Defined benefit Pension to private SIPP .. Financial Advice Declaration costs

SteveB45

Hi All,
This is my first post in this forum, so would appreciate your feedback :-)
I have two Defined Benefit pensions from two previous employers (both Big Banks), one 'pot'' worth a transfer value of £296K and the other £127K
I cannot transfer these to my private SIPP without getting a "Financial Advice Declaration" form signed by an approved authority.
I have been quoted costs today from two such authorities.
One was quoting a minimum of £3,500 for each pension + VAT at 20%
The other was £1250 per pension + VAT at 20% + 2% of the transfer value (up to £200K) + 1% of the transfer value (Above £200K)
Do folks consider this typical costs for such an transfer exercise?

I like to consider myself as reasonably financially savvy and I have already researched the pros and cons of transferring or not .. and decided that I want to transfer.
It seems to me that the significant rule changes made, that now enables people to get 25% of the "pot" value in cash, has introduced the opportunity for nasty people to scam some  people out of their money and I appreciate the need for checks, but it seems to me that the costs of doing these transfers is high.

What do other people think?    
Cheers
SteveB45

Brynsam

Costs look par for the course. Any number of threads on just this issue - have a look back on the forum.

Thrugelmir

Plenty of discussion on the topic. With the FSA taking a keen interest in the advice given. No doubt many people were scammed in the past due to the reasons you gave. 
"I like to consider myself as reasonably financially savvy and I have already researched the pros and cons of transferring or not .. and decided that I want to transfer."

Linton

The concern is not just scamming. A major problem is that people without experience of handling large amounts of money may just see ££££ without understanding the difficulties and risks of sustainably generating an equivalent income to the DB pension they have given up.  Until relatively recently and some cases still, transfer values were insufficient to justify the extra risk for many people.
However some transfer values, particularly from the banks, of IIRC 50X annual pension that people have quoted in the past year or so are rather more difficult to turn down.

Linton

On costs, the IFA is taking the risk that with a positive recommendation at some point in the future when your pension pot has collapsed due to poor investment choices you will exercise your right to claim compensation for bad advice, and it would seem there is a good chance you would be successful.

Bravepants

I'm guessing that with your two pots added together your DB benefits are somewhere in the region of £12k to £16k per year, rising with inflation (perhaps CPI) each year? In times like these are you absolutely sure that you want to give up that guaranteed income stream?

AnotherJoe

but it seems to me that the costs of doing these transfers is high.

Itsa big number usually. Whether thats "high" though, eg if you mean, not justified,  is a different point.

The number of advisers willing to do these transfers has shrunk drastically (due to the high insurance costs they have to pay). You've done well to find two, many posters here cant find any. If it was such a boondoggle as you think, eg unjustifiably high costs for little work, you'd think they'd all be up for it and touting for business ?

Unfortunately, the FCA seems to have sided with any consumer complaint in this area, however ridiculous, and this is whats pushed costs up. Advisers will need to keep records beyond their retirement and could potentially find themselves embroiled in legal cases 10+ years down the road. Even if you thought you had a slam dunk of a case (as an adviser) against such complaints, would you want to take on that burden?

Albermarle

You do not mention this but it seems some advisors are unwilling to give a positive recommendation to transfer unless they manage the money afterwards. Apart from the  ongoing fee of course, it gives them some peace of mind that you will not make some bad decisions and then try and blame them down the line.
If you get a negative recommendation , then you can still transfer ( the DB schemes will be keen to get your liability off their books , which tells its own story ) but many mainstream pension/SIPP providers will not accept the money.

dunstonh

One was quoting a minimum of £3,500 for each pension + VAT at 20%

It should not be VATable.   However, I wonder if that is the triage service rather than the full service.  Triage is VATable as it lacks the intention to buy a product (which is a distinction between VAT or no VAT when it comes to intermediaries).  

I wonder if they charge a transfer fee on top of that?

The other was £1250 per pension + VAT at 20% + 2% of the transfer value (up to £200K) + 1% of the transfer value (Above £200K)

Again, this suggests the triage service is the £1250 plus VAT and the actual transfer is 2%.

Do folks consider this typical costs for such an transfer exercise?

Given the current position, both seem at the lower end.  The first one needs some clarification as VAT should not be charged on all of it.

I like to consider myself as reasonably financially savvy and I have already researched the pros and cons of transferring or not .. and decided that I want to transfer.

That is what everyone says until they get a claims company telling them that they can get compensation.  Then all of a sudden, the complaint comes in claiming that they didnt know what they were doing and relied on the advice blah blah blah.

That is where the bulk of the scamming will be and it will be the adviser that is the victim.

It seems to me that the significant rule changes made, that now enables people to get 25% of the "pot" value in cash, has introduced the opportunity for nasty people to scam some  people out of their money and I appreciate the need for checks, but it seems to me that the costs of doing these transfers is high.

What changes are you referring to?  25% tax free cash was set all the way back in 1988 (prior to that it was 3 times the annual annuity).  2006 standardised the tax free cash on legacy plans at 25% unless there was transitional relief. 

DB transfers are pretty much the highest risk transaction that an adviser can carry out.   It is also the current hot potato.    It is also not a one off cost to advisers.  It is an annual cost that the firm will have forever more.  Advice firms are reporting a 400% increase in liability insurance costs for doing DB transfers.   So, a firm taking on your case, will be paying for it for 20-30-40 years.

The FCA take the position that a DB transfer is wrong unless proven otherwise.   Historically, 9 out 10 cases should be left with the DB scheme.     Currently, it is running at much less than that and the FCA has said that it considers too many DB schemes are being transferred.   

There does appear to have been some poor activity in this area with some advice firms.  However, these appear to be mostly the factory line services (that use unqualified staff to get information and build the file with templated advice reasons and documentation rather than personalised advice) signed off by someone that has probably got to sign off on dozens a day.    These are the areas the FCA is particularly focusing on.      

Indeed, when you look at the numbers 18 firms were responsible for 48,248 transfer advice cases between 2015 to 2018 and 24,919 were transferred.  That is an astonishing volume.  

And ironically, a lot of them would have been people like you using them (i.e. you want to do it, dont care about the advice).    And will shortly be getting letters offering a review of their case which a good proportion will end up getting some compensation for.   

carpenter73

I want to transfer my DB pension into a low cost contribution based scheme that I have more control over ..I have an interest only mortgage, I plan to use part of my 25% tax free sum at the age of 55vto clear my mortgage and try to live in relative peace...why can't I find a decent I.F.A..to carry out my wishes?? After all it's my money ...can someone please help.????

Linton

carpenter73 said:

I want to transfer my DB pension into a low cost contribution based scheme that I have more control over ..I have an interest only mortgage, I plan to use part of my 25% tax free sum at the age of 55vto clear my mortgage and try to live in relative peace...why can't I find a decent I.F.A..to carry out my wishes?? After all it's my money ...can someone please help.????

A pension is not your money, it is money held in trust for your benefit.  Furthermore the money in a DB pension is not allocated to you in any way, it is held as a single pot by the pension trustees. All you own is a legally binding promise by the pension scheme to pay you an income on retirement according to the rules of the scheme.

The pension trustees may well be happy to pay you some money to absolve themselves of the responsibility of guaranteeing an income for you.  Parliament decided that before you were allowed to take the offer you should be advised as to whether it was actually in your financial interest to do so as safely providing an income until death is expensive and could be difficult for people with no financial experience.  The state doesnt want to pay for people who have run out of money in late retirement thanks to financial mismanagement.

It is expensive and difficult to find this advice because the regulators/parliament decided that advisors should be financially responsible for the advice they give.  This responsibility could involve many £100Ks.  No sane person would take on such a responsibility unless they were well paid for it and/or had good insurance. Good insurance doesnt come cheap. Most advisors have decided that the risk is too high.