S38 buyout pension

Rwoolley99

My partner has a section 38 buyout pension and would like to take advantage of the new pension changes. However, the fund is underfunded she is told and therefore a cash lump sum is not available. When approaching Scottish widows they say that they cannot do anything unless they have confirmation that she has sought independent financial advice. Two ifa's have been consulted, one wants 3-4% of the fund value to transfer the s38 pension to a flexible drawdown, another wants £500 to look at the feasibility and a further 2-3% to carry out the transfer. Of the latter I asked if they would quote on an hourly rate, no response.

Clerical medical hold the funds and have quoted a value of some £97k as a xfer value. As I believe they have lost money on this pension they appear unhelpful as in my mind it would cost them money.

What is the position regarding this type of preserved pension? Can it be converted to a flexible drawdown as my partner wishes? If it is possible (and one ifa says it is) how can this preserved pension be converted to a flexible drawdown without a massive cost from an ifa.

Any input would be most helpful.

Regards

Richard

TH1878

Rwoolley99 wrote: »

What is the position regarding this type of preserved pension? Can it be converted to a flexible drawdown as my partner wishes? If it is possible (and one ifa says it is) how can this preserved pension be converted to a flexible drawdown without a massive cost from an ifa.

a) Yes, it is possible.

b) This is not a massive cost for this type of business. You need an adviser with a specialist qualification (G60 / AF3) who will need to conduct thorough research and provide a comprehensive report.

The report will most likely say it is not in her best interests as the capitalised value of the ongoing pension is likely to far outweigh the transfer value.

Of the advisers you have spoken to, I would go with adviser B because adviser A is saying he will only get paid if he transfers it - guess what course of action is in his best interests!

Can you not pay adviser B the fee of £500 (which is cheap) to provide a report and then use this as proof she has received advice before transferring it to a D2C SIPP?

dunstonh

a section 38 buyout pension

I suspect you mean section 32 buy out bond.

However, the fund is underfunded she is told and therefore a cash lump sum is not available.

It is not so much that the fund has likely underperformed but more that the required growth rates, whilst normal in past decades (high inflation/high growth) dont match for what we have considered normal for the last 15 years (low inflation/low growth).

When approaching Scottish widows they say that they cannot do anything unless they have confirmation that she has sought independent financial advice.

This will be because it has safeguarded benefits with consequences if lost. GMP (guaranteed minimum pension) and possibly a GAR (guaranteed annuity rate).

Two ifa's have been consulted, one wants 3-4% of the fund value to transfer the s38 pension to a flexible drawdown, another wants £500 to look at the feasibility and a further 2-3% to carry out the transfer. Of the latter I asked if they would quote on an hourly rate, no response.

Most consumers do not like hourly rates. They prefer a figure that is known rather than one that is unknown. So, many IFAs dont have a published hourly rate. Plus, with a S32 buy out bond, you may well be better not having an hourly rate. The work is bitty and requires very many stop/starts whilst you wait for information. In timing blocks, you would find it could work out quite expensive.

As I believe they have lost money on this pension they appear unhelpful as in my mind it would cost them money.

I have never known Clerical Medical have any opinion on a S32 to cause them to work differently. They cannot provide advice or opinion and they are prevented by regulation from acting differently.

CM would be financially better off if you transferred out. So, it is not logical to think that they are blocking it for their own interests.

What is the position regarding this type of preserved pension?

Exactly what you have been told. You need an IFA to sign off on it.

Can it be converted to a flexible drawdown as my partner wishes?

If an IFA agrees to it yes.

There is a problem at the moment that firms are being encouraged not to transact business where the advice is not to transfer it. This is largely because the ombudsman tends to take the position that you knew it was wrong and therefore shouldnt have done it even if the client wanted. There is a lot of debate going on and advisers and providers are increasingly pulling out of doing business for insistent clients.

If it is possible (and one ifa says it is) how can this preserved pension be converted to a flexible drawdown without a massive cost from an ifa.

The cost of an IFA is in the advice. Not the product. If you dont get advice, you cant do it.

What benefits are they giving up? For example, what levels of GMP are there? Has your partner considered the loss of indexation (which could be via the state pension and/or pension)? Has your partner worked out the required level of growth to make up the loss of the guarantee and provision of benefits?

You say your partner wants to do drawdown. So, one assumes they know the answers to those questions as they are vital in any consideration to do drawdown.

TH1878

dunstonh wrote: »

There is a problem at the moment that firms are being encouraged not to transact business where the advice is not to transfer it. This is largely because the ombudsman tends to take the position that you knew it was wrong and therefore shouldnt have done it even if the client wanted. There is a lot of debate going on and advisers and providers are increasingly pulling out of doing business for insistent clients.

This is very true. I've obviously not seen the specifics of this case but I suspect my advice would be to keep it where it is.

I wouldn't be transferring this on an insistent client basis and I definitely wouldn't be haggling on fees for it either - I'd rather let some other adviser take the liability.

TH1878

Right on cue:

http://m.professionaladviser.com/professional-adviser/news/2412032/fca-unveils-three-step-process-to-deal-with-insistent-clients

dunstonh

TH1878 wrote: »

Right on cue:

http://m.professionaladviser.com/professional-adviser/news/2412032/fca-unveils-three-step-process-to-deal-with-insistent-clients

That is half the problem. Just need the FOS to confirm their position now as that is the one that causes most of the concerns.