IFA Pension advice

bigadaj

bostonerimus wrote: »

There should be protection against fraud. Of course requiring someone to get a letter costing 5k to access their own money sounds pretty dubious to me. Instead of charging the investor maybe the transfer system could be better regulated and made simpler. What about mandating that everyone attend a Government regulated financial training course paid for by the financial services industry before they do a pension transfer rather than having to pay an IFA.

My issue with transfers of db schemes is that people see it as an entitlement when it really isn't. You signed up to a scheme many years ago which committed to pay a sum at a time in the future and no one is denying you that right. Due to various factors people are now being waived large one off sums in front of their noses to discharge that liability, and moaning that some nasty ifa is charging them too much to get their hands on it. Simple answer is to take what was promised in the first place if you don't want to pay the fee.

Nothing here relates to fraud, it's protecting the ill educated and ignorant from making a poor financial decision, and more widely saving the uk taxpayer from bailing out an individual if and when they do.

You have been in the us for a long time, it really isn't appropriate for you to comment on uk matters as you seem to have little experience or understanding of the situation over here now.

Less opportunity to turn up with a gun in the uk and fight a duel with the recalcitrant party as well.

sandsy

Bostonerimus, it's not a simple transfer and it's not their their own money.

They have the promise of a lifetime guaranteed income which keeps its value in real terms and the funds to generate that promise are managed by trustees on behalf of scheme members. The trustees can't just hand out a share of those funds willly-nilly as it could disadvantage other members.

Then as it's swapping a promised income for something which isn't necessarily guaranteed but can fluctuate, there needs to be some sort of process to ensure that people understand that they will now be responsible for managing this money for life and that, indeed, those fluctuations might mean the money won't actually last a lifetime. Many people go through the advice process but still don't actually "get" those fundamentals and then end up claiming they were misadvised to transfer when it all goes belly-up. And those complaints have a high chance of being upheld.

dunstonh

There should be protection against fraud.

This is not about fraud protection.

Of course requiring someone to get a letter costing 5k to access their own money sounds pretty dubious to me.

It is not a letter. A report is a final stage of a very lengthy process involving significant client details, analysis and calculations

The transaction of transferring out of DB schemes into DC schemes is the wrong one in around 95 out of every 1000 on average over the last 30 years. The FOS uphold around 4 out of every 5 DB transfer complaints made to them. The regulator treats it is mis-sold as the starting point (i.e. guilty until proven innocent). I have said that bit before but it doesn't seem to have sunk in.

Instead of charging the investor maybe the transfer system could be better regulated and made simpler.

The process was less regulated in the past and people were transferring out for very similar reasons that they want to do today. It went wrong as the assumptions, most of which were seen as sensible for the day turned out to be higher than reality. So, a retrospective review was put in place to cover ALL pension sales that took place between 88 and 94. That resulted in significant consumer compensation. It introduced safeguards to prevent it from happening again.

Currently, there is a small window where it actually can make sense for people to transfer out. However, it still comes with enormous risks. Many of the people looking at this have never invested in risk-based investments in their life. They are now looking to give up their gold-plated guaranteed pensions for life in exchange for a lump sum of money that will be in risk-based investments. The sums are often in the many hundreds of thousands of pounds and even small levels of volatility can result in large monetary amounts of movement. e.g. £600,000 CETV invested suffering a relatively common 15% loss is £120,000. For someone that has never invested before, seeing a loss of £120,000 is extremely scary and with many, it will lead to bad decisions which compound greater losses. That person can then complain and will likely get their complaint upheld.

What about mandating that everyone attend a Government regulated financial training course paid for by the financial services industry before they do a pension transfer rather than having to pay an IFA.

So, you want more costs taken from advisory firms to avoid clients paying advisory firms? Do you realise the problem with that? You need the advisory firms to pay for that but if you take the income away from the advisory firms they can't pay for it. So, there would be no money to fund it. Advisory firms are already paying large levies for various schemes. The costs of regulation, including levies and compliance, typically gets to around 25-30% of revenue. This gets passed to the consumer. You want to add to that?

xylophone

In this particular case, the amount involved seems to be £39,000 which is not very much over the £30,000 that would not require advice - that said, a line had to be drawn somewhere.

With regard to the "letter" from an IFA, it was in fact the OP who said that Aviva had told him that this was what was required. (Post 1).

bostonerimus

sandsy wrote: »

Bostonerimus, it's not a simple transfer and it's not their their own money.

They have the promise of a lifetime guaranteed income which keeps its value in real terms and the funds to generate that promise are managed by trustees on behalf of scheme members. The trustees can't just hand out a share of those funds willly-nilly as it could disadvantage other members.

I agree that the whole idea of cashing out a DB plan is complex and dubious, but a DB plan is as much a part of renumeration as earned income IMHO. The pooling of risk is vital in a DB pension and so I have serious issues with the process of converting them to a cash value.

In the US it's rare to convert a DB plan to cash, but some plans can do this for small amounts. I took a $35k cash out from an old company DB pension some years ago as I had more than enough pension income from elsewhere and I'm doing an experiment. I deposited it in a multi-asset fund and I'm seeing if I can do better than the pension income....right now the fund growth is on track to beat the pension, but it will take around 30 years to get the final answer.

bostonerimus

dunstonh wrote: »

It is not a letter. A report is a final stage of a very lengthy process involving significant client details, analysis and calculations.

It's not difficult to do the actuarial calculation for a DB cash out. A clear regulated letter from the pension administrator could give all the information necessary for the decision. If some one wants more advice than they can get that. Mandating the advice is the issue for me.

The transaction of transferring out of DB schemes into DC schemes is the wrong one in around 95 out of every 1000 on average over the last 30 years. The FOS uphold around 4 out of every 5 DB transfer complaints made to them. The regulator treats it is mis-sold as the starting point (i.e. guilty until proven innocent). I have said that bit before but it doesn't seem to have sunk in.

I agree that sticking with a DB pension is often the best choice and that the numbers need to be honestly calculated and clearly presented. In the US the IRS requires a set of chronologically segmented discount rates to be used to calculate the cash value. It sounds like HMRC etc need to more highly regulate the whole process if mis-selling is assumed. But there is also the need for people to take personal responsibility for their decisions.

Currently, there is a small window where it actually can make sense for people to transfer out. However, it still comes with enormous risks. Many of the people looking at this have never invested in risk-based investments in their life. They are now looking to give up their gold-plated guaranteed pensions for life in exchange for a lump sum of money that will be in risk-based investments. The sums are often in the many hundreds of thousands of pounds and even small levels of volatility can result in large monetary amounts of movement. e.g. £600,000 CETV invested suffering a relatively common 15% loss is £120,000. For someone that has never invested before, seeing a loss of £120,000 is extremely scary and with many, it will lead to bad decisions which compound greater losses. That person can then complain and will likely get their complaint upheld.

I agree with everything apart from the last sentence. Drawdown comes with risk and a poor personal investment decisions should not receive compensation.....as long as they have been taken after getting honest and correct numbers.

So, you want more costs taken from advisory firms to avoid clients paying advisory firms? Do you realise the problem with that? You need the advisory firms to pay for that but if you take the income away from the advisory firms they can't pay for it. So, there would be no money to fund it. Advisory firms are already paying large levies for various schemes. The costs of regulation, including levies and compliance, typically gets to around 25-30% of revenue. This gets passed to the consumer. You want to add to that?

I'd like to see the need for advisory firms reduced. I would not be surprised if they resisted any program to improve the financial education level of the consumer.

dunstonh

I'd like to see the need for advisory firms reduced. I would not be surprised if they resisted any program to improve the financial education level of the consumer.

Advisory firms already pay levies for financial education. The resistance is to your suggestions to increase it further. Where does it stop?

Also, do remember that only 1 in 10 advisers transacts in the area of defined benefit transfers. So, there is no resistance on that side. If it was such a money train then more than 1 in 10 would do it.

It sounds like HMRC etc need to more highly regulate the whole process if mis-selling is assumed. But there is also the need for people to take personal responsibility for their decisions.

Personal responsibility is old fashioned. Those days have gone. Compensation culture has caught up with the US.

You seem to be suggesting more regulation is needed in this bit. However, it is the regulation that generates the costs. Yet in other bits of your posts you seem to suggest it should not be as regulated. The more you regulate and protect consumers, the more the costs go up.

Linton

bostonerimus wrote: »

I agree that the whole idea of cashing out a DB plan is complex and dubious, but a DB plan is as much a part of renumeration as earned income IMHO.

And yet you think that someone who is perhaps barely numerate can make an informed decision about whether it is right for them after a short training course?

A DB pension is part of an employees remuneration but it cant simply be reguarded as extra salary because of the favourable tax regime. This in my view entitles the government to impose restrictions on access. Though the current restrictions seem too lax in that someone can get IFA advice and ignore it in the expectation that if it works out they win and if it doesnt they apparently can still sue the IFA, perhaps claiming that the warnings weren't sufficiently strong.

Note that pensions arent owned by the individuals but rather held in trust for their benefit.

POPPYOSCAR

Am I missing something here?

The OP says the Transfer value is £39,000.

At the pension quoted that would take over 40 years to pay out?

How can that be right?

If that is correct I can understand why they want the cash now.

bostonerimus

dunstonh wrote: »

Advisory firms already pay levies for financial education. The resistance is to your suggestions to increase it further. Where does it stop?

Given the apparent lack of general consumer knowledge and the poor decisions that seem to be made I'd question the efficiency of those education schemes. Looks like pretty poor value for money.

Personal responsibility is old fashioned. Those days have gone. Compensation culture has caught up with the US.

As personal responsibility is the basis of any moral code, then we are in serious trouble. The US does have a culture of litigation, but the compensation culture around investing does not strike me as similar to the UK's.

You seem to be suggesting more regulation is needed in this bit. However, it is the regulation that generates the costs. Yet in other bits of your posts you seem to suggest it should not be as regulated. The more you regulate and protect consumers, the more the costs go up.

There needs to be a strong and stable regulatory environment to give people the confidence to make financial decisions and so that people can take responsibility for those decisions,