transferring out of DB pension

neil1960

Hi all - I am looking for advice on how to transfer out of my old employers defined benefit scheme and into a SIPP or other pension plan which would allow me to fund early retirement (I am almost 55). The scheme has a huge shortfall and has blocked all early retirement requests. However they have given me a CETV value which would be sufficient to meet my needs well past state pension age. The catch is that in accordance with legislation I am required to have IFA advice before the transfer can go ahead. I have had a preliminary discussion with an advisor who warned me that I am highly unlikely to find anyone who will advise me to go ahead with the transfer as the CETV is 30% below the theoretical pension value and it currently has annual pension increase of 5%. My main reasons for wanting to go ahead despite the financial losses are health concerns but IFA's do not seem to take this into account and are simply looking at the numbers.
Does anyone know if it is possible to proceed with the transfer against IFA advice - I have asked the pension trustees but am awaiting an answer.

dunstonh

However they have given me a CETV value which would be sufficient to meet my needs well past state pension age.

But is it better than leaving it in the defined benefit scheme?

I have had a preliminary discussion with an advisor who warned me that I am highly unlikely to find anyone who will advise me to go ahead with the transfer as the CETV is 30% below the theoretical pension value and it currently has annual pension increase of 5%.

So, it doesnt sound like what you want to do is the right thing.

My main reasons for wanting to go ahead despite the financial losses are health concerns but IFA's do not seem to take this into account and are simply looking at the numbers.

Health can be a reason for transfer but how poor is your health and do you have financial dependants?

Does anyone know if it is possible to proceed with the transfer against IFA advice - I have asked the pension trustees but am awaiting an answer.

It has nothing to do with the pension trustees. it has to do with the receiving scheme.

xylophone

http://www.thepensionsregulator.gov.uk/docs/db-dc-transfers-conversions-regulatory-guidance.pdf



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

Your adviser/you will have to do the rounds of the providers if you go down this path - an article in the FT Fears over ‘new dawn’ for final salary pension transfers on 1 May seemed to suggest that there were providers who would accept transfers against advice

http://www.ft.com/cms/s/0/bc140a14-ee46-11e4-88e3-00144feab7de.html#axzz3f9kERlOP

dunstonh

Your adviser/you will have to do the rounds of the providers if you go down this path - an article in the FT Fears over ‘new dawn’ for final salary pension transfers on 1 May seemed to suggest that there were providers who would accept transfers against advice

The FCA document has not sent the insistent client problem away. The other issues are that for non-directly authorised advisers, the compliance companies will often refuse to allow it. It is a commercial risk they dont want. For directly authorised firms, that is not an issue as it is their own choice. However, their PI insurance may put restrictions on insistent clients on certain classes of business. So, they may be authorised and allowed from a regulatory point of view but not insured to do so.

Finally, it is the FOS that is the larger concern. If you use a search for "insistent" on the FOS publications, you will find 16% get rejected and 84% get upheld. (noting limitations of the FOS search filter which only allows one word and a product class)

jamesd

neil1960 wrote: »

I have had a preliminary discussion with an advisor who warned me that I am highly unlikely to find anyone who will advise me to go ahead with the transfer as the CETV is 30% below the theoretical pension value and it currently has annual pension increase of 5%.

Now ask the IFA what rubbish was used to get to that conclusion. The typical thing used is a value called the critical yield, which assumes that you will be an idiot and buy an annuity (page 20) to achieve the income provided by the workplace pension.

So one thing to do is to ask an adviser to ensure that any critical yield calculations use a sane mixture of investments and do not assume that you will be daft and buy an annuity when there are far higher paying options available.

neil1960 wrote: »

My main reasons for wanting to go ahead despite the financial losses are health concerns but IFA's do not seem to take this into account and are simply looking at the numbers.

The numbers should include life expectancy because it is a key part of the picture. Again this is something that you should reinforce as a major concern in any alternative valuations because it can greatly decrease the value of the workplace defined benefit scheme, by removing years of income from the end of life that are irrelevant to you because you expect to be dead by then. A person with substantially reduced life expectancy can be a very good transfer candidate because of all the years or DB money they won't actually be able to get.

Given reduced life expectancy you should also reinforce the message that your objective is not to maximise income but to maximise time in retirement given reduced life expectancy.

If you have a spouse and children you may also want to emphasise the importance of death benefits, with drawdown pension providing 100% spousal/child pensions and death benefit, generally far better than those provided by a defined benefit pension.

So, a range of options to emphasise to ensure that an IFA is providing an analysis that makes sense for your circumstances and what you will actually do, not one that makes invalid assumptions and a daft way of producing an income. Ensure that any report produced by an adviser specifically addresses each of these points, particularly the effect of life expectancy and income choices on money factors and desire to prioritise years in retirement over income in retirement.

You do not have to use just one IFA. You can interview prospective IFAs to find those that say they are willing to give appropriate weighting to your objectives and choices, rather than assuming you're a generic person with generic life expectancy and objectives. This exercise may weed out those who are inclined to just say no because they don't want the risk of doing the business.

neil1960

thanks for the replies. I realise that financially it is not the better option, but given a family history of early dementia, arthritis etc I want to be able to enjoy as many retirement years as possible while I am still healthy.

dunstonh

neil1960 wrote: »

thanks for the replies. I realise that financially it is not the better option, but given a family history of early dementia, arthritis etc I want to be able to enjoy as many retirement years as possible while I am still healthy.

Do you have any health issues? You cant point to hypothetical health issues and use those as a reason.

Based on what you have said, you want to blow the fund earlier and leave yourself little or nothing later. The IFA can't recommend that. It would be bad advice that you would be complaining about later.

neil1960

I don't want to 'blow the fund earlier' as you put it. I am a sensible adult and would like to enjoy the pension fund,over a period of 15 years or so, that I have contributed to, whilst I am still healthy enough to do so, having taken many steps to reduce my financial needs later in life such that I will be able to manage on state pension coupled with other smaller investments.

dunstonh

I am a sensible adult and would like to enjoy the pension fund,over a period of 15 years or so, that I have contributed to, whilst I am still healthy enough to do so

It is impossible for us to know whether you are sensible or not. Just as its not possible for the IFA to know. So, the facts are important as well as a number of estimates and assumptions which have to be reasonable and understood.

Australia is 20 years ahead of the UK on pension freedoms and it found that a third of pension assets was withdrawn by age 55 and a quarter of retirees had depleted their pot by age 75. 1 in 4 people using up their pension. Thats a staggering amount and its what the adviser is concerned about as people who run out of money will likely complain.

1 - You are say you wanted to do it due to poor health but it turns out you are not in poor health.
2 - You say you will be financially worse off because of this yet still want to do it
3 - You say you want to spend the money whilst you are young enough to enjoy it. So, what are you going to have in later life?

An adviser has to have justification to recommend it but you havent given anything that supports any justification.

Do you have any existing investments (of larger value - not savings plans or small amounts and have you been through market crashes)? if no, then that works against you too as someone with no investment experience giving up a guaranteed index linked income to replace it with a lower income that will fluctuate with investment returns would be extremely high risk for an adviser to recommend. Magnified so with the above listed points.
Do you have any dependants?

Its not what you say that matters here. It is how it looks on paper to a third party looking at the information 20 years down the road after you have run out of money and have complained.

neil1960

To answer some of your points - 'poor health' is a subjective term - I am finding it increasingly difficult to climb stairs, use force on objects etc due to joint & muscle problems.
What do class as 'small investments' - I have £80k invested in funds for some years & yes have been through some crashes (.com bubble for instance)
I have a working partner & no dependant children.
IFA's talk about losing guaranteed returns - what's guaranteed about my life expentancy or health? What's guaranteed about the returns from a small pension scheme with a £40m shortfall constantly squeezing the benefits to reduce the shortfall?
What's guaranteed when the original company is now owned by a foreign company?
To me this is similar to going into court for a compensation claim with an out of court settlement on the table and the lawyer advising to into court as you're guaranteed to get more.
Sorry but in my experience nothing in life is guaranteed & I'd take the bird in the hand every time.

dunstonh

To answer some of your points - 'poor health' is a subjective term - I am finding it increasingly difficult to climb stairs, use force on objects etc due to joint & muscle problems.

So, in the scheme of things, you could well find your costs increasing as you need to make changes to lifestyle to reflect that. These are not life reducing things.

What do class as 'small investments' - I have £80k invested in funds for some years & yes have been through some crashes (.com bubble for instance)

That helps as it shows a history of investing and seeing what can happen when drops occur.

I have a working partner & no dependant children.

So, death benefits are not likely to be an issue here beyond your partner.

IFA's talk about losing guaranteed returns - what's guaranteed about my life expentancy or health? What's guaranteed about the returns from a small pension scheme with a £40m shortfall constantly squeezing the benefits to reduce the shortfall?

A defined benefit scheme gives you certainty of an indexed monthly income for life that is not subject to investment returns and will not fluctuate.

The scheme shortfall is largely irrelevant as the PPF is there and the losses on investments can cause greater pain.

What's guaranteed when the original company is now owned by a foreign company?

irrelevant.

To me this is similar to going into court for a compensation claim with an out of court settlement on the table and the lawyer advising to into court as you're guaranteed to get more.

Its not how it is viewed though. It is giving up valuable guaranteed benefits for less money with the abilty to complain and aim to get compensation 20-30 years down the road.

Sorry but in my experience nothing in life is guaranteed & I'd take the bird in the hand every time.

Except the protections in place mean one bit is guaranteed and the other can see the bird fly away and leave you with nothing.

I am not looking to disagree with you. Just pointing out the issues. PPI claims companies are expected to be all over pensions when PPI runs out. Were you told to give up your works pension and mis-sold a pension that has gone down in money is expected to be the next compensation chasing cold calling exercise.

Your scenario could be fine and work out for you. However, the risks of other scenarios are the problem and how your capacity for losses is vital in any recommendation.