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Who will accept a DB to SIPP transfer from "insistent client"
Comments
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Silvertabby said:... I suspect that the authors of the reforms assumed that very few DB pension fund members would be interested in banging out of their 'gold plated' schemes.I can't speak for the other public sector schemes, but the LGPS 'phones went into melt down with both current and deferred members wanting their money. Now. Hence the subsequent ban on transfers out from non-funded public sector schemes, because of the immense and immediate drain of public funds.
If members behave rationally a big and sustained drop in equity markets can be expected to lead to a large increase in transfers out of funded public sector schemes because the combination of low asset prices with higher expected safe withdrawal levels will overcome the blocking effect of low compared to the private sector transfer rates. At the moment cyclically adjusted price/earnings ratios in many markets mean that we're at decidedly mediocre expected withdrawal rates. A sustained 40% equity cut would radically change that expectation."14. As noted above, the 2014 Budget announcement indicated that savers would be given greater choice about how and when they access their defined contributions pensions pots. The new flexibilities will also have implications for those with a defined benefits pension pot, and the Treasury have consulted on how these flexibilities, including individuals’ rights to a transfer, should be managed. As the majority of public service defined benefits schemes operate on an unfunded basis, allowing transfers out of these schemes would expose the Exchequer to significant risks. Therefore the Act restricts transfers out of certain public service defined benefits pension schemes. [jamesd see earlier link for Treasury aspect]15.The Act also introduces a power for Ministers to require the cash equivalent transfer value for transfers from funded public service schemes to schemes from which flexible benefits can be obtained to be reduced, in circumstances where the relevant Minister reasonably expects that such transfers, either singly or in combination with other factors, will significantly increase the risk or level of payments out of public funds to support the pension scheme to meet its liabilities."
As you can see, the Act gives Ministers a potential tool to limit that.
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jamesd said:Silvertabby said:... I suspect that the authors of the reforms assumed that very few DB pension fund members would be interested in banging out of their 'gold plated' schemes.I can't speak for the other public sector schemes, but the LGPS 'phones went into melt down with both current and deferred members wanting their money. Now. Hence the subsequent ban on transfers out from non-funded public sector schemes, because of the immense and immediate drain of public funds.
If members behave rationally a big and sustained drop in equity markets can be expected to lead to a large increase in transfers out of funded public sector schemes because the combination of low asset prices with higher expected safe withdrawal levels will overcome the blocking effect of low compared to the private sector transfer rates. At the moment cyclically adjusted price/earnings ratios in many markets mean that we're at decidedly mediocre expected withdrawal rates. A sustained 40% equity cut would radically change that expectation."14. As noted above, the 2014 Budget announcement indicated that savers would be given greater choice about how and when they access their defined contributions pensions pots. The new flexibilities will also have implications for those with a defined benefits pension pot, and the Treasury have consulted on how these flexibilities, including individuals’ rights to a transfer, should be managed. As the majority of public service defined benefits schemes operate on an unfunded basis, allowing transfers out of these schemes would expose the Exchequer to significant risks. Therefore the Act restricts transfers out of certain public service defined benefits pension schemes. [jamesd see earlier link for Treasury aspect]15.The Act also introduces a power for Ministers to require the cash equivalent transfer value for transfers from funded public service schemes to schemes from which flexible benefits can be obtained to be reduced, in circumstances where the relevant Minister reasonably expects that such transfers, either singly or in combination with other factors, will significantly increase the risk or level of payments out of public funds to support the pension scheme to meet its liabilities."
As you can see, the Act gives Ministers a potential tool to limit that.
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It can still be sensible to do it at twenty times or lower for those who aren't risk averse or who have the core value-independent reasons for transferring, like greatly reduced life expectancy. The ability to take income earlier at a higher rate to substitute for the state pension and generally to load it towards being younger is also useful.
Barring specific personal circumstances I'm not greatly keen on the idea of transferring out at twenty to one in today's equity and bond market conditions.1 -
jamesd said:It can still be sensible to do it at twenty times or lower for those who aren't risk averse or who have the core value-independent reasons for transferring, like greatly reduced life expectancy. The ability to take income earlier at a higher rate to substitute for the state pension and generally to load it towards being younger is also useful.
Barring specific personal circumstances I'm not greatly keen on the idea of transferring out at twenty to one in today's equity and bond market conditions.
In the case of someone who is married, or lives with an eligible co-habiting partner, accessing benefits via the ill health route would almost certainly give a better return.
As for the flood of transfers out after the 'freedoms', many of these were by lower paid manual workers to whom a pot of money of, say, £50K, was the equivalent of a lottery win and a sum of money beyond their wildest dreams. I know from several conversations that 'their' money wasn't going to be invested - it was destined to pay for a new car, kitchen, wedding, holiday etc.0 -
Silvertabby said:
As for the flood of transfers out after the 'freedoms', many of these were by lower paid manual workers to whom a pot of money of, say, £50K, was the equivalent of a lottery win and a sum of money beyond their wildest dreams. I know from several conversations that 'their' money wasn't going to be invested - it was destined to pay for a new car, kitchen, wedding, holiday etc.Gilt rates are low, that won’t always be the case, the transfer values won’t be so attractive then that’s why sooner rather than later is best for me.2 -
Where do you see the x annual benefit multiple for the CETV being worthwhile?1
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jamesd said:It can still be sensible to do it at twenty times or lower for those who aren't risk averse or who have the core value-independent reasons for transferring, like greatly reduced life expectancy. The ability to take income earlier at a higher rate to substitute for the state pension and generally to load it towards being younger is also useful.
Barring specific personal circumstances I'm not greatly keen on the idea of transferring out at twenty to one in today's equity and bond market conditions.
I decided in the end that as the CETV is only a relatively smallish percentage of my portfolio that it would not make a great deal of difference and so I'm looking at the DB pension as a means to derisk the years until the state pension kicks in as I'll be able to reduce my SIPP withdrawals should the markets tank for any prolonged period - I'm early retired still in my late fifties and I'm lucky enough that the DB pension can start at 60 without any reductions.
However if the DB pension had been a bigger part of my income then I might have decided to take it as I'd be more worried about the long term inflationary impact and what that would mean e.g. hopefully I'll get to my eighties at least but would the DB pension only be buying peanuts by then.
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The cheapest rate I could find was 2K for an abridged report. I've seen somewhere 3.5K quoted for a full report.It strikes me as a lot of money as the advice is likely to be negative. Thus the only route for an insistent client would be through a stake-holder pension - and these are, afaik, anyway requested by law to accept any transfers (even if the advice is negative).So it seems like the advice is just a financial (and procedural) obstacle put in the way of anyone willing to transfer.In my case as the DB pensions are small (each less than 70K) the fees would constitute up to 5% of the transfer amount which sounds a lot to pay for a service you haven't asked for.1
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The advice should only be negative if it is determined that it is not in your best interest to transfer.
There is a repeated implication on these boards that an adviser will almost always give advice to retain a DB pension as it is safer for the adviser.
This is not my experience, nor of other advisers in this area that I have spoken to. You should expect a good adviser working for a fee to give you advice suited to your circumstances, not theirs.I am an Independent Financial Adviser. Any comments I make here are intended for information / discussion only. Nothing I post here should be construed as advice. If you are looking for individual financial advice, please contact a local Independent Financial Adviser.1 -
It strikes me as a lot of money as the advice is likely to be negative.
it's irrelevant what the advice outcome is in terms of cost as you are paying for advice.
It is statistically more likely to tell you not to transfer as statistically its unsuitable to transfer in the majority of cases.
Thus the only route for an insistent client would be through a stake-holder pension - and these are, afaik, anyway requested by law to accept any transfers (even if the advice is negative).Hardly any stakeholder pensions left and the few that are either all or mostly need an intermediary to buy them. Which then blocks them being used.
So it seems like the advice is just a financial (and procedural) obstacle put in the way of anyone willing to transfer.Historically, 9 out of 10 people are best leaving it where it is. More recently, that has fallen to around 6 out of 10 due to rising CETVs. So, it's an obstacle but not a blocker. The main problem is that providers are scared of a number of recent decisions which have resulted in the provider carrying liability for decisions made by the investor. So, they have pulled out of offering their product unless an adviser takes the liability. That is the current blocker.
In my case as the DB pensions are small (each less than 70K) the fees would constitute up to 5% of the transfer amount which sounds a lot to pay for a service you haven't asked for.It can be viewed a bit nanny state by some but if you are in a situation where 9 out of 10 people are best not to transfer, you can understand why it exists. Ironically, you are probably one of the people who would have benefitted (in your eyes) from the factory line firms that the FCA is taking action against. The ones that caused this problem in the first place.
I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.1
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