Transfering DB to SIPP

pip895

I know this subject has been done to death and the consensus view is "DONT DO IT" but I am seriously considering it anyway. I am 55 and semi retired.

The policy concerned was worth a fairly poultry £5000/anum when I left the employment back in 2002 but is now worth £11000 and when I get to 65 will start giving me an income of around £18,000 increasing at the rate of just under 5%/anum.

The transfer value of the policy was £162,000 in 2011 but has escalated to a whopping £483,000 today. I can only see this figure going down from here with interest rates beginning to rise?? So if I want to transfer I think now is the time.

Putting the figures in to a spreadsheet allows me to calculate that if I were to extract the money and sit it in a bank account without interest – then pay out at the rate of the payments I would have been due under the policy, I would run out of money age 79. If I were to get 3% interest on the money it would last me to 89 and at 5% it would last me to 105 at which time I would be receiving a rather impressive sounding £125k/anum.

The concern for me is inflation. If this policy were index linked we wouldn’t be having this conversation – It would squarely tick one of my concern boxes and I would leave well alone.
I could take the money and annuitize it. Initial enquires seem to suggest that I could get an index linked income of £10k starting now which would actually be quite useful, or I could just add it to my SIPP with all its potential IHT advantages – or do a bit of both perhaps.

Other pertinent points – I am married and have a teenage daughter (OH is a fair bit older than me and already drawing his state pension). We own our own home, have a rental property and are mortgage free. Total other assets (SIPP’s ISA’s, savings accounts etc in excess of 1 million). We don’t however have any other DB pensions or annuities.

Should I start down the road of getting the advice necessary to do this? It seems a rather expensive process - I have been quoted £1500 for an initial consultation + just under 1.5% of the transfer value. Seems extortionate but I’m not sure there is a way around it.

Linton

In your circumstances it would seem that even in the extremely unlikely event that you lost the lot through very foolish investing you would still be in a pretty strong financial position and that your main motivation isnt a higher income but rather flexibility and a higher inheritance for your beneficiaries. These to me sound like very good reasons to transfer. My concerns on the transfer option would be mainly limited to people who had no other significant assets and needed the income to survive.

So I think it would be worthwhile to start the transfer process. In the overall scheme of things although £1500 +1.5% sounds a lot it doesnt really make a great difference to your assets and certainly doesnt jeopardise your objectives in transfering.

Incidentally when doing your calculations dont forget inflation. In 50 years time its not impossible that £150K/year will be the equivalent of the £10K from your hypothetical annuity. Whilst mentioning an annuity I do feel that going in that direction for all the £483K may not be the best way of meeting your objectives.

dunstonh

I know this subject has been done to death and the consensus view is "DONT DO IT"

That is not the consensus view unless you are looking at posts older than that last few years.

Over the last 30 years, DB transfers have been considered wrong to do in around 9 out 10 cases for the majority of the period. Over the last 3 or so years, that figure has been turned on its head.

The policy concerned was worth a fairly poultry £5000/anum

I dont normally pick up on typos as its best not to throw stones in glass houses. However, that one did make me laugh.

I can only see this figure going down from here with interest rates beginning to rise??

Broadly speaking, the best time to transfer (bar any other influences) was summer last year. Again, barring any other influences, with gilt yields expected to rise (although how long have we been saying that!), the CETVs should be expected to fall. They are not the only influence though.

In your post you talk about using cash deposits and then comparing it to annuity but you dont mention using investments. That is what they vast majority of people use and would be expected to use. Any reason why you left that option off?

Should I start down the road of getting the advice necessary to do this? It seems a rather expensive process - I have been quoted £1500 for an initial consultation + just under 1.5% of the transfer value. Seems extortionate but I’m not sure there is a way around it.

It is just about the riskiest transaction to an adviser and adviser firm that is possible. The FCA treat it as missold unless proven otherwise. It is also a current hot potato (again) with the FCA. A number of firms have suspended activity in this area following FCA intervention and some have had to close down. It is one of those areas which is under intense scrutiny.

PI insurers also charge firms more for doing them. Not just now but for the rest of the life of that firm. So, when things return to some form of normality and most DB transfers are not suitable, the firms will be paying increased PI insurance costs still despite not doing hardly any business in that area.

One of the biggest fears is the behaviour of the person. Using unsuitable investments. Taking irrational actions. A fund of £483k in medium risk investments can lose over £100k in a mild crash. A crash is probably going to happen around 10 times. For an experienced investor, a loss of £100k on that figure is nothing. For someone who is not experienced at investing, a loss of £100k could panic them into bad decisions. That is when people tend to complain. The figures may all suggest transferring is the right thing to do but the behaviour and actions of the investor 10 years or so later can trigger a complaint.

So, there is good reason why its expensive.

xylophone

The policy concerned was worth a fairly poultry

Chicken feed?:)

xylophone

£5000/anum when I left the employment back in 2002 but is now worth £11000 and when I get to 65 will start giving me an income of around £18,000 increasing at the rate of just under 5%/anum.

Better than a pain in the bottom!

pip895

So on the fees front broadly speaking I am paying for insurance against me doing something really stupid and then suing the hapless IFA for my idiocy. I find the whole thing incredibly annoying.

If you are an IFA do you end up having to pay someone else to tell you the obvious as well, or are you allowed to sign off on your own advice?

pip895

I agree with the sentiment that I am very lucky to have such a policy particularly when I consider the really "chicken feed" amount of money I originally put into it.:)

It was questioned why I didn't mention investing the money :- actually this is my default position - I have been managing our investments quite successfully for nearly 10 years. Those years have been pretty benign though apart from one notable blip. It just seems to be putting all our eggs in one basket although perhaps a well balanced portfolio could be considered to be quite a few baskets?

Linton

You are paying for more than that just the IFA's insurance. One would hope that working with the IFA should give you a much clearer understanding of your financial position and the opportunities and dangers. We may say that we think you have a good case to transfer but if we are wrong, perhaps if we have mis-understood your situation, omitted asking a vital question or have some underlying agenda to primulgate, it's no problem for us and tough luck for you if you follow up on our suggestions. Getting the considered view of an IFA, who has something to lose for getting it wrong, should give one more confidence or perhaps lead to second thoughts on a decision that could greatly enhance or blight the rest of one's life.

dunstonh

pip895 wrote: »

So on the fees front broadly speaking I am paying for insurance against me doing something really stupid and then suing the hapless IFA for my idiocy. I find the whole thing incredibly annoying.

If you are an IFA do you end up having to pay someone else to tell you the obvious as well, or are you allowed to sign off on your own advice?

Every business in every area prices in risks to their billing.

IFAs take on the risk of the advice they give. They are the ones putting their career on the line. Not just their career. It could be their house, personal savings and those of their spouses. Its not just the cost of the insurance but the cost and risk. IFAs have the FCA and FOS looking at their advice and in the case of DB transfers, the IFA is considered guilty unless proven otherwise.

People who are self-employed or run businesses will have a greater understanding of risks. Unfortunately, employed people often do not.

It is also worth looking back at the last period when many people transferred out of DB schemes because the figures looked good. Around 4/5 of those were retrospectively considered mis-sales. What looks good now doesnt mean it will look good in future. It only takes a sustained period of inflation or a japan style stagnation after a drop and all those models that considered it viable turn out to be way off the mark.

pip895

Linton wrote: »

You are paying for more than that just the IFA's insurance. One would hope that working with the IFA should give you a much clearer understanding of your financial position and the opportunities and dangers. We may say that we think you have a good case to transfer but if we are wrong, perhaps if we have mis-understood your situation, omitted asking a vital question or have some underlying agenda to primulgate, it's no problem for us and tough luck for you if you follow up on our suggestions. Getting the considered view of an IFA, who has something to lose for getting it wrong, should give one more confidence or perhaps lead to second thoughts on a decision that could greatly enhance or blight the rest of one's life.

I am pretty happy to pay for the time a good IFA would spend and I understand that it would and should be thorough. My recent experience with the profession though has been that 90% of what is done is not about research and giving good and thorough advice but about covering themselves, daft risk profiles and box ticking exercises. I'm not happy about paying for the insurance in addition though.

dunstonh

My recent experience with the profession though has been that 90% of what is done is not about research and giving good and thorough advice but about covering themselves, daft risk profiles and box ticking exercises.

If you consider risk profiling daft then perhaps you should not be considering a DB pension transfer.

I'm not happy about paying for the insurance in addition though.

You are not paying insurance.