Final Salary Pension Transfer

davidcook

Hi, I'm looking for some advice.


I have a final salary pension pot of 550000, and am looking to transfer out to another scheme.


Reasons are to carry on growing the pot, as currently it's frozen, I also want to give myself the choice if I want at 55 to take early retirement with no penalty, as in the current scheme I believe there's around a 21% penalty.
I am 48 no responsibilities, single with no dependants.


I have spoken to 2 IFA's so far, 1 agreed to take on the transfer, but when the fees came back they seemed very high. 2.7% transfer and 2.2 yearly management.


The 2nd advised me to stay where I was.


I have another meeting in place later today to discuss with another.


I know people will have gone through this and I am interested in your experiences.


Thank You
David

campbell19925

2.2% is far too high as an AMC. 2.7% to facilitate transfer is also quite high.

Likely you wont find a reputable IFA to facilitate a transfer for you unless there is a very good reason for you to give up the scheme.

Seabee42

21% sounds like a very low early retirement reduction at 55. Is your normal retirement age 60?


.5% is the maximum you should be paying as an on-going advice fee in my opinion. The second advisor sounds very much like a tied agent. Did you ask the first advisor why he recommended not transferring?


The 2.2% doesn't count the investment or administration cost either that's likely to be 1% each year if you add inflation of 2 to 3% you need to return 5.2 to 6.2% per annum to stand still (this doesn't allow for the upfront loss).

daveyjp

OP. Please explain what you understand by the word 'frozen' in your initial statement.

campbell19925

daveyjp wrote: »

OP. Please explain what you understand by the word 'frozen' in your initial statement.

I didn't pick up on that either. Well played.

OP, just because its frozen doesn't mean its not growing. You have requested a CETV (Cash equivalent transfer value) which will grow with time. So please understand the value of that fund will grow as you get older. Its not frozen, as such. That word refers to a scheme that no-one is paying into anymore. So you don't have to move the fund for it to grow.

Aegis

I do these fairly frequently (it's low volume work, but I seem to work on several every year anyway) and I'd predict that most of the time a 2.2% annual fee would make it tricky to recommend a transfer, as that directly impacts the critical yield analyses.


Your issue with finding an adviser may be because the death benefits are unlikely to be a major factor in your decision, as you'e highlighted that you are single with no dependants. As a result, the transfer will need to be for flexibility and potential benefit over what you already have, which may be very difficult to justify if the transfer value isn't sufficiently good compared to the guaranteed income you are looking to give up.


There are certainly advisers out there that will do this for under 2.7% - nearly £15k for that work seems too high to me. Additionally, the amount in question makes me suspect this is a tiered pricing structure of some sort, which probably means it is a contingent charge on you actually transferring - this may lead to conflicted advice, so be wary.

kidmugsy

davidcook wrote: »

I have a final salary pension pot of £550000, and am looking to transfer out to another scheme.

How big is the eventual pension you would be giving up. At what age is it available? What is its provision for index-linking?

dunstonh

Reasons are to carry on growing the pot, as currently it's frozen,

Is it frozen or are you just calling it frozen not realising that frozen has a specific meaning. Most DB schemes where you are no longer employed with that company are not frozen. They are deferred.

I also want to give myself the choice if I want at 55 to take early retirement with no penalty, as in the current scheme I believe there's around a 21% penalty.

That is not likely to be good enough justification in itself. If you do actually retire early, then you could investigate transferring it then and make an informed decision of the alternatives at that point.

I am 48 no responsibilities, single with no dependants.

So, that makes death benefits not available as a justification.

I have spoken to 2 IFA's so far, 1 agreed to take on the transfer, but when the fees came back they seemed very high. 2.7% transfer and 2.2 yearly management.

percenates have to be in context with the figure invovled. 2.7% of £50,000 is cheep. 2.7% of £500,000 is expensive. Ongoing charges should aim to be under 2% all in with that sort of figure. 1.1% to 1.5% ballpark (you generally find the higher risk funds are more expensive. So, the higher risk you are you, the more you have in higher risk funds and therefore the more the charges are).

You should expect the initial fee to be high. £5k or so. Just not as high as you have been quoted.

Dox

wjr4 wrote: »

FYI the CETV does not continue to grow over time. It is a DB scheme and does not have a fund as such. There is no 'value' for a DB scheme.

The CETV almost certainly will increase over time, depending on investment conditions. Two reasons: the pension is increasing year on year (it isn't frozen - given OP's age he must have left at a time when DB pensions had to revalue in deferment); and the member is that much closer to retirement, so a larger sum is needed to reflect the value of the benefits being given up.

OP, you say you might want to retire early and don't like the reduction factor applied by your scheme. Don't forget that if you buy an annuity with your (transferred) pension savings, it will start at a lower level depending on the age at which you start to draw it. The younger you are, the lower the starting value, to reflect the fact it is likely to be paid for a longer period. If on the other hand you want to use drawdown, you are permanently depleting your own pension savings pot, so you aren't necessarily magically putting yourself in a better position.

GSP

Still information needed as in what other assets/cash etc does the OP have.

Concentrating on the query, if the OP wishes to retire at 55 I suppose the question is how much is the £550k going to be worth if transferred out now and in seven years time. Truth is we don't know. £650k perhaps??
Without seeing what the DB is projected to be, let's just say £18-£20k p.a. With early retirement this could come down to £15k after penalties.
Transferring out will release you from early retirement penalties in a DB scheme. Invested properly and a long term trend you may be able to drawdown £25k-£28k annually, so much better than the DB scheme, but there are those market risks which we are all anticipating.
That's my ballpark take on what you have here.
In addition, products and things will change over time. While buying annuities are not worth thinking about, whose to say if rates went high these could become attractive and still able to be bought from drawdown money.
Drawdown money is fluid. Remains to be seen how well certain decisions made now pan out in future.

kidmugsy

If I were thinking about transferring I'd note the current high level on Wall St and perhaps wait until investing within a personal pension was better value.