British Steel pension predicament

fuelcrusher

So a while back I asked for a CETV for my deferred British Steel pension. It came, quickly, unexpectedly quickly because I didn't notice for 6 weeks that it was put with my new scheme/PPF decision letter.

The offer is £140,000 transfer value for a pension currently valued at £5000/year at 65. I am 45 now and hope to be able to retire at 55. My plan has always been to have this deferred pension as a fall back cushion to give me more flexibility with my private pension between 55 and 65.

So the offer is 28 times the yearly pension. A far cry from my current colleagues in one if the big six energy firms who are being given 36 X value. But hey, who's jealous..

So my predicament now is that I'm on a limited time frame. I have an appointment with an IFA on Thursday. BUT I also have to make my decision this week as to whether to go into the PPF which will allow me another CETV valuation in the current scheme and the transfer would need to be done before end of March. If I did not then transfer out I would move to the PPF and never be allowed to transfer out going forward.
The other option is to select to go into the new british steel scheme but in this case I am not allowed another transfer value until the new scheme starts next april, and there is a warning the value will be lower. I would have until mid January to get the transfer done at this value if I go this route.

My current thoughts are to transfer to the new scheme. This is based on the PPF only really proving the better option if I draw the pension early. Also in the new scheme it still gives me the ability to transfer out sometime over the next 20 years if it proves the right thing to do.

Gut feeling is that the advisor will not advise me to transfer out, but £140,000 now is 28 years of pension payments and 20 years of growth which should more than account for inflation and CPI pension rises. I'd have been happier if it was really high value like my colleagues or absolute rubbish. Being middle of the road makes it a harder decision.

So yeah, my own fault for missing the letter and putting myself in this situation. Any thoughts.

Teaandscones

My initial thoughts would be to transfer to BSPF2 as most of your service would be after 1997 so eligible for inflation uplift.
A DB base can be very valuable and a split of DB plus future service DC can be the best of both worlds providing security plus flexibility.

Malthusian

fuelcrusher wrote: »

Gut feeling is that the advisor will not advise me to transfer out, but £140,000 now is 28 years of pension payments and 20 years of growth which should more than account for inflation and CPI pension rises.

It's only safe to assume that the pension should grow in line with inflation when you're not taking any money out of it. When you're drawing 4.5% out each year (don't forget charges), every year, and increasing that 4.5% with inflation, and you can't stop the income without compromising your lifestyle, it's a different matter. Google 'pound cost ravaging'. And you (or your partner?) could easily live 28 years if you're currently in reasonable health.

When you're 65 and have £140,000 the possibility of exhausting the fund is going to feel pretty remote. When you're 80, the market has crashed and you've got £35,000 which has to last you the rest of your life, it's not going to feel quite so remote.

If you'll need the £5,000pa to live on then the adviser is likely to advise keeping the DB pension and transferring to BSPF2. If stockmarket performance is going to be terrific over the next 20 years then you won't regret not transferring out of British Steel as you'll be too busy counting the coins in your private pension and thinking about all the fun stuff you can do with it, knowing that the DB pension will give you extra flexibility to spend your private pension money.

fuelcrusher

Hi. thanks for the comments.

I visited the adviser the other night. I had already made the decision regarding PPF or BSPF2, I have opted to join the new scheme.

So the appointment went nicely, I had no real views on whether I wanted to transfer out or not I just wanted to know if it was good value and the right thing to do. Honestly I expected that it wouldn't be, however the adviser gave me an indication that the advice would be to transfer, following all the reports and checks etc.
When I asked about costs for this service I was told that there would be no costs involved in the transfer however there would be penalty charges if I went and transferred away from the pension he would set up for me and 1.8% fees while they managed it. So I asked how that would work if I just wanted to transfer into my own Sipp that I currently manage myself. It appears that they have never done this. So apparently I'd gone to a financial adviser not an IFA. He assured me that if it was not in my best interest then they wouldn't advise me to transfer but I must admit this has raised a small enough flag for me to probably back out straight away. I'm just struggling to make sense of how an adviser can be impartial but then benefit from the transfer. It is odd how some of my colleagues are going through this with much bigger values and are happy with the process, but then I suppose it's the bigger value that makes them happier.

dmelife

Sounds like St James Place to me.

Go and see a suitably qualified IFA and tell them you want to pay a flat fee for advice and then a transaction fee if the advice is to transfer.

xylophone

You need to take advice from an adviser who has the necessary permissions and qualifications - a Pension Transfer Specialist.

http://www.pruadviser.co.uk/content/knowledge/technical-centre/pension_transfer_conversion/

See https://www.moneyadviceservice.org.uk/en/articles/transferring-out-of-a-defined-benefit-pension-scheme

Malthusian

fuelcrusher wrote: »

I'm just struggling to make sense of how an adviser can be impartial but then benefit from the transfer.

Well, they're not impartial as it's St James Place (probably).

The morality of "contingent charging" (i.e. if the adviser advises you to do nothing, that advice is free) is a hot topic at the moment. However, contingent charging does not create a conflict of interest for a reputable adviser because the benefit of being paid for transferring a DB pension that shouldn't be transferred is more than cancelled out by the cost of sleepless nights and liability for future complaints. (St James Place is generally reputable, if eye-bleedingly expensive.)

Whether you are happy to pay upfront to gain the confidence of knowing that some of the potential bias is eliminated, knowing that you might be paying to be told to do nothing, is entirely a personal choice for the consumer.

As you have misgivings about contingent charging then as dmelife says, paying a fee upfront for the initial advice is worth it for the peace of mind.

It is odd how some of my colleagues are going through this with much bigger values and are happy with the process, but then I suppose it's the bigger value that makes them happier.

This is called "lottery win syndrome" or "pound signs in the eyes".

xylophone

Well, they're not impartial as it's St James Place (probably).

http://citywire.co.uk/new-model-adviser/news/sjp-stops-advising-on-british-steel-pension-transfers/a1077547?ref=new-model-adviser-most-popular-list

http://citywire.co.uk/new-model-adviser/news/british-steel-pension-transfer-ifa-ducks-out-of-mps-hearing/a1077463?ref=new-model-adviser-most-popular-list

http://citywire.co.uk/new-model-adviser/news/steelworkers-face-5-charge-to-move-funds-post-db-transfer/a1077272?ref=new-model-adviser-most-popular-list

Malthusian

Indeed. For those who don't speak URL, I may have been too hasty in assuming it was SJP.

When someone mentions exit charges it is usually a safe bet they are dealing with St James Place because exit charges are largely a thing of the past since the 2012 reforms of the advice market - except for St James Place, which seems to have got a free pass from those reforms from the regulator.

However in this case the safe bet is wrong and there is another firm called Active Wealth who are telling clients they will do the business for no upfront charge, but the charge is in reality paid either via the eye-watering annual charges or an exit charge in the first five years.

Active Wealth obviously does not have a free pass as the regulator has told it to stop doing defined benefit transfers.

Credit-Crunched

Malthusian wrote: »

Indeed. For those who don't speak URL, I may have been too hasty in assuming it was SJP.

When someone mentions exit charges it is usually a safe bet they are dealing with St James Place because exit charges are largely a thing of the past since the 2012 reforms of the advice market - except for St James Place, which seems to have got a free pass from those reforms from the regulator.

However in this case the safe bet is wrong and there is another firm called Active Wealth who are telling clients they will do the business for no upfront charge, but the charge is in reality paid either via the eye-watering annual charges or an exit charge in the first five years.

Active Wealth obviously does not have a free pass as the regulator has told it to stop doing defined benefit transfers.

From what I can read on the fund fact sheets, there is a 5% initial AND a 5/4/3/21 exit penalty and a 1.98% AMC and a 10% performance fee all this with a 0.32% annual performance . Not sure I would have been happy to be put in that.

fuelcrusher

Yes it was St James Place. I had enough doubts that I have stopped the process. The time pressure meant I wouldn't have been able to make a clear decision even if it could have been completed in time. For now I'll leave the DB alone and concentrate on my DC and sipp.
Thanks for the comments.