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    • pip895
    • By pip895 22nd Sep 17, 10:16 AM
    • 363Posts
    • 186Thanks
    pip895
    Transfering DB to SIPP
    • #1
    • 22nd Sep 17, 10:16 AM
    Transfering DB to SIPP 22nd Sep 17 at 10:16 AM
    I know this subject has been done to death and the consensus view is "DONT DO IT" but I am seriously considering it anyway. I am 55 and semi retired.

    The policy concerned was worth a fairly poultry £5000/anum when I left the employment back in 2002 but is now worth £11000 and when I get to 65 will start giving me an income of around £18,000 increasing at the rate of just under 5%/anum.

    The transfer value of the policy was £162,000 in 2011 but has escalated to a whopping £483,000 today. I can only see this figure going down from here with interest rates beginning to rise?? So if I want to transfer I think now is the time.

    Putting the figures in to a spreadsheet allows me to calculate that if I were to extract the money and sit it in a bank account without interest – then pay out at the rate of the payments I would have been due under the policy, I would run out of money age 79. If I were to get 3% interest on the money it would last me to 89 and at 5% it would last me to 105 at which time I would be receiving a rather impressive sounding £125k/anum.

    The concern for me is inflation. If this policy were index linked we wouldn’t be having this conversation – It would squarely tick one of my concern boxes and I would leave well alone.
    I could take the money and annuitize it. Initial enquires seem to suggest that I could get an index linked income of £10k starting now which would actually be quite useful, or I could just add it to my SIPP with all its potential IHT advantages – or do a bit of both perhaps.

    Other pertinent points – I am married and have a teenage daughter (OH is a fair bit older than me and already drawing his state pension). We own our own home, have a rental property and are mortgage free. Total other assets (SIPP’s ISA’s, savings accounts etc in excess of 1 million). We don’t however have any other DB pensions or annuities.

    Should I start down the road of getting the advice necessary to do this? It seems a rather expensive process - I have been quoted £1500 for an initial consultation + just under 1.5% of the transfer value. Seems extortionate but I’m not sure there is a way around it.
Page 2
    • pip895
    • By pip895 22nd Sep 17, 9:40 PM
    • 363 Posts
    • 186 Thanks
    pip895
    Pip, I'm in a similar situation to you.......retired, 56, no mortgage, with rental property and substantial investments.....and I have a DB pension. With the rent and the pension I cover expenses and it's a great feeling because I can take lots of risk with my investments and not worry if the markets fall because my income comes from elsewhere. In your situation, and being married then if there is any survivor benefit the DB pension might actually be a nice option.

    Your joint life expectancy is probably past 90 so why not keep the pension and "swing for the fences" with the rest of your money. You'll have nice regular income from the pension, rent and eventually state pension. Think of the DB pension as your fixed income allocation and go 100% equities in the ISA and SIPP.

    PS I also share some of your skepticism about financial advisers.
    Originally posted by bostonerimus
    Out of interest is your DB pension index linked? If mine was then I would be keeping it but its not, so that aspect is not covered. I did notice that people who joined my scheme a few years after me have their pensions index linked but only up to a maximum of 5% - I don't know how common that sort of stipulation is - I am much luckier with my straight 5%.

    The one thing that is staying my hand a bit is the difficulty in finding low risk investments that I like at the moment. The idea of considering the DB as the fixed interest portion of my portfolio is quite appealing.

    The lack of flexibility and control on the other hand..
    • pip895
    • By pip895 22nd Sep 17, 9:54 PM
    • 363 Posts
    • 186 Thanks
    pip895
    If interest rates stayed the same, your CETV would continue to rise simply because you are getting older and it is getting closer to being paid. Other things that might make it rise are increases in inflation.
    Originally posted by sandsy
    Just wondering, why would the CETV go up as the time to retirement reduces?

    Wouldn't inflation make their liability lower and so reduce the CETV even if it didn't come with a rise in interest rates??
    • Linton
    • By Linton 22nd Sep 17, 10:19 PM
    • 8,338 Posts
    • 8,229 Thanks
    Linton
    Just wondering, why would the CETV go up as the time to retirement reduces?

    Wouldn't inflation make their liability lower and so reduce the CETV even if it didn't come with a rise in interest rates??
    Originally posted by pip895
    The calculation of CETV will assume an investment return above inflation so as retirement approaches there is less time for the investments to increase in real value. Therefore the scheme must allocate more capital to provide the pension.
    • bostonerimus
    • By bostonerimus 22nd Sep 17, 11:19 PM
    • 976 Posts
    • 502 Thanks
    bostonerimus
    The calculation of CETV will assume an investment return above inflation so as retirement approaches there is less time for the investments to increase in real value. Therefore the scheme must allocate more capital to provide the pension.
    Originally posted by Linton
    If the OP's numbers are correct; age 55, CETV 483k, pension now 11k no indexing but let's assume some survivor benefit so set life expectancy at 40 years.......even then the discount rate works out to less than 0%, which is ridiculous. There's something weird with these numbers.
    Misanthrope in search of similar for mutual loathing
    • bostonerimus
    • By bostonerimus 22nd Sep 17, 11:24 PM
    • 976 Posts
    • 502 Thanks
    bostonerimus
    Out of interest is your DB pension index linked? If mine was then I would be keeping it but its not, so that aspect is not covered. I did notice that people who joined my scheme a few years after me have their pensions index linked but only up to a maximum of 5% - I don't know how common that sort of stipulation is - I am much luckier with my straight 5%.
    .
    Originally posted by pip895
    My DB pension is index linked, but there is a cap of 3%.

    Looking at your numbers the CETV of 483k and the pension of 11k at age 55 seem very strange to me.....they are using a negative discount rate or assuming modern medicine will allow you to live of another 100 years rather than 40 or 50.
    Misanthrope in search of similar for mutual loathing
    • pip895
    • By pip895 23rd Sep 17, 12:03 AM
    • 363 Posts
    • 186 Thanks
    pip895
    The 11k is the value they quoted in the statement at the beginning of this year. When I start getting the pension at age 65 this figure will have increased to 18k and it keeps going up at 5% per anum. Survivor benefit is 2/3 but I'm not sure if that also goes up or if its frozen - as OH is >10years older its hopefully academic.
    • bigadaj
    • By bigadaj 23rd Sep 17, 6:21 AM
    • 10,322 Posts
    • 6,621 Thanks
    bigadaj
    My DB pension is index linked, but there is a cap of 3%.

    Looking at your numbers the CETV of 483k and the pension of 11k at age 55 seem very strange to me.....they are using a negative discount rate or assuming modern medicine will allow you to live of another 100 years rather than 40 or 50.
    Originally posted by bostonerimus
    The discount rate may be negative using government bonds, however the OP has clarified this, in terms of time for access and guaranteed pension increases, which means the discount rate isn't negative but is very low.

    There's been a recent change in the law in the uk, primarily if not wholly applied to accident compensation claims and the lumps sums involved, for example after a serious car crash. This has reduced the assumed rate of return from the lump sum from something like, 2% to -0.5%, the consequences of which are being argued about, and will lead to very much increased premiums if not changed.
    • sandsy
    • By sandsy 23rd Sep 17, 9:53 AM
    • 1,195 Posts
    • 693 Thanks
    sandsy
    £11k to £18k implies 5% pa revaluation in deferment which is high for the whole amount.
    Are you sure pension increases are 5% fixed rather than 5% capped? Again this is high.
    Also 2/3rds spousal benefits is higher than the more typical 50%.

    All of these things taken together suggest that the value of the benefits is higher than normal and would go some way to explaining the CETV at a normal discount rate.

    It's also the case that the better the benefits, the harder it is to show that a transfer is in your best interests.
    • pip895
    • By pip895 23rd Sep 17, 11:09 AM
    • 363 Posts
    • 186 Thanks
    pip895
    £11k to £18k implies 5% pa revaluation in deferment which is high for the whole amount.
    Are you sure pension increases are 5% fixed rather than 5% capped? Again this is high.
    Also 2/3rds spousal benefits is higher than the more typical 50%.

    All of these things taken together suggest that the value of the benefits is higher than normal and would go some way to explaining the CETV at a normal discount rate.

    It's also the case that the better the benefits, the harder it is to show that a transfer is in your best interests.
    Originally posted by sandsy
    I have rounded the figures - it actually works out at 4.93% increase as a small amount of the total only goes up at 3%. The figures work out - I have checked previous statements and they are in line. If OH was younger the 2/3 benefit would be a consideration.
    • AlanP
    • By AlanP 23rd Sep 17, 12:48 PM
    • 939 Posts
    • 648 Thanks
    AlanP
    Personally I would retain the DB, a 4.93% increase each & every year is a great deal.

    I have a deferred DB with 0% increase each year on the "no statutory increase" portion once in payment, so might get 1/4 of whatever the inflation rate is in reality.

    That one I am looking at transfer possibilities, but am still not 100% convinced.
    • pip895
    • By pip895 23rd Sep 17, 1:27 PM
    • 363 Posts
    • 186 Thanks
    pip895
    I agree it is a great pension - it also has a great transfer value though and one that has gone up 200% in the last 6 years!

    If I could get an average income/growth of 5% from the SIPP over the next 30 years - then I would be better of with the SIPP even if I live to 100! That's taking exactly the same escalating pension.

    Of course we could be in for thirty years of poor stock market returns and Japan style deflation worldwide. In which circumstance I might run out of cash in this pot much earlier. However I would have control and could for instance not increase the amount I withdraw each year.

    If interest rates return to historic norms and or we get a period of high inflation - I would be much better off having the flexibility to take advantage. My bet is that the latter scenario is more likely - of course I might be wrong, but if I am I'm still unlikely to be on the bread line.
    • bostonerimus
    • By bostonerimus 23rd Sep 17, 1:50 PM
    • 976 Posts
    • 502 Thanks
    bostonerimus
    With 483k you could buy a joint life time annuity at age 55 of 18k a year. Again the current CETV and the pension at age 55 don't seem sensible. If you can get 483k and are conservative an annuity looks like a better option than the pension. Also you might consider taking the CETV and putting it in a savings bond ladder which will give you around 2% at todays rates and you'll be able to take advantage of any interest rate increases as the bonds mature. You might also think about a ladder of fixed term annuities. This you be your fixed income allocation and go 100% equities with the rest of your portfolio.
    Misanthrope in search of similar for mutual loathing
    • pip895
    • By pip895 24th Sep 17, 2:36 PM
    • 363 Posts
    • 186 Thanks
    pip895
    Well I have taken a tentative first step and filled in my first "Risk Questionnaire" as the first step towards getting the advice necessary to convert the DB into my SIPP. I can confirm that it was a lot more sensible than the last one I filled in.

    I am not by any means 100% sure I will go ahead but I am certainly leaning in that direction.
    • pip895
    • By pip895 3rd Oct 17, 12:47 PM
    • 363 Posts
    • 186 Thanks
    pip895
    So far I have spoken to two advisors one over the phone and the other face to face and neither is willing to sign off on a transfer to HL, although they have indicated that they would "probably" recommend a transfer.

    Their costs are less than using the HL advisory service but by the time you add additional ongoing yearly costs (platform and advice) they work out more expensive after only one year. Is keeping control of the money a common restriction?
    Last edited by pip895; 03-10-2017 at 12:51 PM.
    • gonedownthepub
    • By gonedownthepub 3rd Oct 17, 1:16 PM
    • 77 Posts
    • 32 Thanks
    gonedownthepub
    CETV better than 5 months ago
    Hi
    Been trying to transfer my DB pension this year-missed the initial 3 month CETV window in May (for various reasons) so paid for a 2nd CETV last month and to my surprise the transfer value has increased by 26% as the scheme trustees " were keen to give members a better deal?!"
    So each scheme really has it`s own agenda depending on liabilities moving forward and long term fund sustainability.
    • dunstonh
    • By dunstonh 3rd Oct 17, 1:45 PM
    • 89,852 Posts
    • 55,455 Thanks
    dunstonh
    So far I have spoken to two advisors one over the phone and the other face to face and neither is willing to sign off on a transfer to HL, although they have indicated that they would "probably" recommend a transfer.
    HL is expensive compared to what IFAs have available. They also do not deal with IFAs. So, an IFA could not be giving best advice by using HL.

    but by the time you add additional ongoing yearly costs (platform and advice) they work out more expensive after only one year.
    Ongoing advice is optional. If you say you dont want it, they can make an appropriate recommendation on that basis.

    Is keeping control of the money a common restriction?
    There is no such restriction.

    Some FAs will have a business model that is totally built around ongoing servicing. However, IFAs cannot insist upon it. Although expect a different recommendation if you do.
    • Malthusian
    • By Malthusian 3rd Oct 17, 4:15 PM
    • 3,077 Posts
    • 4,466 Thanks
    Malthusian
    Their costs are less than using the HL advisory service but by the time you add additional ongoing yearly costs (platform and advice) they work out more expensive after only one year. Is keeping control of the money a common restriction?
    Originally posted by pip895
    If the adviser doesn't know what the pension's going to be invested in then the advice to transfer out is automatically unsuitable. This point has been established repeatedly in past Financial Ombudsman cases.

    So any adviser is taking a massive risk by recommending a transfer, or just signing off on one, if they don't have control over what the money will be invested in at the other end.
    • soulsaver
    • By soulsaver 3rd Oct 17, 4:36 PM
    • 1,377 Posts
    • 466 Thanks
    soulsaver
    I transferred a similar amount last year.. I paid £2500 including initial consultation - which was in effect free - no ongoing advice charges.

    I've helped several others after watching them being told the same justification from the interested parties on here.

    PM me if you want the detail - I'm not commercially connected with the IFA ... but it isn't as easy as just ringing up.

    And I found more than one who would do it at that price.

    Here is one thnx in my PM in-box now..

    "Thanks for your help.

    It all went fine, we paid £2500 for the signatures of the IFA. The CETV arrived in the SIPP last week.

    I did the transfer myself as it seemed less open to fraud.

    Ta"
    Last edited by soulsaver; 03-10-2017 at 4:59 PM. Reason: Added "no ongoing advice charges."
    There are 24 bottles of beer in a crate. There are 24 hours in a day. Coincidence? I think not....
    • soulsaver
    • By soulsaver 3rd Oct 17, 4:42 PM
    • 1,377 Posts
    • 466 Thanks
    soulsaver
    And see here for more competitive advice:
    see posts #23 and note post #24..

    http://forums.moneysavingexpert.com/showthread.php?t=5606039&page=2
    There are 24 bottles of beer in a crate. There are 24 hours in a day. Coincidence? I think not....
    • pip895
    • By pip895 3rd Oct 17, 9:19 PM
    • 363 Posts
    • 186 Thanks
    pip895
    HL is expensive compared to what IFAs have available. They also do not deal with IFAs. So, an IFA could not be giving best advice by using HL.
    Originally posted by dunstonh
    The figures I was given were for Standard life and they were more expensive than the deal I have with HL?? Then I had to pay another 1% ongoing fee to them, for ongoing advice.

    Ongoing advice is optional. If you say you dont want it, they can make an appropriate recommendation on that basis.
    Originally posted by dunstonh
    Interesting so they would for instance say that the move was "too risky" if I was self managing... Could I still take that report to HL and say "I've taken advice but I have decided to ignore it" or do you have to go with the advice? I have a feeling you do in practice as I seem to remember HL saying that if their advisors were against the move then they wouldn't accept the transfer.

    Alternatively could I go along with the advisors suggestion and get a positive recommendation to move but at the last minute divert the money to HL? Would HL be allowed to accept the money even if the recommendation was for it to go to Standard Life?? Or in practice would the DB pension people veto any such move.

    The final option is to let the transfer go through to SL and then promptly turn round and say I want to transfer to HL. Seems messy though and there might be charges to do it.

    It might be a small percentage of the total monies but I think £4000.00+ is worth fighting for.
    Last edited by pip895; 03-10-2017 at 9:24 PM.
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