Defined Benefits Pension Transfer Rip-Off

AnotherJoe

nigelbb wrote: »

When is providing for a DB pension in retirement ever the wrong decision? Don't try & give me the other nice options that you would prefer to spend the money on just tell me when it would be wrong.

Limited life span / ill health /

Wish to have higher money earlier on, cut back spending later.
When the CETV is so high that there are no realistic situations when a lump sum wont enable a higher payment than the DB.
Wish to leave to possibly disadvantaged relatives, perhaps invalid or mental health who will need care after you've died.

When you wish to exercise personal choice and take responsibilty for your own decisions.


Of course you might decide to take this choice away from everyone to protect some people from their own foolishness but then there will inevitably be casualties in the other direction.

Thrugelmir

JillyC8 wrote: »

And the pension freedoms were introduced by the government in 2015 to give people a choice about managing their pension savinGs.

No one is disputing that. As with any broad proposal there then follows the detail. Those that do will need to factor in the cost of doing so. As this burden shouldn't be placed on everybody else that is happy to maintain the status quo.

HappyHarry

To go back to the basics which a lot of posters seem to be missing.:

A defined benefit pension is the promise to pay an income at retirement age, for the rest of a member's life.

It is not a pot of money, affected by the recent pension reforms, for members to do with what they wish.

However, some schemes, under certain circumstances, will allow members to exchange their DB benefits for a pot of money. Note, this is some schemes, certainly not all.

For anyone considering exchanging benefits in such a scheme for a pot of money, there is a clear process that needs to be gone through. Again, worth noting this only applies to the members of some schemes, not others. There is no "right" for every member of every DB scheme to be able to exchange.

In the majority of cases, such an exchange would not be in the members best interests. So, in order to exchange, those members need to take professional advice.

The advisers, and their insurers, are professional enough to recognise that these exchanges are usually bad news for the members.

So, insurers, advisers, the FCA, the FOS, and the government that drafted the legislation in this area all think that it is usually a bad move to exchange a DB pension for a pot of money.

Yet, time and again we see on these boards comments about "rip-off" adviser fees, and expressions along the line of "I know better than all these professionals".

The truth is, very few people wanting a transfer of DB rights fully understand the implications of what they are doing, or the risks involved.

If you think that sounds arrogant, then you should read through a number of these type of threads on this board, and reflect that advisers with the necessary permissions have to deal with clients with similar arguments on a regular basis. It's no wonder advisers and their insurers are walking away from this area of advice.

JillyC8

Agree, but this is a sweeping argument that doesn't address all the detail we are discussing in these threads and the sensible reasons as to why. Someone may want to transfer, or need to transfer.

nigelbb

AnotherJoe wrote: »

Limited life span / ill health /

Unfortunately that's not the way pensions work. The longer that you live the more value you get from your pension which is balanced by those who don't live long enough to draw their pension as long or at all. There should be a decreased pension for dependents if the pensioner does expire early.

AnotherJoe wrote: »

Wish to have higher money earlier on, cut back spending later.

Unfortunately that's not the way pensions work. You pay in during your working life to get a pension after you retire. If you want a savings plan choose an ISA or some other form of saving.

AnotherJoe wrote: »

When the CETV is so high that there are no realistic situations when a lump sum wont enable a higher payment than the DB.

In this case the CETV is clearly overgenerous & has been miscalculated so is obviously detrimental to the other members of the pension scheme so shouldn't be allowed.

AnotherJoe wrote: »

Wish to leave to possibly disadvantaged relatives, perhaps invalid or mental health who will need care after you've died.

Unfortunately that's not the way pensions work. You pay in during your working life to get a pension after you retire. You need to make other arrangements if you want to leave a legacy

AnotherJoe wrote: »

When you wish to exercise personal choice and take responsibilty for your own decisions.

No. If you want the tax benefits of accumulating a pension for your retirement you should accept that you are giving up personal choice & that the money should be used prudently & in the way that it was intended.

AnotherJoe wrote: »

Of course you might decide to take this choice away from everyone to protect some people from their own foolishness but then there will inevitably be casualties in the other direction.

This "choice" on what you do with the money that should be providing your pension has only been available for a couple of years. There were no casualties previously & it's just political dogma that people need a "choice".

nigelbb

soulsaver wrote: »

There are the pretty obvious examples that may not have the life span nor the qualifying pension beneficiaries (spouse) but may have heirs that would benefit from the CEV.

There are always winners & losers with any mutual scheme & pensions are no different. The longer that you live the better value you get out of your pension contributions but that is balanced by those who get less value because they die earlier. Some people cost the health service a fortune while others cost very little over their lifetime. You still pay in the same amount.

sandsy

JillyC8 wrote: »

And the pension freedoms were introduced by the government in 2015 to give people a choice about managing their pension savinGs.

Except that the freedoms were only given to DC savers. The government consulted on whether or not to prevent those with DB schemes transferring out at all!

In the end, they did continue to allow transfers out but only by putting in place hoops that DB members had to jump through to stop them acting against their own best interests.