Conversation with IFA about DB transfer

kidmugsy · 16 September 2017 at 3:29PM

You've missed the crucial point of a DB pension. It's insurance against outliving your money. Talking about age 83 is all very well but what if she lives to 105?

jamesd · 16 September 2017 at 3:37PM

martin1959 wrote: »

Currently have a DB pension that would now give me £1000 pm pension, or £44k and reduced pension of £660 pm. If we went down this route I would take the cash and reduced pension.

Offered CETV of £290k.

My plan is to take max tax free cash £75k and use as deposit for Buy to Let flat PP £200k. Each year take make lower tax wdl from pension fund £35k (I earn £5k pa from part time job - and yes I know there will be a £6k tax liability) and pay £30k off of mortgage.

Using the method of the outdated 4% rule, average investment performance would give a withdrawal rate of 6.5% of the pot in the US, ignoring costs, so about £18,850 a year. Going below that is to handle the bad cases.

If you're willing to be flexible on income the transfer offers you the potential to retire earlier and on more money, subject to the risk of possibly dropping lower than the DB pension if investments do unusually badly while you're retired. The transfer option provides a 100% spousal pension. State pension deferral is typically a good value for money way of dealing with long life cases, with ten years of deferring taking it from the common 8k to 12k.

Reducing the mortgage doesn't look like a good move because you should be able to make 10% after allowance for bad debt from secured P2P lending. So any mortgage overpaying makes you worse off.

You can use a residential mortgage secured on your own home for the BTL and still deduct the interest as long as that's permitted. Usually lower interest rates that way.

You can do a bit of VCT buying to get rid of the income tax liability if you're willing to wait five years before getting at most of the money spent on the VCTs.

Experiment with cfiresim and see what it says. With the state pensions to come you'll probably be pleasantly surprised.

Terron · 16 September 2017 at 8:38PM

martin1959 wrote: »

Rent for property will almost certainly rise with inflation due to the constant demand outstripping supply.

I have just had to drop the rent on the flat that was my former home from £975 to £850pm, after a 2 month void. Locally demand has dropped off just as supply has increased.

You may be right long term, but I wouldn't want to risk my livelyhood on a single property.

martin1959 · 17 September 2017 at 11:07AM

kidmugsy wrote: »

You've missed the crucial point of a DB pension. It's insurance against outliving your money. Talking about age 83 is all very well but what if she lives to 105?

That was an idea of how long she would need to live, drawing the DB pension before she 'won'.

If she lived to 105 then she would still be receiving the rent from the property, and said property would probably be worth in excess of 500k based on the past 45 years......

If the DB pension was insufficient it would be tough. If the rent from the property was not sufficient then at some point she could always sell it and invest the sale proceeds.

Of course there is always the possibility of a void period for a rental property, but in our area you can always take a lower rent (normally about 10% below market) and secure a local authority guaranteed tenancy (assuming the property has at least two bedrooms)

Of course anything is a risk, but as we will unlikely be dependent on her DB pension due to inheritances etc, I think leaving and drawing a DB pension is a bigger gamble, if you are concerned about leaving money to children. Live to 90 then you probably win....but who knows....

As I have always said, I would rather live to 90 and be poor, than die at 70 rich......

normanna · 18 September 2017 at 9:31AM

Thanks to all for their comments so far. Always good to get a wide range of views on something this important.

We thought long and hard about whether we should transfer before even seeing a financial adviser - he is an IFA. The meeting was for an initial discussion prior to transfer and he has been used by a number of colleagues and he was recommended. We both work in the Financial Industry and have a mix of other investments of around £500k which we manage ourselves so whilst we are absolutely not pension experts I wouldn't be called naive.

I have taken a decent redundancy package and will no longer be contributing to my DB pension and my husband is looking to retire at 55 which is 4 years away. If we both take the DB at 55 with 15% actuarial reduction the pensions would be £23k and £20k so to us the transfer values become increasingly attractive.

The IFA didn't really add to the risks we'd thought about ourselves but we did discuss them more fully. He has said he 'approves' what we want to do but wants the £13k as the charge for advice as the next step and to do the transfer then 1.48% annually. We were looking for someone to sign off on the advice at a reasonable cost and perhaps manage in a portfolio ourselves but I'm not adverse to taking ongoing advice for a fee.

We thought the initial charge was too much and seemed greedy which put me off him. I asked and he confirmed we would not be tied in and could move elsewhere after the transfer. I have read about a lot of pension providers needing to see the advice before accepting a DB transfer. I think we will speak to some other IFAs.

bostonerimus · 18 September 2017 at 12:43PM

I like that you will be taking other advice. I have a question abut your pension values. Do you know the discount rate used in the calculation......a present value of 900k and a pension of 23k implies a very low discount rate. Also what life expectancy is being used, is it index linked and what are the death benefits? Do you have those numbers?

atush · 18 September 2017 at 1:54PM

Charges are Far too high.

And trackers are fine for part of your portfolio.

Run a mile from this guy

martin1959 · 18 September 2017 at 9:40PM

The charges vary, but I have been advised by a friend (who has no axe to grind as he does not get personally involved in CETV's) that the average cost for advice tends to be around 2-3% of the fund being transferred, with ongoing charges levied by the pension provider.
This seems high, but advisors have to have indemnity insurance in case a client sues at a later date, and by all account, the premiums are very high.

I did enquire with one Company, Tideway, who charge 1% of fund being transferred, but want to invest and manage in their own funds, at a further 1% per year. I declined their service.

I have settled on a IFA who has agreed to add their £500 initial advice fee to an agreed end of transfer fee. In total just under 2%.

bostonerimus · 18 September 2017 at 10:50PM

The whole requirement to get an IFA to sign off on a DB transfer really annoys me. I can see how this is supposed to protect the customer, but in many cases it seems like a way to hold the transfer hostage and extract high fees with the excuse that the IFA might get sued for bad advice. For people who can DIY this is a really bad deal and amounts to a completely unnecessary extra tax.

kidmugsy · 19 September 2017 at 12:06AM

normanna wrote: »

then 1.48% annually

Good grief. That could easily be 40% of your income going to him, only 60% to you. Just say no.

Conversation with IFA about DB transfer

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