – looking at transferring out of final salary scheme which is offering something like a 35x annuity transfer value. Only 10 years early career contributions from me so annuity itself pretty paltry.

DB -> DC transfer is quite a big decision, people are often blind-sided by the seemingly massive numbers on offer without fully realising the impact of giving up the guaranteed, and often indexed (i.e. increasing), income.

Also, many DC pension schemes are compounding the issue by offering generous transfer quotations, as they’re keen to get people off their books, i.e. transfer the investment risk from themselves to the individual.

You’ll have to pay for a proper analysis otherwise the IFA could be liable for not properly advising you if you subsequently change your mind…

Only 10 years early career contributions from me so annuity itself pretty paltry.

But it’s guaranteed (and strictly speaking it’s not an annuity, but that’s by the by). Once you take it out, nothing is guaranteed, you could, in theory, lose the lot.

But it’s guaranteed (and strictly speaking it’s not an annuity, but that’s by the by). Once you take it out, nothing is guaranteed, you could, in theory, lose the lot.

Simon – interesting point here. Just how guaranteed is it? If the company goes into liquidation, will somebody (presumably the government) underwrite 100% of the defined benefit or will it be a fraction of that?

Similarly, if the company does go into liquidation, then how is the defined benefit actually determined?

Simon – interesting point here. Just how guaranteed is it? If the company goes into liquidation, will somebody (presumably the government) underwrite 100% of the defined benefit or will it be a fraction of that?

The Pension Protection Fund kicks in. Deferred pensions lose 10% but get maintained at 2.5% pa growth.

Similarly, if the company does go into liquidation, then how is the defined benefit actually determined?

As it was defined when the DB pension fund was created. You get what you are owed (less 10%).

Contributions after 5 April 97 (IIRC) also qualify for 2.5% pa growth once the pension starts paying out. Contributions prior to that aren’t index linked once the pension starts.

The fact you didn’t know all this is exactly why they make you see an IFA who will explain it all to you!!!!

One would normally only move from DB to DC in exceptional circumstances.

What Footflaps said and

Similarly, if the company does go into liquidation, then how is the defined benefit actually determined?

The defined benefit in that case is the same as the defined benefit as per the terms of the original scheme, minus the 10% that Footflaps mentioned

**edit** so what Footflaps said…

Mine is less than 3 years very early career, hence my surprise of the transfer value being over £30k!

I posted on unbiased, spoke to the first firm who were extremely helpful in telling me that they couldn’t help.
To compound things I need to have the docs to the pension office by 16th Feb as the scheme is being transferred soon.

Only 10 years early career contributions from me so annuity itself pretty paltry.

But it’s guaranteed (and strictly speaking it’s not an annuity, but that’s by the by). Once you take it out, nothing is guaranteed, you could, in theory, lose the lot.

True if I put it all into as fund that went bust AND wasn’t protected in any way.

But let’s look at example figures. Let’s say the pension was £10k a year (which is taxable along with any other income). Transfer value is say £350k. 25% – £87.5k of that can be take as a tax free lump sum which could be invested for a return.

The remaining £262.5k could but an annuity of ~£12k assuming I retired at 60.

Can you see why it may be worth taking the risk?

aaaaand, the PPF is for pension schemes that get into trouble, not companies. If the company goes into liquidation it doesn’t necessarily mean that the pension scheme goes the same way; the company and the pension scheme are separate and, assuming the scheme was fully funded prior to the company’s demise, there’s not necessarily a problem.

Can you see why it may be worth taking the risk?

If those figures are accurate, then yes. The key words are ‘if’ and ‘risk’ though, that’s where professional advice helps. The annuity at that rate is also probably fixed (i.e won’t increase over time), won’t provide an income to a spouse if you kick the bucket before them etc etc. Adding any of those kind of benefits will (significantly) reduce the amount you’ll get.

To be clear, I’m not saying that DB -> DC is a bad idea, I’m saying that making the decision without fully understanding the implications of what you’re doing is a bad idea.

assuming the scheme was fully funded prior to the company’s demise,

Generally unlikely, most funds rely on regular contributions from the company and with the way they are forced to calculate liabilities (based on gilts), most show a deficit even if they can actually meet all liabilities.

watching this thread closely as I’m in the same boat, but with AVCs also scattered about that are underperforming, anyone know of a good IFA in the centre of Manchester ?

going to check unbiased but a personal recommendation would help also

I’m not sure I’m actually after a good IFA, more the opposite I think!

Generally unlikely,

agreed, hence

there’s not necessarily a problem

‘m not sure I’m actually after a good IFA, more the opposite I think!

in that case, take your pick 😉

but with AVCs also scattered about that are underperforming,

Why not just change the funds they are invested in rather than transferring out of a DB scheme?

The remaining £262.5k could but an annuity of ~£12k assuming I retired at 60.

Can you see why it may be worth taking the risk?

and this.

The annuity at that rate is also probably fixed (i.e won’t increase over time), won’t provide an income to a spouse if you kick the bucket before them etc etc. Adding any of those kind of benefits will (significantly) reduce the amount you’ll get.

You will almost certainly get a much better over all deal from the DB scheme eg 50% to spouse on your death etc. Index linked at 2.5% or more etc.

A joint (50%) + 3% escalation annuity yields £3,353 per £100k, so your £262k buys £8,784 pension compared with £10,000 from your DB scheme…

As it was defined when the DB pension fund was created. You get what you are owed (less 10%).

OK so I don’t have a DB scheme but my wife does. If her defined benefit is ‘the best three years earnings in the last five’, then if her employer became insolvent and ceased trading and the government stepped in to underwrite the pension pot, that’s how the benefit would be defined.

The main reason we would ever consider moving the money out of a DB scheme is tht if my wife were to die before me, I’d be left with a pittance of a widower’s pension. If we moved it out, we could (as I understand it) invest that money in a way that means I inherit 100% of the capital.

the AVCs are with different providers due to scheme changes and not linked to the DB (just an IHAVC not added years), they are stand-alone products that are all underperforming so I suspect that consolidation and future performance (yeah I know) will outweigh the transfer value hit

If her defined benefit is ‘the best three years earnings in the last five’,

It’s probably a bit more complicated than that, something like

“numbers of years worked x multiplier (often 1/60, 1/80, something like that) x ‘the average of best three years earnings in the last five”

but yeah.

The main reason we would ever consider moving the money out of a DB scheme is tht if my wife were to die before me, I’d be left with a pittance of a widower’s pension. If we moved it out, we could (as I understand it) invest that money in a way that means I inherit 100% of the capital.

True, but you take on the risk of providing the pension for you and your wife. A the moment the risk is only your pension if she carks it first. I assume you have some form of pension plan separate to MrsGT’s?

A joint (50%) + 3% escalation annuity yields £3,353 per £100k, so your £262k buys £8,784 pension compared with £10,000 from your DB scheme…

Plus £87.5k tax free lump sum.

Bearing in mind I’d be transferring probably 15 years before retirement, along with the risk that the value could shrink is an opportunity that the £350k could grow.

A joint (50%) + 3% escalation annuity yields £3,353 per £100k, so your £262k buys £8,784 pension compared with £10,000 from your DB scheme…

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Plus £87.5k tax free lump sum.

All assuming that the money taken out of the DB and invested is not lost/dramatically reduced in a stock market crash, f’rinstance

The main reason we would ever consider moving the money out of a DB scheme is tht if my wife were to die before me, I’d be left with a pittance of a widower’s pension. If we moved it out, we could (as I understand it) invest that money in a way that means I inherit 100% of the capital.

You need to consider two different circumstances.

1. She dies before drawing a pension, in which case you need to see what her DB pension rules state about what the spouse is entitled to.

2. She dies after drawing a pension, in which case you need to see what her DB pension rules state about what the spouse is entitled to.

I’d work out what those were first.

But let’s look at example figures. Let’s say the pension was £10k a year (which is taxable along with any other income). Transfer value is say £350k. 25% – £87.5k of that can be take as a tax free lump sum which could be invested for a return.
The remaining £262.5k could but an annuity of ~£12k assuming I retired at 60.

That does seem an absurdly high multiple of annuity. Surely you also need to consider
– increase in the DB annunity each year before and after retirement. Is it CPI, RPI +/-, limited in any way?
– time to retire.

All assuming that the money taken out of the DB and invested is not lost/dramatically reduced in a stock market crash, f’rinstance

Yep….but if that happens I’ve got other things to worry about like the fact that my current pension is a money purchase scheme which is completely exposed to that risk.

Seems to me that you very much do need an IFA to talk this over with…

Bearing in mind I’d be transferring probably 15 years before retirement, along with the risk that the value could shrink is an opportunity that the £350k could grow.

You do have a large sum to invest in one go. I’m not making any claims to be an investment guru but both UK and US markets look high at the moment
http://www.macrotrends.net/2598/ftse-100-index-historical-chart-data

I’m not the OP, but agree – have already made contact locally.

Yep….but if that happens I’ve got other things to worry about like the fact that my current pension is a money purchase scheme which is completely exposed to that risk.

Sounds a bit “all eggs in one basket-y”…

he main reason we would ever consider moving the money out of a DB scheme is tht if my wife were to die before me, I’d be left with a pittance of a widower’s pension. If we moved it out, we could (as I understand it) invest that money in a way that means I inherit 100% of the capital.

What would life insurance to give a lump sum on her death cost? Insuring that risk would let the pension decision be taken on it’s merits for the long term.

The government insists you take advice because generally this would be a very bad thing to do.

CETVs are at an unusual high (which won’t last) so the number of cases in which transferring is the right choice is more than it was, but still very much a minority of cases.

You need an IFA, ask around and get quotes. No way around it. If the IFA advises against the transfer, you then need a scheme that will let you transfer in against advice (there are quite a few, but many won’t let you go against the IFA).

I assume not as they will be taking on some risk.

The FCA treat a DB transfer as a mis-sale unless proven otherwise. In this case, an IFA would be guilty unless proven innocent. Their position conflicts with what the government have been spouting, but the FCA and not the government make the detailed rules for IFAs and pension schemes.

That liability lasts a long long time. A company will carry the liability for as long as they exist. If it is an individual IFA, it will stay with them until they pop their clogs. So a number of IFAs won’t take this sort of business because it is too risky.

I was on the same boat, I am in fact a qualified ex-adviser but I didn’t have the required permissions to satisfy the ceeding scheme so needed to pay for the advice.

Whilst advice is costly, CETVs are currently at a high due to low interest rates thus if transfer is right for you its a good time to to transfer.

I did a DB > DC transfer a couple of years ago, not particularly large but the CETV/pension multiple was too good to pass up. That multiple would have been bigger still last year, but will have dropped a bit this year now that interest rates are slowly rising.

The key thing for me is the probability of the company that “owns” the fund defaulting on their obligations, a la BHS. In my opinion this will be the next big financial services scandal, and what is to come will dwarf BHS. Massively indebted companies which are responsible for legacy DB pensions with huge deficits are not able to fund them even with the best of intentions, which itself is in question. Think BT, and any company that’s been mauled by the PE sharks. The chance of a default increases with time, so consider how long it will be until you will even draw your pension, let alone your life expectancy. When you factor in the 10% hair cut required by the PPF, DB CETVs look even more appealing.

But it is certainly NOT for everyone, because for it to make sense you need to be prepared to manage your fund yourself, or at least transfer it into your current employer’s GPPP. I used a local IFA to facilitate my transfer into my SIPP, cost £500 flat fee I think.

The key thing for me is the probability of the company that “owns” the fund defaulting on their obligations, a la BHS.

Luckily the Pension Protection Fund underwrites all DB schemes….

…less 10%

I think I should stick my 2p’s in here.

I worked for a company that folded last year, partly due to an £85 million shortfall in the pension. The pension liabilities have gone to the PPF and are now on a more secure footing than they were.

So much so that a colleague had his figures for early retirement before the business closure; and has now retired on a much better deal from the PPF than he got when the business was a going concern.

The received wisdom is that moving from a DB scheme is madness. Having been in the middle of such a situation I would agree with that view.

I moved my DC pension fund with a couple of signatures, and the cash figure there was 3 times the DB limit; what does that tell you?

This hurdle is to prevent you making a far reaching mistake without really making you think about it. But it sounds like you are going to do it anyway.

Ho hum.