My Pension Plans and IFA Advice

Saturn4

I retired in September, aged 54, and I’m currently reviewing my pension plan. My pensions and investments comprise:

Pension 1: Company scheme - Part DB and part DC
Pension 2: £85K with GAR. Forecast at age 55 is £5,600/year.
Pension 3: £70K, no guarantees.
S&S ISA – £150K VLS60
Cash - £140K

My original plan was to transfer both Aviva pensions into a Sipp (and give up the GAR) to provide future flexibility, but not to draw any pension until I reached 60. My wife is already in receipt of her pensions, but I would need to top these up by £20K/year for the next 5 years from cash and investments. At 60 my forecast is that pension 1 would provide £25K; pensions 2 & 3 25% TFLS plus £6K+3.5% until I’m over 80. As I’ll also receive a full state pension at 67 this all seemed fine.

However, I recently realised that as I will have no income for the next 5 years, a better plan may be to draw £16,666/year from the sipp from age 55 to 60 as this would all be tax free (25% + £12,500 PA). This could then be reinvested in a S&S ISA. Any thoughts?

In preparation to transfer pension 2 into a sipp, I contacted several IFA’s. None of them were particularly supportive. Two of them would not advise on a single pension – they wanted to advise on my full retirement plans and investment portfolio, including the potential move of my DB pension and to provide an ongoing annual review. Comments from other IFA’s included “we do not transact business where the client wants to use their own pension to accept the funds.” and“ As you are five months away from age 55, there is potential your circumstances may change in that time. Therefore, I would not be happy to advise you on your options at this point.” and “Taking cash from pensions should be a last resort. I note you have other savings and investments. You should look to use these first before releasing cash from pensions.”

So, my question – are my plans really that bad? If not, then am I likely to find an IFA who will just provide the mandatory advice on pension 2 so that I can transfer it into a sipp? To date, I've been looking on unbiased.co.uk - are there any other approaches that would be better?

Thanks.

SonOf

So, my question – are my plans really that bad?

Always hard to answer on such limited information. However, they are very high risk transaction areas for advice. Only 1 in 10 advisers do defined benefit transfers. And transferring a plan with a GAR is a high risk transaction. Indeed, we are IFAs and just had our PI insurance renewal and the proposal asked us to list every case where we had recommended a switch or conversion where a GAR existed and the justification for doing so.

If the PI has concerns of the justification then they will either refuse to offer cover or they will put the premium up. If an IFA cannot get PI insurance, they are out of business.

There are also questions on about SIPPs recommended but not the investments within them. PI insurers do not like that.

So, that gives you an idea of why IFAs are straight away on guard about your plans. In my experience, most "new" clients coming to us with preconceived ideas of that they want to do usually end up doing something different after advice. Usually because they had not considered all the options are were not looking at their overall scenario but bits in isolation.

Based on what little you have told us, I too would refuse to offer services. You are not at retirement (or close enough to be classed as such). So, any transfer out of the plan with the GAR would be treated as a switch, not a conversion. That increases the risk of the transaction. There seems little reason to move the pension now (or possibly at all) and without a full analysis of your retirement provision and plans and a detailed plan for the future, I just wouldn't go there. It just isnt worth the business risk or the costs (as the IFA will be paying increased premiums for the rest of time despite you paying your fee just once).

[Deleted User]

In general, “melting down” of pensions is a legitimate strategy. Works particularly well for large pension funds and the idea is to minimise lifetime tax, just as you described.

SonOf

Deleted_User wrote: »

In general, “melting down” of pensions is a legitimate strategy. Works particularly well for large pension funds and the idea is to minimise lifetime tax, just as you described.

That is not the issue here though. Switching a plan with a GAR 5 years before drawdown is needed is questionable. We dont know the GAR rate (info which is very important). We dont know if the GAR is available on alternative methods (many are. some are not).

The combination of the cash, S&S ISA and non GAR plan may achieve short term income. Some GARs kick in from 60 (some earlier). So, the GAR may be able to be used to fund some of the gap. And the GAR could allow less to be drawn on the others. The DC part of the occupational pension could be in play as well.

So, yes, funding a gap is a legitimate strategy. However, the method used to fund that gap may not be sound in this case. And tax efficiency is always a justifiable reason as long as you dont let the tax tail wag the dog.

[Deleted User]

I wasn’t referring to him funding a gap. He is talking about transferring from a pension to an ISA, which is a reasonable strategy, particularly if he has a lot of money in his pension.

“In general” means just that. Specific circumstances may vary,

wjr4

Surely you’d use the cash to use the isa allowance rather than take money from the pension? Pensions should usually be left untouched unless required.

[Deleted User]

wjr4 wrote: »

Surely you’d use the cash to use the isa allowance rather than take money from the pension? Pensions should usually be left untouched unless required.

Not necessarily. Deliberate “melting” of the pension into ISA during low income years could be a smart strategy. We don’t know the total value of Saturn’s pensions, but if it’s large then it’s not a bad idea.

enthusiasticsaver

We are melting our pensions in the early years for tax efficiency. Once all other pensions are in payment it may be enough to take you into next tax bracket and our IFA agreed with that. Consequently we are leaving isas untouched until the SIPPS are all drawn down although we have DB pensions already in payment.

Doing as you suggest and reinvesting it in ISAs sounds sensible to make best use of your PA until your main company pension kicks in.

I think you will struggle to find a pension transfer specialist who will advise on the GAR and if you do find one the transfer fee will be expensive. I would take that at 55 and find the remaining £15k from your cash then pension 3 then S and S ISA.

Saturn4

Thanks all for the advice. Interesting how difficult it is to get an IFA to consider transferring a pension with a GAR.

Albermarle

Interesting how difficult it is to get an IFA to consider transferring a pension with a GAR.

It is because too many people transferred out of pensions with guaranteed benefits in the last few years when it was not in their best interest . So there has been a clampdown

Tight_Fart

£85k paying £5.5k pa in a years time is a very good rate, don’t loose that.