DB Pension transfer - IFA costs

MarkCarnage

One of the main problems that I can see in this area for consumers… is consumers.

In an nutshell, and the words and actions of their cheerleaders encourage them too much at times. I include the likes of the FCA, Which? in this at times. WASPI is another example in a different context.

I agree that we are in an unusually benevolent part of the cycle at the moment which may distort judgement for some, particularly those who get aggrieved when the IFA recommendation is 'don't transfer'. However, there is a significant subset now, for the reasons I've outlined, who are very likely but not 100% certainto benefit from a transfer. One of the concerns is to ensure that in the event that they end up worse off, that they went into it fully knowing and understanding the risks, being in a place where their living standards are not reduced so much as to be unacceptable, and that the regulator and Ombudsman 'get it' in terms of the probability based outcomes. DB pensions aren't 100% guaranteed either, may have tax disadvantages, and have variable risk to future inflation.

SonOf

One of the main problems that I can see in this area for consumers… is consumers. They are their own worst enemy. Back in the 80’s and early 90’s when pension freedoms were relaxed in order to reduce the pressure on the state, people were encouraged to transfer out of their cushy employer pensions and into private ones, where FAs promised undreamed of wealth which they were wholly unable to deliver. Greed ruled.

The funny thing is that the figures quoted at the time were based on recent performance of that era and life expectancy of that era. So, often the decisions appeared to be no brainers. i.e. the investments had been returned 13% a year average. So, using projections of that rate was seen as acceptable back then. It is possible that these "no brainer" transfers you see today are using 5-6% p.a. projections which could be considered acceptable today but could end up being less in future. Will we look back in 10-20 years time and think it is crazy that 5% was considered normal?

xylophone

Back in the nineties, when discussing deferred DB pension with a Financial Adviser, I was told that it was extremely unlikely that any private scheme would match up to the benefits offered by the DB scheme.

They weren't all villains!

SonOf

xylophone wrote: »

Back in the nineties, when discussing deferred DB pension with a Financial Adviser, I was told that it was extremely unlikely that any private scheme would match up to the benefits offered by the DB scheme.

They weren't all villains!

In 1988, it was almost seen as a no-brainer to transfer out. As you entered the 90s, it was less obvious and by the early 90s, it was clear it was not. Most were not villains. Even those that are now classed as missales from the 90s, most of them did not do it thinking it was wrong at the time. I managed to avoid doing DB transfers in that period but someone I know has said a number of times that they got actuarial reports on each case individually, most of which supported transfer and they used regulator compliant growth rates etc which all indicated that it was good to transfer. Yet with hindsight, it certainly wasnt.

I read an article some years back that the chap that was responsible for the pension review admitted years later that many people that got redress were not really entitled to it because they knew the risks and knew what they were doing but got lucky as the review made it easy for them to tell porkies and get away with it or require some retrospective information that was not at all possible to know in advance at the time.

There are many advisers around that have just been waiting for this to happen because they remember what went before. It is also why many won't go near it despite the short term fee income benefit that it may derive.

jimi_man

MarkCarnage wrote: »

In an nutshell, and the words and actions of their cheerleaders encourage them too much at times. I include the likes of the FCA, Which? in this at times. WASPI is another example in a different context.

I agree that we are in an unusually benevolent part of the cycle at the moment which may distort judgement for some, particularly those who get aggrieved when the IFA recommendation is 'don't transfer'. However, there is a significant subset now, for the reasons I've outlined, who are very likely but not 100% certainto benefit from a transfer. One of the concerns is to ensure that in the event that they end up worse off, that they went into it fully knowing and understanding the risks, being in a place where their living standards are not reduced so much as to be unacceptable, and that the regulator and Ombudsman 'get it' in terms of the probability based outcomes. DB pensions aren't 100% guaranteed either, may have tax disadvantages, and have variable risk to future inflation.

This, I think, is the nub of the problem. Intrinsically there is nothing wrong with people being able to do as they please with their money and if that involves making stupid decisions and losing it all then so be it. People do it every day at the bookmakers, casino, poker game etc. If that’s it and they have to accept a poorer lifestyle and that’s the end of the matter, then there is no problem.

But sadly that’s not the case. Such is the way with consumers these days, is that no-one will ever take responsibility for anything and the compensation culture is rife. So if I all goes sour, like it did before then it will be someone else’s fault and therefore there is a claim. Which means that others have to pay for it, whether that be the state by way of more taxes, by insurance companies by way of increased premiums or some other method.

No matter how vehemently people come on here and say that they want to transfer out at their own risk, when it comes to the crunch and they are living on the breadline then of course they are going to jump on the legal bandwagon and try and claim a ‘missale’ or whatever it might be. It’s human nature. I’m sure no-one ever thought they’d be claiming PPI all those years ago, but there seems to have been a slight change of plan! And the figures are tiny in comparison - few thousand here, whereas some of these threads involve over a £million. If people are saying they want to transfer that amount out on their own risk, then over the next 30 years lose a bucket load of it in poor choices and fees but they wouldn’t complain, then sorry – I simply don’t believe them.

That’s why there are rules in place and expensive fees – and rightly so.

I must confess I haven’t seen a single transfer thread example on here that have made me go, ‘wow, that seems a great deal, grab it with both hands’.

[Deleted User]

I could buy back all the benefits of my DB pension easily.

Given ongoing performance, the day when the value of my SIPP once more falls below that of my former pension may never arrive but, if it does, and I turn up with a claim for compensation, I would expect to be shown the door.

So the notion that pension freedom will lead to an avalanche of claims legitimised by the regulator and the courts is questionable imo; certainly the evidence has yet to be presented, (bowlhead put up a strawman.).

What yesterday's exchanges do show, I think, are the persisting attitudes of the industry: concluding, with no apparent irony, that things would be all right if only the public were less greedy, on a Moneysavingexpert forum.

At heart, I think many who work or worked in the field still hanker for the days when the consumer's engagement with his pension was an annual-statement, six-months in arrears. That's human nature too.

atilla

ZingPowZing wrote: »

You mean the FO's case studies page? I don't see any systematic, wholesale bias towards the consumer there. This is from the first one to come up under "pensions":
"We saw that, at the time of the IFA’s advice, none of the guaranteed annuity rates offered by Amir’s original policies were competitive compared to those available in the wider annuity market. We also took into account Amir’s circumstances and attitude to risk at the time of the advice. Based on this, we decided that even if he’d been advised not to transfer on the basis of the potential future advantages of the GARs, Amir would have preferred to transfer out because of the opportunity of obtaining better returns in the new pension plans. We didn’t uphold his complaint."

According to a freedom of information request by consultancy firm Duff & Phelps, the Fos received 798 complaints relating to pension transfers during 2018/19, of which 39 per cent were upheld. That is not a strikingly big number considering the overall volume of DB transfers, and the subset of complaints upheld against advice not to transfer must be..well, you tell me the figure, bowlhead.

But that is 798 times the insurers have been involved. So yes, they will up their premiums.

MarkCarnage

...and it's over 300 times they've been the wrong side of them. Some may be relatively minor, with token compensation for inconvenience etc. But the very nature of pension transfers involves much larger sums than PPI for instance, so it's perfectly logical that premiums are going up significantly.

MarkCarnage

What yesterday's exchanges do show, I think, are the persisting attitudes of the industry: concluding, with no apparent irony, that things would be all right if only the public were less greedy, on a Moneysavingexpert forum.

Where do you get evidence for 'persisting attitudes of the industry' from? A lot of people have disagreed with you here who are not IFAs nor have any axe to grind on their behalf.

The irony comes from yourself - it is true that many members of the public are greedy, they might not call it that, and some certainly expect it to be risk free greed too. They are unhappy that they can't get their hands on a very large sum of money (in their eyes) without a good number of checks and balances being in place. I think it's entirely appropriate that MSE posters castigate that as it's rest of us that pay the cost of their greed ultimately.

Your bitterness towards a personal matter regarding your pension transfer, which may have been unfortunate, but the Ombudsman disagreed, persists on here in almost every comment.

MarkCarnage

I must confess I haven’t seen a single transfer thread example on here that have made me go, ‘wow, that seems a great deal, grab it with both hands’.

I think there's been a couple, but I would agree, not many. There are also some, and OP in this case may be one, where the combination of specific circumstances may make it a deal that's got a high probability of being attractive for a variety of reasons. I put my DB transfers in that category - I don't think I posted the details on here.