Use St James Place for transfer of my Defined Benefit fund ?

Malthusian

Aegis said:

The other issue that SJP will have is that all DB advice will now require the adviser to specifically consider whether one or more of the client's workplace pensions would be more suitable as a transfer recipient than a new scheme or an existing private pension.  As far as I'm aware, SJP salesmen can only provide recommendations for SJP panelled products, so as it currently stands they presumably cannot recommend a transfer into a workplace pension.

That doesn't mean they can't discount it as an option. If it turned out that the workplace pension was the best option, they'd have to tell the client to see an IFA, but I rather doubt that will happen very often.

The "new" requirement to discount a workplace pension is just a rehash of an existing rule to discount a stakeholder pension. SJP's compliance department will just have to work up some boilerplate text about limited fund range, not being able to pay adviser fees via the pension fund and thereby paying extra tax, etc.

Joey_Soap said:

Thanks Aegis, I understand a lot better. My own opinion is that the whole country would be better off if SJP ceased to exist, but that's not going to happen.

SJP clients might be better off (although that's a paternalistic point of view - maybe they like paying extra for glossy mags and being able to admire their adviser's Jag). The whole country? I doubt it. SJP redistributes wealth from people happy to pay extra for golf club seminars and glossy mags, mostly to themselves, but also partly to the nation via tax, and to investors and pensioners via its FTSE-listed shares.

SJP is owned by most adults in the country via their pension funds, probably a majority ownership given UK investor home bias, so if the country would be better off if SJP ceased to exist, there is nothing stopping us from liquidating it.

jamesd

fred246 said:

I prefer a guarantee to a theory. Call me old fashioned.

The guarantee typically offered by defined benefit pensions and annuities includes that you'll end up in (relative) poverty. Which might surprise many, so here's how it can work:

1. total retirement income target is commonly given as 66% of working income.
2. relative household poverty is defined as being below 60% of median household income.
3. wages tend to increase by inflation plus 1%.

So a person with median household income retires with 66% of their household income and inflation stays at 0%, a very benign case. Ten years later the 60% of median income definition of poverty has increased by 1% a year compounded and is now at 66.3% of the inflation adjusted median income that the household retired on and they are now in (relative) poverty.

If inflation is above 0% but not more than say 5% this happens faster because some of the DB income is typically not inflation protected.

If inflation is above 5% that's above the inflation adjustment cap of almost all private sector DB schemes so it happens faster still. Public sector and state pension are uncapped usually, so safer against inflation.

While safe withdrawal rates are picked to work even in the worst cases seen in the last 125 or so years, in average cases they do much better and a person has a substantial chance of being able to increase income to stay out of relative poverty.

DB pensions, annuities and the state pension have lots of useful protections and I like to see all three being used but there's more to retirement income than their protections cover.

Malthusian

jamesd said:

So a person with median household income retires with 66% of their household income and inflation stays at 0%, a very benign case. Ten years later the 60% of median income definition of poverty has increased by 1% a year compounded and is now at 66.3% of the inflation adjusted median income that the household retired on and they are now in (relative) poverty.

This is a first-class thought experiment. However, it does require you to ignore the State Pension, which is linked to earnings. For someone on 66% of the median income, which means State Pension makes up half their pension income or not far off, that will cause the value of their income relative to the earnings index to decay more slowly.

If inflation is above 0% but not more than say 5% this happens faster because some of the DB income is typically not inflation protected.

Although it's the case for older DB income, I'm not sure it's common enough to call it "typical". It's not typical in my anecdotal experience.

If inflation is above 5% that's above the inflation adjustment cap of almost all private sector DB schemes so it happens faster still.

If inflation is consistently above 5% then yup, people reliant on DB income might be screwed. That's the game. However that would require the Government to prioritise younger people who don't vote over the grey vote who do, by not raising interest rates. So it is not a scenario you should plan for to the exclusion of the far more likely scenario.

Consistent inflation above 5% would also increase the value of a DB scheme's equity, property and index-linked assets, while reducing the cost of its liabilities, so if it is in good health and not too heavily invested in non-inflation-linked fixed interest, it is possible that it may be able to give its pensioners discretionary increases above the cap.

Public sector and state pension are uncapped usually, so safer against inflation. While safe withdrawal rates are picked to work even in the worst cases seen in the last 125 or so years, in average cases they do much better and a person has a substantial chance of being able to increase income to stay out of relative poverty. DB pensions, annuities and the state pension have lots of useful protections and I like to see all three being used but there's more to retirement income than their protections cover.

No argument there. The question is not which will generate more income unless you get very unlucky because that's DC every time, unless the DB scheme has run out of money and can't afford to buy you out at fair value. Guarantees cost money (and lost growth due to the need to invest in gilts and suchlike) and actuaries don't work for free. The question if you are considering a CETV is why you changed your mind about wanting a guarantee that you won't get unlucky or shoot yourself in the foot.

jamesd

The state pension is even higher than earnings while the triple lock is present and it'll delay relative poverty for a few years. Used to be earnings-linked, changed to inflation early in Thatcher years and now triple lock to try to gradually make up some of the lost ground vs earnings.

Legal inflation increases for non-GMP and GMP (from being contracted  out of earnings-related part of state pension are (reordered and numbers added by me):

"If you have GMP, it must currently be increased each year as follows:
1.  GMP built up before 6 April 1988 is not subject to a statutory requirement to be increased*
2. GMP built up from 6 April 1988 to 5 April 1997 is increased by the scheme up to a cap of 3%**.

above your GMP) as follows:

3. any pension built up after 6 April 1997 is increased in line with the consumer prices index (CPI) or 5%, whichever is lower
4. any pension built up after 6 April 2005 is increased in line with the consumer prices index (CPI) or 2.5%, whichever is lower.

However, your scheme does not have to increase any part of your income built up from savings made before 6 April 1997, except for the GMP."

The legal requirements matter when considering risk in part because if a scheme fails and enters the Pension Protection Fund all increases are reduced to the legal minimum, including for pensions already being paid. And the circumstances needed to get close to safe withdrawal rate limits can be expected to cause more failures.

You can find some statistics on discretionary increases for private sector schemes from The Pensions Regulator:

pre-97: 11.0% full CPI, 5.2% full RPI, rest capped somehow (46.1% RPI with cap. RPI cap level mean 4.87%, mode 5%, maximum 12%, minimum 0.75%)
post-97: 7.5% full CPI, 2.9% full RPI, rest capped somehow (62.7% RPI with cap. RPI cap level mean 5.01%, mode 5%, maximum 12%, minimum 2.5%)

Lots of variation so an individual could check the rules for their scheme.

"Consistent inflation above 5% would also increase the value of a DB scheme's equity, property and index-linked assets, while reducing the cost of its liabilities"

Did you accidentally reverse your meanings there? High inflation increases liabilities and the consequent high interest rates tend to reduce property prices and the capital value of existing bonds and gilts.

"The question if you are considering a CETV is why you changed your mind about wanting a guarantee that you won't get unlucky or shoot yourself in the foot."

I expect most people took the job and didn't consciously choose DB pension (nor even  have a non-workplace choice by law for their early their work years). So investigating transferring now and learning about it may well be the first time they have considered what protection vs likely income level combinations they want for the various parts of their income.

Malthusian

Did you accidentally reverse your meanings there? High inflation increases liabilities and the consequent high interest rates tend to reduce property prices and the capital value of existing bonds and gilts.

Nope. In that part I was specifically addressing your scenario in which inflation is consistently above 5% and above DB schemes' caps on inflation increases.

If inflation is above a DB scheme's cap on inflation increases, the real cost of meeting its liabilities falls. Once inflation is already above the cap, the scheme's assets go up in price but the amounts it has to pay out stay the same.

Your linked article is talking about higher inflation within the cap.

High interest rates are not relevant in this scenario because the point of them is to bring inflation back under 5%pa. If inflation is consistently above 5%pa the Bank of England has for whatever reason given up on increasing interest rates to bring inflation back to its target. Which requires the Government to priortise younger voters and their debts at the expense of pensioners, even though it's the latter who vote.

hyperhypo

Regarding James last remark ....I took a job in 2000 without even knowing it went with a db scheme when i initially accepted it ...in fact if honest i didn't really know what DB was all about at that point in time. It's linked to RPI capped 10%. I wish i'd taken opportunity of buying additional years which the scheme allowed for...

ovenglove55

Hi, further to questions about a SJP pension transfer. I was reviewing some of the SJP pension fund bid / offer spreads.
 Is it normal practice for a pension fund bid / offer to be 5 %?  -  this seems excessive to me, but wanted to check. 

Looking at prices for pension funds elsewhere they all seem to quote a single price  

Source = https://www.sjp.co.uk/fund-prices/pension-funds  
Examples

SJP Balanced Managed Pn Distribution

Bid Price  214.8000p  /  Offer Price 226.1000p

So 95 % returned

SJP International Equity Pn Acc

Bid Price 634.3000p  /  Offer Price 667.7000p

So 94.9 % returned

SJP Equity Income Pn Acc

Bid Price 149.2000p  /  Offer Price 157.1000p

So 94.9 %

SJP Global Equity Income Pn Acc

Bid Price 224.8000p / Offer Price 236.7000p

So 94.9 %

dunstonh

Is it normal practice for a pension fund bid / offer to be 5 %?  -  this seems excessive to me, but wanted to check. 

It is for SJP.   It isn't for anyone else.  Most would be mono charged (no initial charge or spread).  (legacy contracts from yesteryear excluded)

ratechaser

dunstonh said:

Is it normal practice for a pension fund bid / offer to be 5 %?  -  this seems excessive to me, but wanted to check. 

It is for SJP.   It isn't for anyone else.  Most would be mono charged (no initial charge or spread).  (legacy contracts from yesteryear excluded)

They really do squeeze you in every way possible don't they.

and to think that when I was (a bit) younger and (much) more naive, I almost signed up with an SJP affiliate...

jamesd

ovenglove55 said:

Hi, further to questions about a SJP pension transfer. I was reviewing some of the SJP pension fund bid / offer spreads.
 Is it normal practice for a pension fund bid / offer to be 5 %?  -  this seems excessive to me, but wanted to check. 

It's normal for unit trusts but it's ubiquitous to find the 5% fully discounted. If SJP are charging it, that's unusual.

Today most funds are of the OEIC form and only quote one price.