Transfer a defined benefit pension to SIPP

everyday7

AnotherJoe wrote: »

This is already explained in several of the previous replies. Please read them.

The sum is not for the work.

Its for the liability when your mother goes back to the IFA in 10 years time and says "you obviously didn't explain clearly enough what a terrible deal it was because if you had I wouldn't have done it, so I demand compensation"

p.s. I can tell you right now its not worthwhile (unless your mother is terminally ill?) and there are almost certainly better ways of getting the money she wants / needs.

Hi what other ways would she have?
If guess I should make her read this because it seems that she doesnt have a chance transfer her DB pension

everyday7

I think she thought her transfer value pension would be £35k - 39k because the transfer value is usually more than the pension's value. And that it would take her 25 years to earn something equal to that amount.

saver861

everyday7 wrote: »

Hi what other ways would she have?
If guess I should make her read this because it seems that she doesnt have a chance transfer her DB pension

I'm not sure there are easy ways to conjure up £30k as such. However, there are ways to increase annual funds. For instance, if your mum is a non tax payer she can make £720 a year just by paying £2880 into a SIPP and then withdrawing it as soon as the tax relief is paid - providing it does not take her over the personal allowance threshold.

It might be worth doing a full financial cleansing to see how you can maximise your mum's current position. The point being that you probably can make some additional annual income without losing a whack of money by doing the DB transfer!

xylophone

Is your mother currently employed and paying (or being credited with) National Insurance?

Has she requested a state pension statement?

https://www.gov.uk/check-state-pension

AnotherJoe

everyday7 wrote: »

Hi what other ways would she have?
If guess I should make her read this because it seems that she doesn't have a chance transfer her DB pension

It depends how much money she needs and what it would be used for. If she just fancies having a lump sum to stick in the bank its one thing, if she needs £10k for house renovations or a new car its another.

everyday7

She wanta a lump sum stuck in the bank so she can access it if she needs to.
She no longer works so she doesn't have any sort of income aside from bank interest on her savings which is much less than £1k per year. She has a state pension forecast - she has 35 yrs of NI so she will get a state pension when she turns 65.

I thought the 20% uplift applied to pension / sipp would only apply if she was working and 20% had already been removed from her pay. TBH - i think she would find all of this confusing and wouldn't be interested, hence why she wants the money in a bank.

sandsy

So if her only income, more or less, is £8k pa of state pension, why wouldn't she want to make that over £9kpa by keeping the DB pension? A 15% uplift in her income would be a good thing? Presumably the DB income would also increase with inflation each year too.

Taking the income, she'd still be under the personal allowance for tax purposes and would pay no tax on any of her income. But the lump sum of £30k (after advisory charges) will only be worth £24k after basic rate tax. Does she really want to give £6k to the taxman?

saver861

everyday7 wrote: »

She wanta a lump sum stuck in the bank so she can access it if she needs to.

I understand the point and many want simplicity. However, simplicity can be costly.

everyday7 wrote: »

I thought the 20% uplift applied to pension / sipp would only apply if she was working and 20% had already been removed from her pay. TBH - i think she would find all of this confusing and wouldn't be interested, hence why she wants the money in a bank.

Nope. She can put in £2880 as a non earner and the nice tax man will contribute £720. Usually the nice tax man sends the money through in about 3 months or less.

It is £720 for naught .... its not that difficult. Set up an account with HL for instance, put the £2880 in and wait for the tax man to put in his share. Then withdraw it. Your mum would have £720 additional income for the next four years on the current system as it is.

There are a few things to be aware of when withdrawing the SIPP money, such as not closing the account and being subjected to additional fees.

Otherwise, it is free money ....

dunstonh

oh - why did the gov even offer this option to people if its going to be so hard / impossible to get.

The ability to transfer defined benfit pensions has been around for as 30 or so years. It is nothing new.

Its going to take 1 - 1.5 hours of work, to work out if its going to be worthwhile how can they justify charging her thousands.

Liability. 9 out of 10 transactions that you are considered would be bad advice to transfer it. The PI insurers hate pension transfers and price PI insurance significantly higher if you transact in that area. The excess on the premium is usually around £5k. The FCA require the transaction to be reported to them. Most firms will have it 100% checked by a third party. It comes under higher scrutiny.

This is not a mainstream transaction with everyday liability.

I think she thought her transfer value pension would be £35k - 39k because the transfer value is usually more than the pension's value. And that it would take her 25 years to earn something equal to that amount.

It is usually the other way around. Transfer value usually is less.

She wanta a lump sum stuck in the bank so she can access it if she needs to.

Well, that is not going to win any prizes on the scale of justification. She can take the pension commencement lump sum on the DB scheme and the income and then place the income into the savings account seeing as she doesnt need it.

everyday7

saver861 wrote: »

I understand the point and many want simplicity. However, simplicity can be costly.



Nope. She can put in £2880 as a non earner and the nice tax man will contribute £720. Usually the nice tax man sends the money through in about 3 months or less.

It is £720 for naught .... its not that difficult. Set up an account with HL for instance, put the £2880 in and wait for the tax man to put in his share. Then withdraw it. Your mum would have £720 additional income for the next four years on the current system as it is.

There are a few things to be aware of when withdrawing the SIPP money, such as not closing the account and being subjected to additional fees.

Otherwise, it is free money ....

Will the taxman do this automatically or would my mum need to tell HMRC- How would HMRC know they needed to submit the additional money? Would she be allowed to remove all of the money from the SIPP or just the £720? Does it make a diff if its a SIPP or stakeholder pension? Reading on line it seems she would need a stakeholder pension because they are designed for low earners.