Help _ Final salary pension to Drawdown

CFrog

Yes. As far as I know they stopped providing this service until they provided certain assurances to the FCA and then started again. They completed my DB transfer.

bostonerimus

Malthusian wrote: »

The Financial Conduct Authority recently reviewed a selection of final salary pension transfer recommendations and found that 1 in every 2 were not suitable. What that means is that there are plenty of bucket shops out there who will happily sign off your transfer if you cross their palms with silver, regardless of whether it's a good idea. Your problem is that the IFAs you have contacted have been too reputable.

How does the FCA define "suitable" advice?

I'd normally be against transferring a DB pension to a DC pension, it's just that the current high CETV make it worth considering. I imagine with rates rising that CETVs will fall and it will become less tempting.

bostonerimus

Trace46 wrote: »

Thank you all for replying. The reason we want to do this is the following.
Over the last 10 years we have been caring for several family members to death from illness and we now have our final 3 relatives in care. We have lost 3 in the last 18 months.
The toll of doing all this caring and both trying to work full time has taken a considerable impact on our health and life. So we took the decision for one of us to finish work ( my husband as he is 55 and I am only 46) to manage the day to day issues we have so I could concentrate more on work and not loose my job.
I have a good pension to pull in the future and and a good earning level.
As most of our family have not lived past 71, we have weighted up the DB that we would need to live to 96 to match the transfer value in benefits for my husband and as you say, we cannot pass this on in our will via DB.
As the transfer value is higher than the pension funds for my husband, this means we would get a higher 25% tax free sum now that would go towards helping us manage through this period of care we are performing. It also means we could pull up to the tax level each year, tax free until my husband is 67 and receives his state pension and convert to cash if needed to support us further.

I can see some advantages to this transfer as it gives you flexibility. However, I would not base any decisions on a pessimistic life expectancy estimate unless you have some definite medical issues.....Uncle Jim dying at 71 does not mean that you will die early too.

Have you done a serious budget to estimate your expenses and then rolled that into a spreadsheet to see how income flows and expected returns and inflation align with your outgoings? How are you planning to invest your CETV? I get worried when people look at the tax free lump sum as a way to fund something rather than as capital that is used to produce income. If you spend the 25% tax free lump sum quickly it will reduce your capital to produce pension income for maybe the next 40 years.

So you need a far more detailed plan. Can you tell us that?

Malthusian

bostonerimus wrote: »

How does the FCA define "suitable" advice?

Pretty much the same way as the dictionary does.

More specifically, you would expect the adviser's suitability letter to show

a) that the client has a good reason for transferring out of the scheme
b) that the client can do without the guaranteed income from the DB scheme
c) that they are financially and psychologically able to cope with the investment risk of having the CETV invested privately
d) that the CETV will be invested in a diversified portfolio suitable for how much risk the client can bear
e) that the adviser has run the DB scheme through a "Transfer Value Analysis System" (TVAS) which illustrates the value of what the client is giving up and what level of investment growth they will need to get it back
f) that the investments recommended have a decent chance of achieving that level of growth

There is obviously more to it than that but that's the bare minimum you would expect to see.

I'd normally be against transferring a DB pension to a DC pension, it's just that the current high CETV make it worth considering. I imagine with rates rising that CETVs will fall and it will become less tempting.

If you take your CETV and invest it in the stockmarket the CETV will certainly fall by 40% or more at some point.

Of course if it is properly invested the CETV will recover that 40% fall and carry on growing. But if the CETV is only tempting because it's high, you have to ask yourself: how you would feel if it fell to a level at which you'd never have taken it had the scheme offered it in the first place?

mgdavid

Malthusian wrote: »

......... But if the CETV is only tempting because it's high, you have to ask yourself: how you would feel if it fell to a level at which you'd never have taken it had the scheme offered it in the first place?

I haven't seen it stated like that before, that is excellent

:T :beer:

bostonerimus

Malthusian wrote: »

Pretty much the same way as the dictionary does.

More specifically, you would expect the adviser's suitability letter to show

a) that the client has a good reason for transferring out of the scheme
b) that the client can do without the guaranteed income from the DB scheme
c) that they are financially and psychologically able to cope with the investment risk of having the CETV invested privately
d) that the CETV will be invested in a diversified portfolio suitable for how much risk the client can bear
e) that the adviser has run the DB scheme through a "Transfer Value Analysis System" (TVAS) which illustrates the value of what the client is giving up and what level of investment growth they will need to get it back
f) that the investments recommended have a decent chance of achieving that level of growth

In my opinion those are pretty easy criteria to satisfy and with or without the advice of a professional everyone should go through those steps before a transfer.

We're in a pretty special moment right now with the newish pension freedoms and historically low interest rates giving CETVs of maybe 40x the annual pension amount.

soulsaver

garyjones1962 wrote: »

Is that the same Intelligent Pensions that have suspended DB transfer advising?

https://www.moneymarketing.co.uk/intelligent-pensions-agrees-fca-suspend-db-transfer-business/

https://www.intelligentpensions.com/pension-advice-services/pension-transfers/

You'd think this banner would cause some red faces...
Money Marketing Awards Winner 2016 - Best Retirement Adviser

HappyHarry

But if the CETV is only tempting because it's high, you have to ask yourself: how you would feel if it fell to a level at which you'd never have taken it had the scheme offered it in the first place?

There’s one of the reasons I love these forums. Little nuggets like that which put things simply and clearly. I’ve never heard it put like that’s before, and it’s brilliant! :T

Malthusian, I hope you don’t mind if I steal that question to use with clients.

Malthusian

HappyHarry: Absolutely. I'm flattered.

bostonerimus wrote: »

In my opinion those are pretty easy criteria to satisfy and with or without the advice of a professional everyone should go through those steps before a transfer.

You'd've thunk. But 1 in every 2 professional advisers have failed to satisfy them when recommending a DB transfer.

Many "advisers" are paying lip service to b-f and pretty much ignoring a.

We're in a pretty special moment right now with the newish pension freedoms and historically low interest rates giving CETVs of maybe 40x the annual pension amount.

We're also in the second-longest bull market of all time, and if it ends tomorrow, a year from now your CETV could be only 20-24x the annual pension. If the only reason you're taking the money is because it's 40x the annual pension amount, that's a pretty shaky reason.

bostonerimus

Malthusian wrote: »

We're also in the second-longest bull market of all time, and if it ends tomorrow, a year from now your CETV could be only 20-24x the annual pension. If the only reason you're taking the money is because it's 40x the annual pension amount, that's a pretty shaky reason.

We're in agreement. We might see the retirement income doomsday scenario of basing withdrawals on a high initial balance that is greatly reduced by a market collapse early in retirement and then continuing at the same withdrawal level ie sequence of return risk....Of course good planning and appropriate actions should deal with that possibility. But I'm a real coward, which is why I've arranged things so that I don't have to withdraw from my pension pot to fund retirement.