Conversation with IFA about DB transfer

bigadaj

bostonerimus wrote: »

I'm a little more optimistic about people being able to manage their money. I think off the shelf products and simple solutions will become increasingly available and will hopefully be less expensive than and IFA. Some people will always want or need detailed advice for complex situations, but far too many DB transfers and being hit by 2% or 3% IFA fees and then ongoing charges when they really aren't necessary.

A large part of teh question is whether you are talking about the uk or the us.

The differences between the us and uk in many financial, employment and welfare issues are far larger than between the uk and Europe, despite Brexit and cultural and language issues.

The biggest concern for many abiut job loss in the us is the loss of healthcare benefits, that's something that wouldn't even cross the mind of anyone in Britain.

There's also still a comprehensive benefits and welfare safety net in the uk, so given the 'lamborghini' option there's moral hazard regarding people blowing it all and then relying on the state to fund them, would not be clever or necessarily easy but certainly possible.

People who have built up DC pots are far more likely to have done that consciously with money the see as theirs, or at least that which they could access, db schemes are often just seen as a perk but soemthing which has always existed. In the latter case when someone actually has a decent pension, but is being offered 30-40 times that amount, when the largest lump sum they've encountered previously is a fraction of that, it's not surprising their heads are turned.

bostonerimus

bigadaj wrote: »

A large part of teh question is whether you are talking about the uk or the us.

The differences between the us and uk in many financial, employment and welfare issues are far larger than between the uk and Europe, despite Brexit and cultural and language issues.

I'm talking about the UK.....the US has it's own issues with investing costs, but DIY is a far more common approach and there's no situation where you are required to take, and pay for, advice.

The biggest concern for many about job loss in the us is the loss of healthcare benefits, that's something that wouldn't even cross the mind of anyone in Britain.

Yes, pre-retirement healthcare is a disaster in the US. But if you get to 65 you get Medicare which is pretty good. I'm lucky, I qualified for zero cost state Medicaid healthcare when I retired at age 53 and then went onto employer retiree healthcare at age 55 which costs me $100/month.

There's also still a comprehensive benefits and welfare safety net in the uk, so given the 'lamborghini' option there's moral hazard regarding people blowing it all and then relying on the state to fund them, would not be clever or necessarily easy but certainly possible.

In the US the safety net prior to Medicare age (65) varies greatly with the state you live in. Mississippi not so good, Massachusetts pretty good. I was on a low income for a few years and was actually actively contacted by the state with fuel assistance, free healthcare and food stamp applications. They offered to subsidize insulating my home and also to pay 50% of the cost of new high efficiency furnaces as part of an environmental drive. They still send me the odd notice, but my income levels now mean I don't qualify Also US social security is a far more generous benefit than UK state pension and in the US it's possible to purchase reasonably priced long term care insurance.....with the cost of long term care becoming more ad more of a burden to the individual in the UK the lack of that insurance in the UK will become an issue.

People who have built up DC pots are far more likely to have done that consciously with money the see as theirs, or at least that which they could access, db schemes are often just seen as a perk but soemthing which has always existed. In the latter case when someone actually has a decent pension, but is being offered 30-40 times that amount, when the largest lump sum they've encountered previously is a fraction of that, it's not surprising their heads are turned.

Part of the issue in the UK is the lack of connection people have with their money. A DB scheme is not just a perk, it's part of the employee's remuneration. DB or DC the goal is to have an income stream for life and I think people know that.

bigadaj

Bosteronimus, I don't disagree with most of what you say, my point is that I'm looking at the world as it is and you are looking at it in the way it could or arguably should be.

We seem to have a Mis selling scandal, particularly in financial products, in the uk every few months, in the us people would just be considered to have been stupid to have bought an unsuitable or inappropriate product. I far prefer the us approach but that's not what we have.

Elderly care is a massive elephant in the room in the uk, people think they can be accommodated for free when they have six or seven figures in assets available, and it's unfair for,them to pay their own way. It's an aspect that should be a government priority to resolve or at least improve, there are plenty of options around, from caps on care costs, to government under writing of private insurance etc. The difficulty is almost purely a psychological one, Fred and Betty have worked all their lives, the house is their only asset, and want to leave it to their children. That is their right, but why expect free care, keep the house and get the children to look after them, or leave the elderly to look after themselves. This is exacerbated by a combination of the U.K. Fixation on property and the blurred lines between medical and social care, the latter combined with the U.K. NHS obsession, someone is paying for the latter but you just can't have a sensible debate about a system that was a world first but is often know a relatively poorly run system that isn't often value for money.

Gong back to db pension issues then it can of course be argued that the uk is freer, there is an opportunity to access these schemes for some if they take advice, the cost of that advice just needs to be factored into the financial model.

C_Mababejive

As someone who really needs to speak to an IFA, i think this whole situation is very worrying.

We have people in DB schemes which previously they were perfectly happy with and thought themselves well looked after now being stampeded into obtaining CETVs in large numbers.

Why?

Because their mates are doing it and word spreads like wildfire.

People panis. They think,well if all those are doing it, they must be right. I must get "my" money out as well.

Why?

Well if they all take money out there will be none left for me. What will happen to my pension if i dont transfer?

Its almost like a Northern Rock scenario applied to pensions.

Maybe Government and large companies who have DB liabilities really like it his way?

Get a stampede of fear and transferees then hold your hands up and say,,well the fund is now so underfunded as we have let it be raided that its now failed and must be closed or fall on the PPF.

We also have people with little financial knowledge perhaps falling prey to IFAs with mega advice fees,wobbly advice and high ongoing charges.

Thats how scary it looks from the outside looking in..

bostonerimus

bigadaj,
I'm usually for freedom, which is why I don't like the UK system when it mandates advice be taken. It might be a good idea, but I think people should have the freedom to be foolish as long as it doesn't hurt other people. My issue with wholesale DB plan transfer is that it's breaking a contract and could well undermine the DB plan for others if the risk pool is reduced and mortality credits are affected.

The UK health system has operational, management and funding issues, but it's principle is fantastic "free at the point of service" and funded by general taxation. It provides arguably better care to everyone resident in the UK, than the US system manages at twice the cost while failing to cover a large number of people. I'm very lucky as I worked as a state employee for many years and now have excellent health insurance that only costs me $100/month....the state pays the rest of the $600/month premium.

For long term care the UK system was ok when people could rely on local authority and the NHS. When there's an option for everyone paid for with general taxation. then people don't need to budget for it. But that's changed, and with cost being shifted onto the elderly there's been no real provision to help pay for it. In the US there's very limited provision for government funded care, but there is an active insurance market. When I was 38 I bought a policy that costs me $28/month and will pay $300/day in care costs with a lifetime cap of $350k. The premiums are obviously higher if you buy the policy later on. Another approach is to buy a deferred annuity.

AlanP_2

Topic has widened out a bit

There is a "blur" between Social Care and Health Care in some ways, yet there is also a distinct divide.

I work for a County LA and the social care element is "our problem" and is paid for by us.

Our major expenses include Looked After Children (real Social Care), the increasing number of elderly residents that is growing significantly relative to younger "economically contributing" members of the local population, and and the demands they place on the system ("blurred" between social & health care as requirements are often complex and overlap both fields); and finally those members of society that have Learning & Disability issues to cope with.

The last primarily falls on the LA although there are health aspects and interventions alongside.

NHS budget is a "political scared cow" and is not being cut, we are losing £200m+ a year of central government funding in a couple of years, as are all LAs, although amounts will vary.

OUTCOME = PREDICTABLE CAR CRASH

reduced support for elderly & vulnerable, less resources to support them in their own homes so they fall back on NHS (e.g. can't be released from hospital as no home care support available aka Bed Blocking).

In 20/40 odd years time when the full implications are clear and a Social History of Britain in the First Half of The 21st Century is written the conclusion will be "What on earth were they thinking????"

bigadaj

bostonerimus wrote: »

bigadaj,
I'm usually for freedom, which is why I don't like the UK system when it mandates advice be taken. It might be a good idea, but I think people should have the freedom to be foolish as long as it doesn't hurt other people. My issue with wholesale DB plan transfer is that it's breaking a contract and could well undermine the DB plan for others if the risk pool is reduced and mortality credits are affected.

The UK health system has operational, management and funding issues, but it's principle is fantastic "free at the point of service" and funded by general taxation. It provides arguably better care to everyone resident in the UK, than the US system manages at twice the cost while failing to cover a large number of people. I'm very lucky as I worked as a state employee for many years and now have excellent health insurance that only costs me $100/month....the state pays the rest of the $600/month premium.

For long term care the UK system was ok when people could rely on local authority and the NHS. When there's an option for everyone paid for with general taxation. then people don't need to budget for it. But that's changed, and with cost being shifted onto the elderly there's been no real provision to help pay for it. In the US there's very limited provision for government funded care, but there is an active insurance market. When I was 38 I bought a policy that costs me $28/month and will pay $300/day in care costs with a lifetime cap of $350k. The premiums are obviously higher if you buy the policy later on. Another approach is to buy a deferred annuity.

The NHS is certainly much better than the us system, but it seems to work far less well than most systems on the developed world and the rest if Europe.

Free at the point of delivery translates to many as free, there is a cost and there is a lot of system abuse, the number of missed appointments at many gp surgeries being testament.

The government will have to bring in some form of system for elderly care as I noted above, maybe a lifetime cap which could then be insured against, some of the calculations I've heard would suggest this could be relatively low cost.

The us and uk systems are totally different, neither is perfect but I'm more in favour of the U.K., even if there is a nanny state element.

One thing that has always stayed with me is driving round the states in the late eighties and from the interstate on the south, through Mississippi, Alabama, Louisiana etc, and seeing genuine African levels of poverty with people in shacks. Didn't see anything similar for 15 years when I was in South Africa.

sandsy

bostonerimus wrote: »

I'm talking about the UK.....the US has it's own issues with investing costs, but DIY is a far more common approach and there's no situation where you are required to take, and pay for, advice.

It's because DIY is still relatively rare here that it's a bigger problem - people don't generally having experience of investing for themselves. Even though people are now auto-enrolled into DC pensions, most people go for default funds because they simply don't have a clue what either the default or any other option means. Research indicates that Brits have poor financial capability and often make poor financial decisions.

bostonerimus wrote: »

bigadaj,
I'm usually for freedom, which is why I don't like the UK system when it mandates advice be taken. It might be a good idea, but I think people should have the freedom to be foolish as long as it doesn't hurt other people.

The problem with being foolish is that because of our social care system, it does have the impact to hurt other people. Those who spend all their money early are more than likely to start claiming additional benefits. Although it's been said that deliberately depriving themselves of assets will count them out for state support, there's no indication of how this would work in practice post pension freedoms.

The advice requirement, when set against a background of both of these, appears to be intended to prevent a rush of stupid decisions which then cost the Exchequer money (although it might have also made some on people cashing in!) and consequently, the general population by increasing tax rates.