Pension Transfer

Barnetboy

Typical newby question so be gentle with a first time user!

After 27 years in a final salary company scheme my (recently ex) employers are trying to reduce the number of members in the scheme. I have been offered an enhanced transfer value of around £345,000. The company have used an IFA to look into my pension for free and have recommended moving to a Standard Life SIPP (told them I didn't want to be too hands on).

I have about another £60,000 in FSAVCs that I could transfer at the same time. I'm 47, self employed and looking to retire at 55.

Any thoughts? Other than see another IFA for a long chat?

dunstonh

have recommended moving to a Standard Life SIPP (told them I didn't want to be too hands on).

So, why are they recommending an experienced investor option for someone that wants direct investments and more control of their investments. i.e. being hands on.

Personally, I dislike the Std Life SIPP. Every time I come across one I suspect mis-sale. It was a product that allowed abuse and whilst that doesnt mean all of them are, it has got that reputation.

Other than see another IFA for a long chat?

I think that is the best option.

The Std Life SIPP is not the best SIPP. It is not the cheapest pension. It doesnt do anything that cannot be bettered by another provider or pension type. So, unless they can come up with some pretty strong reasons why its best, I would get a second opinion.

Barnetboy

I believe the view was that a SIPP would get higher returns than a bog standard Stakeholder or Private Pension.

The quandry is whether to leave a previously successful pension (my ex-employers have a funding black hole) and go private. Will the short term enhancement invested 8 years before potential retirement be better than staying put in the long term.

The wider picture is that paying an IFA is sensible when such a large amount is at stake.

Thanks for the input though.

MikeJones_2

Hi Barnetboy,

Have you had a transfer value analysis (TVAS) done by the IFA that you saw? This will do a significant number of things, including but not confined to:

1. It will estimate what your pension benefits will be at your Normal Retirement Date (and probably an earlier retirement date too - as an alternative).

2. It will compare the estimated death benefits (lump sum and pension) as if you died now, sometime in the future as well as just before your Normal Retirement Date (NRD).

3. It will compare which alternative would give you the highest cash lump sum at retirement - and the residual pension.

4. It will highlight pension increases before your NRD (revaluation); pension increases after payment commences (escalation).

5. Highlight any contracted-out benefits and how these are paid, and what guarantees are attached.

6. Extraneous benefits such as what is available should you suffer ill-health before your NRD, any 'perks' you might get if you stay in the scheme (XMAS hamper when you're a pensioner; discounted goods from your former employer if you remain a scheme member).

There are dozens of other factors to consider (e.g. is the scheme in deficit? what is the financial stability of the sponsoring employer?) and you need to sit down with an IFA who is an expert in defined benefit schemes and has experience is analysing the transfer options.

If you don't mind me asking have you already had a TVAS, what was the 'critical yield'?

Hope that helps?

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a 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.

vbm

On the face of it, I cant imagine how an IFA could recommend a transfer unless the critical yeild is <5%. Or this is a tiny proportion of your retirement funds and you have indicated that you wish to take a high risk approach.

8 Years to retirement, well under the cap for PPF benefits, annuity rates likely to fall (my opinion).

You cant invest in really agressive funds because you have less than 10 years to you desired retirement age, if the company went bust you would still maintain much of your pension. Why take the risk, when you have guaranteed benefits, hwere you are.

Really struggling to see how this could ever be considered good advice. Roll on the RDR....

dunstonh

I believe the view was that a SIPP would get higher returns than a bog standard Stakeholder or Private Pension.

Think of the pension as a container. It doesnt matter which container you use. The container has no performance. It just holds the investments. The stakeholder has basic investments although some of the low risk funds of the insurance companies can be quite good (generically, insurance companies tend to better at low risk than they are with equities). Personal pensions are the middle ground and allow mix and match of stakeholder and external funds and can typically be the cheapest option. SIPPs are typically the most expensive option for funds.

So, you have the following issues

1 - you are not hands on yet you are being recommended a product that is designed to be used by someone hands on.
2 - that product and provider is not known to be low cost. So, how much are those extra charges impacting on the critical yield
3 - what is the critical yield?

I am currently sitting on the sceptical side of the fence.

Barnetboy

Thank you all so far; further re-reading of the small print I discovered that the enhancement to transfer is an increase of 23% and also Standard Life is their default (their words) provider as there is a group deal to get management fees down to 0.23%.

The more I read in to it the more confused I get. It seems as though 23% is a huge increase in transfer value that would take a while to outperform.

MikeJones_2

Hi Barnetboy,

A quick word of caution on the 'enhancement'. You need to establish if this is a true enhancement.

If the scheme is fully funded or in surplus then you would expect to have a full transfer value (e.g. 100%). If this is your situation, then your transfer value should be 123% of the normal Cash Equivalent Transfer Value (CETV).

If the scheme is in deficit (i.e. where the scheme's liabilities exceed assets) the transfer value may be reduced below 100%. If this is your situation and for example, the CETV is reduced to say 80% of its normal value, then a 23% enhancement will take the total transfer value up to 103% (80% + 23%).

I mention this because the Pension Protection Fund's latest figures out today (14/09/2010) from a universe of 6,653 defined benefits schemes shows the proportion in surplus and in deficit:

Schemes in deficit (surplus)

Number of schemes in deficit

5,236 (August 2009)
4,167 (July 2010)
4,701 (August 2010)

Deficit of schemes in deficit

£153.8bn (August 2009)
£64.3bn (July 2010)
£105.3bn (August 2010)

Number of schemes in surplus

1,417 (August 2009)
2,486 (July 2010)
1,952 (August 2010)

Surplus of schemes in surplus

£29.0bn (August 2009)
£70.9bn (July 2010)
£51.8bn (August 2010)

Source: Pension Protection Fund 7800 Index

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a 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.

dunstonh

Thank you all so far; further re-reading of the small print I discovered that the enhancement to transfer is an increase of 23% and also Standard Life is their default (their words) provider as there is a group deal to get management fees down to 0.23%.

When you say management fees down to 0.23%, can you clarify what that means. Std Life have a range of funds on offer (like all SIPPs) and the annual charges depend on the funds chosen. Is that 0.23% on top of the normal fund charge?

The more I read in to it the more confused I get. It seems as though 23% is a huge increase in transfer value that would take a while to outperform.

23% is a big incentive but is it available regardless of where you transfer it to?

Has the transfer been costed and compared to how much if it was left where it was?
Is the final salary scheme being fully wound up or is this just an attempt to bribe you into leaving but you dont have to if you dont want to?