Final Salary Pension - transfer out

roddy.mcaskill

Wifes final salary pension from an ex-employer has a cash transfer value of £260K. True potential investments seem to offer the best value 'advice service' - £500 - albeit with the expectation that you invest in their selection of funds with an annual combined charge of around 1.2%. though it seems possible to move away from them if we're not happy with the fund performance for a closing fee of £50.

Assuming their advice is to transfer out - to me, it looks like a no-brainer ( except for the increased risk of investing, worth it given the difference in both lump sum and monthly pension ( assuming conservative growth) that Mrs M would receive - along with the option to leave the kids an inheritance!!

What am I missing? Peoples views of TPI?

mgdavid

can't comment in isolation.
What will the DB pension pay?
What other pensions, savings & investments do you both have?
Ages?
Style and cost of living?
Investment knowledge?
Do you really have the aptitude, knowledge and enthusiasm to take on the responsibility of the investment and management of this fund year in, year out until you die? Then what? Does your surviving partner also have the wherewithal to continue the same?
How is your health, and what is your life expectancy?

roddy.mcaskill

Can't comment in isolation.
What will the DB pension pay?
£9K is she takes it at 55 no lump sum. £6K with a lump sum of £40K that seems much less than 25% of CETV. + p/a. 50% spouse pension. RPI increases or 5% whichever is lower pwe annum
What other pensions, savings & investments do you both have?
I have DB frozen with 18 years service + £360K DC pot. total value right now about £800K.
Ages? Wife, 55 in Jan'19, me 52 in Jan'19
Style and cost of living? Mr and Mrs Average.
Investment knowledge? Average / low again
Do you really have the aptitude, knowledge and enthusiasm to take on the responsibility of the investment and management of this fund year in, year out until you die? Then what? Does your surviving partner also have the wherewithal to continue the same? Nope - but would ensure a balance portfolio with limited exposure in any one sector ( wishful thinking )
How is your health, and what is your life expectancy? Planning on going for the full innings - wife LE is 89. Me 86..

dunstonh

True potential investments seem to offer the best value 'advice service' -

True potential recently got into hot water over contingency pricing.

£500 -

Wonder what corners they are cutting to do it for just £500. That is ludicrous.

Aegis

There's no way the job can be done properly for £500, so be careful in case there's an implementation fee that they haven't made as clear as the initial case fee.

Brynsam

What are you missing?

An understanding of pension commencement lump sums in a DB scheme - they are not 25% of the 'pot' because there isn't a 'pot' as such.

An understanding of how your wife's early retirement at 55 (bet the scheme's retirement age isn't 55...?) will impact on the starting level of her pension.

An understanding of the fact that your DB pension isn't frozen.

Good quality, thorough going and totally independent financial advice on whether a transfer is a good idea, and also to where the transfer should be made.

You also seem under the happy illusion that the outcome is somehow guaranteed. Your wife's DB pension is currently in a scheme where she pays no costs to administer/invest the funds and where the ultimate pension has no commercial aspect (i.e. the DB scheme isn't making money from her). If you transfer out, your wife has the costs of running the pot; the costs of buying an annuity to provide the monthly pension to which you refer (which has a commercial mark up for the annuity provider plus an admin cost to service the monthly payments); and the huge risk of investing the funds.

Are you sure the pension she would (allegedly) receive is on a like for like basis with the one promised by her DB scheme - same survivors' benefits? Same guaranteed increases? Same guarantee to pay a certain minimum number of payments?

Thrugelmir

roddy.mcaskill wrote: »

Assuming their advice is to transfer out - to me, it looks like a no-brainer ( except for the increased risk of investing, worth it given the difference in both lump sum and monthly pension ( assuming conservative growth) that Mrs M would receive - along with the option to leave the kids an inheritance!!

If you are basing a decision on an unprecendented era that's drawing to a close. You need to give matters more consideration.

Dox

roddy.mcaskill wrote: »

Can't comment in isolation.
What will the DB pension pay?
£9K is she takes it at 55 no lump sum. £6K with a lump sum of £40K that seems much less than 25% of CETV. + p/a. 50% spouse pension. RPI increases or 5% whichever is lower pwe annum

If she transfers out and takes a 25% lump sum from her new (DC) arrangement, that leaves under £200,000. That's not going to buy a £6K a year pension at 55 with RPI increases to a maximum of 5% + spouse pension.

roddy.mcaskill

Brynsam wrote: »

What are you missing?

An understanding of pension commencement lump sums in a DB scheme - they are not 25% of the 'pot' because there isn't a 'pot' as such.
Point taken
An understanding of how your wife's early retirement at 55 (bet the scheme's retirement age isn't 55...?) will impact on the starting level of her pension.
I have that understanding

An understanding of the fact that your DB pension isn't frozen.
Pretty sure it more or less is

Good quality, thorough going and totally independent financial advice on whether a transfer is a good idea, and also to where the transfer should be made.
Total independance seems to come at rather a large mark up - 4% on average. Seems a lot and not one advisor I've spoken to has been able to justify the fee to my satisfaction. Other than it's a specialist area!

You also seem under the happy illusion - Absolutely not, hence the post - that the outcome is somehow guaranteed. Your wife's DB pension is currently in a scheme where she pays no costs to administer/invest the funds and where the ultimate pension has no commercial aspect (i.e. the DB scheme isn't making money from her). If you transfer out, your wife has the costs of running the pot; the costs of buying an annuity to provide the monthly pension to which you refer (which has a commercial mark up for the annuity provider plus an admin cost to service the monthly payments); and the huge risk of investing the funds. Why do you assume an annuity would be purchased? it it not more likely she would opt for drawdown from a portfolio optimised for income

Are you sure the pension she would (allegedly) receive is on a like for like basis with the one promised by her DB scheme - same survivors' benefits? Same guaranteed increases? Same guarantee to pay a certain minimum number of payments?

Survivor benefit is 50% in DB whereas in SIPP it would be the pot value! I've included avg RPI increases in her drawdown along with conservative returns on the investment - as well as the costs - and it still looks more attractive if prepared to accept the risk factor.

roddy.mcaskill

That is indeed the worry! But has it not been drawing to a close since 2008.

dunstonh

roddy.mcaskill wrote: »

That is indeed the worry! But has it not been drawing to a close since 2008.

Volumes of transfers are in decline. PI insurance is going up in cost for those doing DB transfers and PI insurers are increasingly excluding British Steel transfers. As gilt yields rise, the transfer values will fall and normality will return. It is just taking longer than expected as no-one expected interest rates to remain this low for as long as they did.