Moving from DB scheme

pensionsnewbie

Sorry posted this in the wrong section - sorry bit of a newbie!

I have a frozen private pension of (frozen since 2000) with a transfer value of £500k and an estimated pension payable of £15k at age 60yrs.

I also have another final salary public sector pension also estimated to be c£15k when I am 60yrs.

I am single with a teenage daughter going to uni and will shortly be 55years. I am a 40% taxpayer. I want to move my private pension into a DC scheme so I can access funds. My intention is just to take the 25% tax free lump sum to fund uni exps, house renovations and pay some of mortgage and will drawdown the rest when I retire in 5 _ 8years time,

I have seen a financial adviser who accepts that I want to release funds so they are accessible to my child if anything happens to me.

However he has recommended a fund, which if you take account of his 2% set up fee £8k, plus a monthly management fee of.75% plus fund managers fees we are looking at 4% in the first year just in fees alone.

I am worried costs will outweigh growth.

I am looking for a low risk, low cost DC pension plan - thoughts please. Also which companies will accept a transfer from a DB to DC plan.

Thanks in advance

kidmugsy

pensionsnewbie wrote: »

a financial adviser ... has recommended a fund, which if you take account of his 2% set up fee , plus a monthly management fee of.75% plus fund managers fees we are looking at 4% in the first year just in fees alone.

Some questions:

The monthly fee must surely be a typo?

Anyway, if you are to transfer DB to DC you will have to pay an IFA. Has he offered a no-transfer no-fee arrangement?

As for funds for your daughter, why not buy life insurance?

Why do you want to pay off some mortgage now?

Do you realise that a "a low risk, low cost DC pension plan" will probably also have a low return?

pensionsnewbie

I am sure the IFA said .75% as monthly fee fee to review the investments and a yearly face to face review. This was on top of the 2% set up fee. He said the fund managers charges are variable.

My thoughts in terms of wanting to release funds from my DB pension are that to get the value of a £500K fund paying out at £15k I would need to live until 90 years plus - that's not going to happen!

Also if anything happened to me the fund is not transferable and a very small dependant's pension would be payable - until age 21yrs

My mortgage is due to be paid off aged 65yrs so wanted to overpay and bring it back to 60years.

Linton

I am rather confused as to what you are intending to do and why. Perhaps when my confusions are cleared it will be easier to make an assessment......

1) A DC scheme is an employers pension available to the workforce in which normally you and your employer pay money in and funds are bought as investments to provide you with money when you retire. A Private Pension is much the same thing except that it only involves you. So what do you mean transferring a PP to a DC scheme???? Why will this enable you to access the money?? Are you simply transferring a pension from a PP that does not support drawdown to one (or perhaps a SIPP) that does?

2) Why will releasing funds make them more accessible to your child if anything happens to you (presumably you mean you die)? In a pension they are already accessible as a cash lump sum with a 55% tax unless you take an annuity, and they will be more accessible when the rules change next April and the 55% tax is removed.

3) You want to take the 25% lump sum to fund house improvements etc (all of the £125K?) and then drawdown the rest when you retire. Are you planning to drawdown the lot as a lump sum or just take a steady income?

4) Looking at the charges 4% is a lot, but half of that is a one off charge so in following years it will be 2% which seems rather high but not outrageously so as it seems to cover everything. You could get lower costs, perhaps less than 1% by choosing the right funds, the right platform, and managing it yourself. Do you have the skills to manage a £375K investment portfolio? It would be a pretty poor investment strategy which could not on average significantly exceed 2% annually unless you are proposing to take all your money out when you retire when very low risk investments could be required.

5) Why are you looking at transferring your DB scheme? It would under most circumstances be a seriously poor financial decision, unless there were good reasons such as you being in life-threatening poor health. Without good reasons you could find it difficult to find a reputable company which would accept a transfer-in.

Linton

pensionsnewbie wrote: »

I am sure the IFA said .75% as monthly fee fee to review the investments and a yearly face to face review. This was on top of the 2% set up fee. He said the fund managers charges are variable.

My thoughts in terms of wanting to release funds from my DB pension are that to get the value of a £500K fund paying out at £15k I would need to live until 90 years plus - that's not going to happen!

Also if anything happened to me the fund is not transferable and a very small dependant's pension would be payable - until age 21yrs

My mortgage is due to be paid off aged 65yrs so wanted to overpay and bring it back to 60years.

Surely the fee is 0.75% annual payable in monthly installments. 0.75% monthly ie 9% annually just doesnt happen.

I dont understand your logic on the DB pension. It will give you £15K index linked for the rest of your life. If you transfer it as a lump sum you will be most unlikely to get anything like £500K which as you have seen from your PP is the cost of a £15K index linked pension.

You wouldnt have to live til 90 years plus to get the money back as it's index linked. After 30 years at say 2.5% inflation the £15K/year would have risen to more than £30K/year. And if you are of average health your life expectancy is around (assuming you are female) 90, so the payback time doesnt seem way out.

rpc

As an alternative to transferring out, could you take one of the pensions age 55 with an actuarial reduction? If you need the cash this might be a better way of doing it. The pension will be lower than leaving it until age 60, but it should be close to cost-neutral overall.

Of course, you'll pay 40% tax on the income from the pension which hurts.

pensionsnewbie

Thank you for your replies. Just checked, the .75% is the annual IFA fee, applied monthly in addition t the 2% set up charge.

Linton, I will respond using your numbering system.

1) The £500k is in a final salary scheme with one of the big banks which I left in 2000. The reason I mention a DC pension is that is what I thought you had to transfer into if you want to release your funds under the new rules.

2) When I talk about releasing funds for my child - I am single so don't need the option of a spouse's pension - which is obviously factored into my pension and I would hate for there to be no benefit to my family if I died before starting to draw on my pension.

3) The tax free lump sum would be used for house repairs - the balance would be left until I retire and I would draw down as and when needed probably on a monthly or quarterly basis.

4) No I don't have the skills to manage a portfolio! I just want to salt the money away in a low risk low cost home.

5) I am in good health but my mum died suddenly aged 71yrs and it has made me rethink what is important. It would be nice to have some money now to do up the house and a few nice things.

I have asked my final pension salary provider if I can access my tax free lump sum now and leave the balance in the scheme - that maybe an option?

atush

pensionsnewbie wrote: »

Thank you for your replies. Just checked, the .75% is the annual IFA fee, applied monthly in addition t the 2% set up charge.

Linton, I will respond using your numbering system.

1) The £500k is in a final salary scheme with one of the big banks which I left in 2000. The reason I mention a DC pension is that is what I thought you had to transfer into if you want to release your funds under the new rules.

2) When I talk about releasing funds for my child - I am single so don't need the option of a spouse's pension - which is obviously factored into my pension and I would hate for there to be no benefit to my family if I died before starting to draw on my pension.

3) The tax free lump sum would be used for house repairs - the balance would be left until I retire and I would draw down as and when needed probably on a monthly or quarterly basis.

4) No I don't have the skills to manage a portfolio! I just want to salt the money away in a low risk low cost home.

5) I am in good health but my mum died suddenly aged 71yrs and it has made me rethink what is important. It would be nice to have some money now to do up the house and a few nice things.

I have asked my final pension salary provider if I can access my tax free lump sum now and leave the balance in the scheme - that maybe an option?

2) if you die before taking a pension, the pension will pay out a death benefit. But your case is one in which a transfer might make sense if your children are older than 23. As there would be no one to take the survivors pension.

3)Home repairs are sensible use of the TFLS

4)Salting the money away into property is not likely to be a good idea. Esp if you have no skills in the area
(such as being a builder, in a trade, or an estate agent or quantity surveyor). Putting all your money into one, illiquid and risky asset (prices could fall, you could have bad tenants or no tenants etc) is not very low risk but is in fact high risk. If you dont want to learn investing, contract the services of an IFA to run your portfolio which will be tailored to your risk profile.

5) what did she die of? Do you have the lifestyle and risk factors for the same? Probably not.

Linton

pensionsnewbie wrote: »

Thank you for your replies. Just checked, the .75% is the annual IFA fee, applied monthly in addition t the 2% set up charge.

Linton, I will respond using your numbering system.

1) The £500k is in a final salary scheme with one of the big banks which I left in 2000. The reason I mention a DC pension is that is what I thought you had to transfer into if you want to release your funds under the new rules.

2) When I talk about releasing funds for my child - I am single so don't need the option of a spouse's pension - which is obviously factored into my pension and I would hate for there to be no benefit to my family if I died before starting to draw on my pension.

3) The tax free lump sum would be used for house repairs - the balance would be left until I retire and I would draw down as and when needed probably on a monthly or quarterly basis.

4) No I don't have the skills to manage a portfolio! I just want to salt the money away in a low risk low cost home.

5) I am in good health but my mum died suddenly aged 71yrs and it has made me rethink what is important. It would be nice to have some money now to do up the house and a few nice things.

I have asked my final pension salary provider if I can access my tax free lump sum now and leave the balance in the scheme - that maybe an option?

In your first post you said the £500K was in a Private Pension. Now you say its in a company final salary scheme. They are very very different and the change makes a great difference to what options are sensible. A transfer value of £500K for a guaranteed pension of £15K is unusually generous. Are you sure about the figures? - in a FS scheme the £15K shouldnt be "estimated", it should be known precisely at current prices with the only unknown being inflation between now and then.

If it is an FS scheme and not a PP then you would have to transfer to a PP or SIPP to get at any of the money beyond the 25% TFLS. And although normally you would probably find a transfer difficult, if the £500K/£15K figures are correct that would seem to me to be about fair value and your proposal would seem reasonable.

Also if it is a FS scheme transferring it would enable all of that money to be
available to you daughter on your demise.

Suggest you talk to your IFA about whether he could recommend a transfer in your circumstances. With his recommendation I believe, although I have no practical experience in the area, that you should be able to arrange it.

I hope you are ensuring that whatever you do you will continue to have enough money to support yourself in the style to which you have become accustomed.

pensionsnewbie

Hi Linton

Sorry I am learning fast - there is a whole new meaning in the world of pensions!

It is a finals salary scheme and the amount is actually just over £500k. I was automatically enrolled into the scheme when I was 17yrs old, not that I knew it and stayed there for 22yrs.

And yes the pension is payable at age 60yrs is estimated at £15k.

What do you think is a fair price for an IFA to action the transfer and set up a new plan?

kidmugsy

pensionsnewbie wrote: »

It is a finals salary scheme and the amount is actually just over £500k. I was automatically enrolled into the scheme when I was 17yrs old, not that I knew it and stayed there for 22yrs.

And yes the pension is payable at age 60yrs is estimated at £15k.

Would there also be a tax-free lump sum at 60?