Transferring in to final salary pension

Darkstar

My company allows us to transfer cash from our old defined contribution schemes in to our new final salary scheme. Unfortunately since we all received our quotes and agreed the transfer value the market collapsed and the cheques received have been 40% down on what we were expecting. Therefore the equivalent years we were quoted have been similarly reduced. What options do we have if we now say no or would that be stupid now we have gone so far and just take a poorer deal but better than we may get in the future.

dunstonh

You will probably find the old scheme wont take the money back. However, it can be transferred to another money purchase scheme (SIPP, stakeholder or PPP). So, if you want to wait out a recovery then that may be the option for you.

MikeJones_2

Hi Darkstar,

Even in today's market conditions, 40% is a substantial drop. Out of curiousity and to be able to comment any more:

(1) how did you decide upon the merits of transferring-in from the defined contribution scheme to the defined benefit scheme (e.g. did you seek out and receive advice and if so from whom)?

and

(2) what were the timescales involved? (e.g. (i) date you requested the DC quote, (ii) date you received it, (iii) date you were given the transfer-in credit details to the DB scheme, (iv) date you signed the forms to transfer and (v) date the DC money was transferred over).

One further point to factor-in, is that with effect from 1st October 2008, new regulations came into being concerning the calculation of transfer values. From that date trustees of defined benefit schemes have had the responsibility to decide how transfer values are calculated. Previously, it was the responsibility of the scheme actuary (and particular regs such as GN11 - technical stuff that you don't really need to know about).

Transfer values for people considering transferring-out of defined benefit schemes have generally got higher because of the new rules (mainly to do with increased life expectancy), but I'm wondering whether this might have also been a contributory factor in your situation given you are transferring-in (I don't know here, but I could try to find out).

Mike Jones

I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

Darkstar

(1) how did you decide upon the merits of transferring-in - I made the decision myself. The offer seemed very good and since my transfer value was relatively small, less than £10K, I did not think I had much to lose personally. The original offer took my fund I had been paying in to at 3% for two years and offered 1 year 250 days, I am now offered 1 year 5 days.

(2) what were the timescales involved?
(i) date you requested the DC quote - April 2008
(ii) date you received it, - July 2008
(iii) date you were given the transfer-in credit details to the DB scheme, July 2008
(iv) date you signed the forms to transfer - July 2008
(v) date the DC money was transferred over - Oct 2008

P.S. It is not really my transfer I am worried about but my colleagues seem to think I know something.

One other point is because the transfer quote I received in Aug was so good I submitted a second transfer for a similar fund and it is nearly completed as well.

MikeJones_2

Hi Darkstar,

The timescales don't look unreasonable, so I suspect you have just been a victim of unfortunate timing due to stock market conditions. The reason I'd asked those questions was to see if there had been any significant delays in (a) providing information and (b) transfer of monies. Three months for each is not unreasonable by current standards.

The fact that you decided to transfer without taking advice means that you suffer the consequences without any potential recourse. In fact, even if you had taken advice, so long as the relevant warnings had been clearly spelled out, there would be little merit in seeking redress under the circumstances that you have pointed out.

As I see it you have these courses of action:

1. Proceed and accept the reduced offer.
2. Ask if the transfer can be rolled back and you be placed in the original position that you were beforehand (unlikely, but worth a try with a suitable explanation).
3. Proceed with the transfer but ask if the DC money can be ringfenced, invested in a suitable account within the framework of the DB arrangement and await a more favourable time to buy the added years. There is a risk here that 'a more favourable time' never occurs. (This would be subject to scheme approval and might be complicated by Scheme Rules and HMRC Rules).
4. As dunstonh has said, you could look to see if you can transfer immediately to another registered pension scheme (such as a personal pension plan) and either wait/hope for markets to recover.

Is there a timescale for the transfers to be permitted to buy added years? Some defined benefit schemes, for example, will only permit transfers-in within an agreed timescale (such as within 12 months of you joining the DB scheme).

I really think that you should seek advice from an IFA that is a pensions specialist (one with particular expertise in defined benefit schemes and transfers). There could be other alternatives that we've not mentioned above, and of course we don't know much about your personal situation (salary, pensionable salary, scheme accrual rate, NRD, etc).

I'd be interested to know what you do though, if you care to share that with us in the future.

Hope this helps.

Mike Jones

I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

jamesd

Darkstar, the three month delay between signing the forms and getting the money is outrageously long in a falling market, even if as Mike Jones has written it's an accepted timespan at present.

It seems clear that if there's no deadline to do this then it is likely to be best to delay purchasing more time in the defined benefit scheme.

The ringfencing approach would be a fair idea if it's acceptable to the scheme administrators. It would certainly be of general use to reduce time uncertainties for scheme members now and in the future.

If it was me and there's no deadline or ringfence, I'd be immediately acting to cancel any planned transfers before they happen.

Darkstar

I accepted their offer and just thought I would post my reason. Markets can go up as well as down, who is to say if this is the bottom or not. The offer on the table is actually still good, just not as good as it was 3 months ago. So if I had not seen the previous offer I would probably still have been doing cartwheels. Also it was not a lot of money in the big picture of retirement funds, unfortunately some of my colleagues have lost a lot.

Debt_Free_Chick

Darkstar wrote: »

I accepted their offer and just thought I would post my reason. Markets can go up as well as down, who is to say if this is the bottom or not. The offer on the table is actually still good, just not as good as it was 3 months ago. So if I had not seen the previous offer I would probably still have been doing cartwheels. Also it was not a lot of money in the big picture of retirement funds, unfortunately some of my colleagues have lost a lot.

Look at it this way ...... if you had left the DC (money purchase) pot where it was, it was only worth 40% of what it was when you first had the quote. So your choice was ..... a 40% reduction in your DC pot or a 40% reduction in your added years. Essentially, each is worth the same as the other.

You can't buy the same for less - if you see what I mean (ignore shopping around or BOGOF deals, as they were not options open to you in this situation!).

Your DB plan is in exactly the same position as you were - they receive 40% less and then assume it will grow by x%. If you had left the DC pot where it was and then assumed future growth of x% until retirement, you would have expected the pot to be worth less at retirement than your previous projection, before it fell in value.

Hope this makes sense