CETV IFA Advice Costs

Keep_pedalling

Pursuit wrote: »

Numerous reasons and I'm not saying that they are all compelling


1. Had a heart attack 5 years ago and don't think I will see 90
2. Need to get my son on to the property ladder. I pay half his rent and its financially painful. Added to this he now has a son of his own (3months old) so the chances of him saving for a deposit looks unlikely
3. The alternative to the CETV is take pension early so that I get a lump sum. This will have a large penalty probably 40% reduction
4. I am remarried and we don't have kids of are own. I want to make sure something is left to both my children.
5. After using 25% TFLS from CETV I have no intention of touching it as I'm still working and in a good job that I actually like.
6. My wife and I own 2 properties if I buy another property it will mean these three properties are her safety net in retirement. I will rent this 3rd property to my son and this will have a significant financial benefit to me probably £8k p.a.
7. We both have DC pensions. At 55 my wife's will be £300k. At 65 mine will be £180k. This should help meet our initial retirement needs. I get full state pension at 67.


Also after taking advice not to transfer, where do people get the £5-10k from to pay IFA, surely this adds to the pressure of transferring. I have the money for the advice so this is not an issue for me in particular but it did make me wonder.

How does buying a 3rd property and renting it out to your son, help him get on the property ladder?

Pursuit

You are right..but it kind of gets us out of the paying £8k p.a. rent to a stranger cycle.


He will pay what he is paying now in rent which I'm thinking is probably cheaper than any mortgage he is likely to get. Most of the remaining CETV in a SIPP will be his and his sisters inheritance. He can buy a house with the this when the time comes or when I'm 65 I can just give him the house and adjust my will regarding the SIPP to ensure my wife and both my children are taken care of.


Maybe one option is not to take any rent off him and he can save for a deposit.


Taking the CETV or early pension is not something I am taking lightly. I know the DB pension I have is a good thing....it provides security that is actually hard to buy.

Albermarle

Also after taking advice not to transfer, where do people get the £5-10k from to pay IFA, surely this adds to the pressure of transferring. I have the money for the advice so this is not an issue for me in particular but it did make me wonder.

It's a good point . I think one thing you need to do is discuss with the IFA how their charging structure works. For example maybe there will be a charge for the advice and then a separate charge to transfer the pension if you want to go ahead with it. Or could just be a one off charge for everything. As mentioned before probably good to check whether after advisng you not to transfer , they would be prepared to go ahead with the transfer anyway. If not you would have to have this done seperately.

Finally it is a long shot but if your DB scheme trustees are keen for people to take the CETV ( and many are ) they might pay for the financial advice themselves . MY DB scheme writes to me every couple of years trying to tempt me to take the CETV and they offer the services of an advisor for free.

Dorian1958

9 months ago I paid 1.25% of the pot (minimum size 250K) for the advice and transfer. IFAs have different charging structures which can be challenging to get your head around and compare. Charges came out of the transferred pot, and seem high, but the IFA is shouldering a huge risk as the presumed advice is not to transfer. As a result any IFAs prepared to do this work (and they are diminishing) have to take out expensive indemnity insurance.

It took a lot of time and effort for me to find an FCA registered IFA that I was happy with who had the necessary specialist transfer qualifications. Some IFAs wanted the advice work but then would have sub-contracted the transfer part if agreeing it would go ahead. I didn't want that,I wanted everything done in-house, but that might not be an issue for you.

My CETV multiplier was 30 x my pension (this was about 9 months ago), but I am not sure if there is a current "going rate" which of course in any case will all depend on your individual circumstances and the state of the DB pension fund.

I was happy to transfer for several reasons (some not dissimilar to yours) but an important factor was I had 2 other guaranteed government DB pensions and the one I transferred amounted to about 25% of my projected income in retirement. As it happens, I have not touched the transferred pension since I retired 5 months ago, but it is good to know that I have a large amount that I can tap into if needed, and also pass on to my family in the future.

Good luck.

goRt

First Equitable was the best price for me when I checked a few months ago - fixed fee not a %age

Albermarle

My CETV multiplier was 30 x my pension (this was about 9 months ago), but I am not sure if there is a current "going rate" which of course in any case will all depend on your individual circumstances and the state of the DB pension fund.

I have been recently offered 31 x . In my case it is my only DB scheme and I have DC pots as well , so I just left it alone.

badmemory

Surely it would make more sense to gift him the deposit (by increasing one of your buy to let mortgages maybe) & help out for a while making the mortgage payments. Your daughter is already losing out to your son so helping with the deposit would at least make that help a thing with an end which can be corrected by an extra amount left to your daughter.

Pursuit

Thanks to all who have responded.
I now at least have an idea of what a reasonable fee would be.

badmemory....I don’t see or I’m not savvy enough to see how gifting my son a deposit via remortgaging helps. It increases my existing debt and in the event of my death I believe these gifts are subject to IHT. It would seem possible via CETV and additional house purchase to facilitate several ways of limiting the payment of tax as the money is either tax free or tax is charged at the beneficiaries nominal rate.

But these are some of the things I need to discuss with IFA.

Malthusian

Pursuit wrote: »

Also after taking advice not to transfer, where do people get the £5-10k from to pay IFA, surely this adds to the pressure of transferring.

If you can't easily lay your hands on £5 - £10k without worrying then you probably shouldn't transfer out of a DB scheme.

It is common for advice to be on a contingent charging basis which means that if you don't transfer, you don't have to find £5 - £10k. If you do transfer, the fee can be taken out of the CETV. Either way it doesn't come out of your bank account.

Contingent charging is highly non-U because of the perceived conflict of interest and risk that the IFA will recommend a transfer even if it is a bad idea because they are financially incentivised to do so. My personal opinion is that contingent charging should be avoided for anyone who is reading those boards. It is fine for someone who has an established relationship with an IFA they trust, but that doesn't apply to anyone reading MSE forums and looking for a rubberstamp. Non-contingent charging (i.e. you have to pay even if the advice is to do nothing) means you can be more confident that you aren't being advised by a bucket shop.

Malthusian

Pursuit wrote: »

badmemory....I don’t see or I’m not savvy enough to see how gifting my son a deposit via remortgaging helps. It increases my existing debt and in the event of my death I believe these gifts are subject to IHT.

But the additional borrowing would be netted against the gift.

Let's say I'm a single person with a house and a £450,000 estate, so right at the limit of the NRB and RNRB. I borrow £50,000 from my mortgage lender. I now have an extra £50,000 in cash and a -£50,000 loan, so my estate is still £450,000 - no IHT liability. I give the £50,000 to my son. If I die within seven years the gift is added back to my estate, so now my estate has £450,000 in assets, a £50,000 failed PET, and a -£50,000 loan. Still no IHT - the loan to the mortgage lender sets it off.

(I am of course ignoring repayments of capital to the mortgage lender if it's a repayment mortgage, which will fall into the estate. If it's interest-only the loan would stay at £50,000.)

Alternatively, let's say I cash in a DB pension and withdraw £50,000 net of income tax, and give it to my son. Now my estate is worth £500,000 - £450,000 assets and £50,000 failed PET - and no borrowings to set against it. So IHT is payable on £50,000. If the money had stayed within a pension wrapper it would have been free of IHT in most circumstances, so the IHT bill is entirely unnecessary.

(P.S. For the sake of keeping the numbers simple, I am ignoring the £3k per year gifting allowance, the potential for an IHT charge on the pension transfer in the first two years, and anything else I have forgotten.)