Transferring a Defined Benefit Fund

Pincher

I wonder, if the second hand annuity market did emerge, do you pay tax? If so, is it capital gains, or income tax?


The index linked annuity from a DB scheme is inherently attractive, as the return could be really good if the annuitant lives to 99. In fact, if the administrator offers you £250k, you can bet they expect to pay more, so an annuity buyer could potentially offer more, say £270k.


Now, is the £270k tax free? If so, you would have liberated the true value of your entire pension tax free, not just 25% of it. Note that you have not drawn down a penny from the pension scheme. Too good to be true, I expect.

TH1878

Pincher wrote: »

I wonder, if the second hand annuity market did emerge, do you pay tax? If so, is it capital gains, or income tax?


The index linked annuity from a DB scheme is inherently attractive, as the return could be really good if the annuitant lives to 99. In fact, if the administrator offers you £250k, you can bet they expect to pay more, so an annuity buyer could potentially offer more, say £270k.


Now, is the £270k tax free? If so, you would have liberated the true value of your entire pension tax free, not just 25% of it. Note that you have not drawn down a penny from the pension scheme. Too good to be true, I expect.

It's not an annuity if drawn from a scheme, it's scheme pension and won't come under the new rules.

sandsy

Pincher wrote: »

I wonder, if the second hand annuity market did emerge, do you pay tax? If so, is it capital gains, or income tax?

The annuitant would effectively be capitalising future income so it would be subject to income tax. And in the same way as taking all your pension fund at once can increase your marginal rate in the year in which it's taken, I'd imagine selling an annuity would work in the same way.

jojororo

Hi,

Thanks for all the comments

I realise of course that the fee wasn't "just" to write a letter. however my thinking was that it should be a fairly quick and straight forward process...

I would meet with the IFA and explain my current situation and what I wanted to do. He would then go away do some research into where I wanted to transfer my pension to and then he would come back to me with a letter of recommendation as to whether he felt it was a good idea or not.

My (perhaps naive) view was that it would take no more than 4 hours work on behalf of the IFA. So even at an hourly rate of £250/h a total fee of £1000 would be the most they could reasonably charge.

Can someone explain where I am wrong with this thinking

Would it take more than 4 hours work ?
Is the standard hourly rate higher than £250/h ?
Have I missed an expense that would be added ?

On a separate issue, I understand that only certain IFA's are qualified to give advice of this nature. Can anyone advise me if there is an online database of these IFA's so I can find a local one. Failing that is there something specific they would state on their website to show such a qualification to save me having to call round multiple company's

Thanks in advance
Jo

dunstonh

however my thinking was that it should be a fairly quick and straight forward process...

It is one of the highest risk transactions an IFA can carry out.

Most IFAs do not have the qualifications or permissions to carry it out. So, it requires a specialist in that field.

My (perhaps naive) view was that it would take no more than 4 hours work on behalf of the IFA. So even at an hourly rate of £250/h a total fee of £1000 would be the most they could reasonably charge.

It will take much longer than 4 hours. However, the cost is not the time. The cost is the lifetime of liability as well as the knowledge of a specialist.

Can anyone advise me if there is an online database of these IFA's so I can find a local one.

https://www.unbiased.co.uk
Select the pension filter and the pension transfer sub filter.

TH1878

jojororo wrote: »

Hi,

Thanks for all the comments

I realise of course that the fee wasn't "just" to write a letter. however my thinking was that it should be a fairly quick and straight forward process...

I would meet with the IFA and explain my current situation and what I wanted to do. He would then go away do some research into where I wanted to transfer my pension to and then he would come back to me with a letter of recommendation as to whether he felt it was a good idea or not.

My (perhaps naive) view was that it would take no more than 4 hours work on behalf of the IFA. So even at an hourly rate of £250/h a total fee of £1000 would be the most they could reasonably charge.

Can someone explain where I am wrong with this thinking

Would it take more than 4 hours work ?
Is the standard hourly rate higher than £250/h ?
Have I missed an expense that would be added ?

I wouldn't take you on as a client (no offence - our business is based around lifelong financial planning, not transactional advice) but if I did, the process would be something like this:

Initial Discovery Meeting : 2 (or more) hours if done properly.

Scheme specific research : 2 hours

Construction of a financial model (using cashflow modelling tools) : around 6-8 hours depending on complexity

Research of a suitable provider and investment strategy : 1-2 hours

Second meeting to review and agree your cashflow plan including your preferred withdrawal strategy. This would include a detailed discussion of the risks involved : 2-3 hours

Report : 4-6 hours depending on complexity (I try and keep reports short and my defined benefit report is around 30 pages long! Blame the regulator.)

The automatic starting place for the FCA / FOS is that Defined Benefit transfers are unsuitable. Advisers don't have a long-stop so they are liable for their advice until the day that they're put in the ground - so a risk premium is usually added to any risky business such as DB transfers.

On a separate issue, I understand that only certain IFA's are qualified to give advice of this nature. Can anyone advise me if there is an online database of these IFA's so I can find a local one. Failing that is there something specific they would state on their website to show such a qualification to save me having to call round multiple company's

Thanks in advance
Jo

Look for the G60 or AF3 qualification.

jojororo

Thanks for the detailed responses.

@TH1878 I understand why you wouldn't want me as a client as you would prefer an ongoing client moving forward whereas I just need one off advice.

In my situation where I have this pension pot from a job I left ten years ago - I decided that I would prefer it to be in a SASS rather than left in Corporate pension until Im 65

The new regs brought in in April '15 say I cannot complete the transfer until I can prove I have had advice from an IFA

All very sensible and clearly set-up to stop people getting scammed or making poor decisions.

However, it seems to me that because these regs are so new the IFA's are not currently set-up to provide advice of this nature and/or are unwilling to because as TH1878 said above they would prefer long term clients.

I realise that most if not all IFAs will say they don't recommend moving funds from a defined benefit scheme - not only because in most cases the figures work out that way BUT also because they we want to avoid any potential professional indemnity claims in the future.

So I'm a bit stuck

a) I don't know where to go to find an IFA who will give me advice without charging me for a full financial "service"
b) I already know the response will be "Don't Do It" so it doesn't really help me decide if it really is a good idea or not

Any pointers/advice would be greatly appreciated

Thanks
Jo

dunstonh

The new regs brought in in April '15 say I cannot complete the transfer until I can prove I have had advice from an IFA

Whilst there were these recent changes, they dont actually make a lot of difference as there were very few providers that would allow a defined benefit transfer without advice prior to that.

However, it seems to me that because these regs are so new the IFA's are not currently set-up to provide advice of this nature and/or are unwilling to because as TH1878 said above they would prefer long term clients.

There is enough supply to meet demand. However, most IFAs are not willing as the default position has been mis-sale unless proven otherwise. The FOS upholds most defined benefit transfer complaints. For many IFAs it is just not worth it.

I realise that most if not all IFAs will say they don't recommend moving funds from a defined benefit scheme - not only because in most cases the figures work out that way BUT also because they we want to avoid any potential professional indemnity claims in the future.

You can get a recommendation to transfer out at times. It is just statistically unlikely. Around 4 out of 5 are best left where they are (historically).

a) I don't know where to go to find an IFA who will give me advice without charging me for a full financial "service"

A pension transfer is full advice. There is no "lite" option here.

b) I already know the response will be "Don't Do It" so it doesn't really help me decide if it really is a good idea or not

It will be a common response because the adviser will know that statistically you are likely to end up paying thousands in fees to be told to leave it where it is. However, if you still agree to pay them to do it then the report will state whether it is advisable or not.

atush

use unbiased.co.uk

But you still haven't shown us any reason moving your pension would be a good idea (such as poor health).

Sobryma

I believe i read on-line so may not even be true that the key to transferring was seeking taking advice not the actual recommendation, and some pension providers (Aegon was mentioned) will accept a transfer even if you go against the advice given.

That said if advice is going to cost 2 or 3% of your pot you are at a disadvantage in any event.