Advice re deferred defined benefits pension

Marcon

JillyC8 wrote: »

It's surprising the pension freedoms exist at all, given the risk of running out of money later on. Maybe it will be revoked at some point.

You're overlooking why they were introduced. It was nothing more nor less than a vote winner - a ploy which worked at the election which followed their introduction.

Now the genie is out of the bottle, it is highly unlikely anyone will be able to (or have the political will) to try and stuff it back in.

Silvertabby

“ It's surprising the pension freedoms exist at all, given the risk of running out of money later on. Maybe it will be revoked at some point.
Originally posted by JillyC8

Marcon wrote: »

You're overlooking why they were introduced. It was nothing more nor less than a vote winner - a ploy which worked at the election which followed their introduction.

Now the genie is out of the bottle, it is highly unlikely anyone will be able to (or have the political will) to try and stuff it back in.

An extension of the Pension Freedoms was the intention to extend the scope to 'cash it in' to annuities already in payment. This idea was binned because it was felt that far more people would lose than gain, due to the compexities of the proposed scheme.

This didn't stop the myriad complaints from those who had already mentally spent this money and were hugely disappointed that they couldn't cash in, largely because they didn't understand what would have happened.

Very briefly, the proposal was that a third party investor would purchase the policy. They would pay the pensioner a one-off lump sum and, in return, they would receive the annuity for the rest of the pensioners life. This person would naturally want a good return for their investment, so it's highly likely that pensioners would have to pass a medical (at their own expense) so that the investor could work out how much they could actually expect to receive from the annuity.

In a reversal of the practice that ill health usually results in a higher annuity, a sick pensioner trying to sell their in-payment annuity could have found that it was worthless to an investor.

It was so sad, but a couple of posts on finance boards were from terminally ill pensioners with annuities who had mistakenly thought that the new rules would have allowed them to 'cash in' their annuities for many £Ks that they could then leave to their families. In another case, a neighbour assured me that he would get back his total pension fund less the annuity payments he had already drawn.

Just because a proposal like this could be a vote winner doesn't necessarily make it right.

GDB2222

Add to that some practical difficulties. For example, the buyer of the annuity would have to be able to prove the annuitant was still alive. But of course the annuitant has no incentive to cooperate.

dunstonh

However, the transfer value is 380000. this does not seem to add up with the 25% lump.

DB schemes do not have a 25% TFC. They have a pension commencement lump sum that is based on a calculation.

How can advisors be sued later on if they have advised the pension holder not to transfer but they choose to do it anyway? (Be gentle)

The FOS is a very liberal ombudsman. They cannot believe that the consumer can tell lies. So, when people change their story and spin a story of lies to them, they tend to believe it Even if the documentary evidence suggests otherwise.

The FCA rules guidelines for insistent client and both the FCA and FOS say that if that is followed, there shouldnt be a problem. However, the guidelines are a bit wishy washy and allow interpretation. Plus, on the other hand, the FCA say an adviser shouldnt do a transaction that they know is wrong for the person. So, how can an adviser do insistent client if they know it is wrong to do it.

It's surprising the pension freedoms exist at all, given the risk of running out of money later on. Maybe it will be revoked at some point.

If you have two people with £200,000. One with it all in a pension and another all in an S&S ISA, why should the person with £200k in the pension be treated differently to the one with £200k in the ISA?

It would be better if the govt could come up with a set of 'rules' around this, for instance, those wishing to transfer may need to tick certain boxes first, such as having other arrangements in place, before they're allowed to transfer.

If you take the whole period from 1988, then in 9 out of 10 cases, the person would be financially worse off by transferring out of a DB scheme. The rules are based on that level of suitability.

The average consumer doesnt have the knowledge to tick boxes to say they know something. The FOS position is that someone who is not able to understand the situation is not in a position to certify away their rights.

5000 for advice - almost beyond belief!!

That is not bad. I wouldn't do it for less than that. You may pay a one off charge but the adviser firm is paying increased premiums on their liability insurance for the rest of their life. The more DB transfers they do, the more the premium goes up and stays up.

DB transfers are the highest risk transaction an adviser can do. If you were an adviser, what do you think is a suitable charge for a transaction that will probably cost you thousands of pounds over the next 30 years that can only be carried out by someone that has passed a degree level qualification, and is the current hot potato with the regulator and could potentially put you out of business?

Silvertabby

GDB2222 wrote: »

Add to that some practical difficulties. For example, the buyer of the annuity would have to be able to prove the annuitant was still alive. But of course the annuitant has no incentive to cooperate.

Something similar (but in reverse) to the selling of endowment policies on the open market ? When Mr S and I were in the process of buying a house we looked into cashing in a small endowment to put towards the deposit. The advisor said that we may get a little more on the open market, and explained what that meant. The paperwork included a section for the contact details of one of our close friends or a family member 'who would be contacted from time to time by the purchaser, who would ask if Mr S had croaked it yet' (so they could collect on the policy early).

I threw a hissy fit at the idea of someone gambling on his life and said no way, even if we got less by just cashing it in.

Had the selling of annuities gone ahead, I expect it would be the pension companies who would want the access details in order to run regular life checks - but, you're right, why would anyone comply? Probably another reason why the whole daft idea was binned.

JoeCrystal

GDB2222 wrote: »

I suggest getting a quote for an index linked annuity for £1000 pm, then comparing that to the cetv. That gives you an idea how much it costs the insurance company to provide your pension without taking an investment risk.

According to the Best Buy Rates on HL, joint life 50%, 3% escalation, no guarantee works out as £551,724 for 55 years old, £468,750 for 60 years old and £396,432 for 65 years old. But then, some DB pension schemes not only pay spousal pensions but for children until they reach 18 or until they finish full-time education. I know it is possible for spousal pension but is it possible to get an annuity that also pays out to the children as well?

Malthusian

JillyC8 wrote: »

If you have a DB pension and croak it at 65 and there is no spouse where does it go?

To the other members of the scheme (assuming no dependent children or other death benefits). That's why you get a much better guaranteed return than you could hope to achieve as an individual.

When someone who isn't going to die prematurely transfers out of a DB scheme they forfeit their share of all the lifespan lottery losers' money.

It would be better if the govt could come up with a set of 'rules' around this, for instance, those wishing to transfer may need to tick certain boxes first, such as having other arrangements in place, before they're allowed to transfer.

The rule that Osborne scribbled in the margin of his Budget speech when an adviser whispered to him "what if you end up causing the next 1990s pension misselling scandal?" is that if your DB pension is worth speaking of you have to take regulated advice, which would take that into account among many other factors.

dunstonh wrote: »

If you have two people with £200,000. One with it all in a pension and another all in an S&S ISA, why should the person with £200k in the pension be treated differently to the one with £200k in the ISA?

The history textbook answer is that a significant proportion of the pension investor's £200k came from tax relief, which was granted on the understanding that saving in a pension would keep them from claiming means tested benefits later. The ISA investor's £200k is 100% their own money on which they have already paid income tax.

That is only the textbook answer and doesn't represent my own beliefs. If someone does blow their £200k and then claim means tested benefits, deprivation of assets rules will apply. Far more importantly, the number of people who have the discipline to accumulate a £200k fund but not enough to avoid blowing it all is vanishingly small. As common sense and research from Australia confirms, the biggest problem with pension drawdown is people spending too little money, not too much. Investors find it very hard to switch from accumulation to decumulation.

Malthusian

JoeCrystal wrote: »

But then, some DB pension schemes not only pay spousal pensions but for children until they reach 18 or until they finish full-time education. I know it is possible for spousal pension but is it possible to get an annuity that also pays out to the children as well?

You would want an annuity with a guarantee period that expires when the child is 21. Not an exact match but I think this is the closest you will get with an individual annuity.

For obvious reasons it would be quite rare for someone buying an annuity to need one. The "child's pensions" provisions are designed more for DB members who die in their 30s/40s/50s before reaching scheme retirement age. For DC members who die at that age and have no spouse, the child can receive 100% of the pension fund tax free.