Transferring out of Defined Benefit pension

jimi_man

Interestingly 1.65% of £800K is £13,200 a year - just slightly under what you would have got as a yearly pension (£14K) if you stayed in the DB scheme. 

dunstonh

wiimixer said:

To everyone replying - thanks for the genuinely helpful advice. 

The IFA has come back to me with more info., and total on-going cost (inc. IFA fee, Fund management fee, Platform fee) is 1.65% pa.

As cloud_dog says, I would be able to transfer to a cheaper scenario in due course - that said, it would be preferable to get it 'right' first time. 

1.65% is not a disaster but on your fund value you would be looking at around 0.9-1.2% all in (all ongoing costs).  It is worth noting that IFAs are required to include TC & IC in their cost disclosures.  The posters on this site would ignore those but they will still exist.  Platform charges and fund charges are much the same whether you DIY or use an adviser.  It is the adviser cost that is different.  0.75% is the thing to focus on.   You typically see 0.75% in smaller fund values.  0.50% is more typical on your size fund.
Investment risk can also have a lot to do with it.  Lower risk portfolios tend to have lower fund charges than higher risk portfolios.  So, that could be up to 0.4% p.a. difference accounted for.

[Deleted User]

wiimixer said:

1) Transferring out 


2) Investing the Proceeds
 

2) Should be your major consideration. Your investment journey is likely to be a long run and your choices will almost certainly impact the ongoing value by six figures quite soon. For example, if your adviser had ushered you into True Potential three years ago, instead of a popular benchmark like VanguardLifestrategy - your portfolio would be adrift a minimum of £80,000 already, on any of either's five risk profiles. In fact, TP's agressive portfolio has performed worse than VL20.
This deficit would be aside from on-going fees.

wiimixer, has your IFA calculated his total on-going fee on the basis of a transfer to TruePotential?

Mickey666

wiimixer said:

To everyone replying - thanks for the genuinely helpful advice. 

The IFA has come back to me with more info., and total on-going cost (inc. IFA fee, Fund management fee, Platform fee) is 1.65% pa.

As cloud_dog says, I would be able to transfer to a cheaper scenario in due course - that said, it would be preferable to get it 'right' first time. 

Why should there be ANY on-going IFA or platform fees?
I understand there will be a one-off IFA fee because of the need to get formal advice for such a move, but after that I see no reason for further on-going fees.
Why not just put the £800k into a managed fund with drawdown?  Eg, Royal London annual fee for that amount of money would be around 0.35% pa.  The fund would only have to increase by 1.75% pa to return the £14k alternative of not transferring the money, which seems fairly safe to me.
No doubt the IFA will argue that their management would result in a higher return, but would it really?  I guess that's the bet.

dunstonh

I understand there will be a one-off IFA fee because of the need to get formal advice for such a move, but after that I see no reason for further on-going fees.

If the OP no longer requires advice and is using investments that dont require ongoing adjustments then there is no need for ongoing servicing.    
If the OP is using an investment portfolio that the IFA controls then the IFA is the one being paid to rebalance and adjust.

Why not just put the £800k into a managed fund with drawdown? 

That is a possible scenario.  However, why not just put the £800k into a managed portfolio with drawdown?  It can be cheaper.  it can be more expensive.  It can have higher returns than a single managed fund.  It may end up with lower returns but that is a choice someone makes.

 Eg, Royal London annual fee for that amount of money would be around 0.35% pa.  The fund would only have to increase by 1.75% pa to return the £14k alternative of not transferring the money, which seems fairly safe to me.

This is the problem with putting charge before the investments.    With that mindset you would never invest at all but leave the whole lot in cash as its cheaper. (actually, it's not historically.  It's just that you cant see the charges with cash savings)

No doubt the IFA will argue that their management would result in a higher return, but would it really?  I guess that's the bet.

Nothing is guaranteed but it hasn't been that difficult to beat historically. below is chart that shows RLs 5 risk profiles for drawdown.  And 5 real IFA portfolios (no hindsight - these are actual).

As mentioned on your own threads, RL is cheap and simple but you shouldn't expect much more than middle of the road in respect of returns. 

Mickey666

dunstonh said:

I understand there will be a one-off IFA fee because of the need to get formal advice for such a move, but after that I see no reason for further on-going fees.

If the OP no longer requires advice and is using investments that dont require ongoing adjustments then there is no need for ongoing servicing.    
If the OP is using an investment portfolio that the IFA controls then the IFA is the one being paid to rebalance and adjust.

Why not just put the £800k into a managed fund with drawdown? 

That is a possible scenario.  However, why not just put the £800k into a managed portfolio with drawdown?  It can be cheaper.  it can be more expensive.  It can have higher returns than a single managed fund.  It may end up with lower returns but that is a choice someone makes.

 Eg, Royal London annual fee for that amount of money would be around 0.35% pa.  The fund would only have to increase by 1.75% pa to return the £14k alternative of not transferring the money, which seems fairly safe to me.

This is the problem with putting charge before the investments.    With that mindset you would never invest at all but leave the whole lot in cash as its cheaper. (actually, it's not historically.  It's just that you cant see the charges with cash savings)

No doubt the IFA will argue that their management would result in a higher return, but would it really?  I guess that's the bet.

Nothing is guaranteed but it hasn't been that difficult to beat historically. below is chart that shows RLs 5 risk profiles for drawdown.  And 5 real IFA portfolios (no hindsight - these are actual).

As mentioned on your own threads, RL is cheap and simple but you shouldn't expect much more than middle of the road in respect of returns. 

Fair comment.  I guess I tend to work backwards from what I need rather than worry about how to maximise returns.  I'm happy to accept 'cheap and simple' if it is lower risk and covers my needs.  I'm not pretending this is the 'best' strategy for everyone but I'm a little surprised it's not discussed more often.  The emphasis seems always about maximising returns rather than looking at things a bit more holistically, but then I suppose IFAs are all about money and less about lifestyle, which is fair enough.  I know that if I'd just been chasing money it would have been a bad move to retire at 50, but 13 years on it seems to have worked out pretty well.

dunstonh

 I guess I tend to work backwards from what I need rather than worry about how to maximise returns.  I'm happy to accept 'cheap and simple' if it is lower risk and covers my needs.

In theory, every IFA should be making it an option and part of their discussion.  We use a discussion around whether they are cost-focused or returns focused.  We will often use RL for people who are cost focused and don't have the investment knowledge and understanding.      What is suitable for one person isn't necessarily suitable for another.

The emphasis seems always about maximising returns rather than looking at things a bit more holistically, but then I suppose IFAs are all about money and less about lifestyle, which is fair enough.

I would disagree.   Suitability of the portfolio is important but plenty of clients run their lifestyle planning through IFAs.   We have some that ask us how much they can spend on their holiday each year or when can they buy xyz etc.     Different people want different things.   No advice.  A little advice through to leaving the lot in the IFAs hands.  There are different firms out there to cater for the different needs.      Plus, it's not about maximising returns.  It's about making sure what you have matches the needs and objectives and understanding.    Plenty of people with more than they need will invest lower risk than their actual tolerance could be.  Especially when they get to retirement.     A lot of the posters on this site tend to be higher risk with their investments than the typical advised investor.  The fact that everyone is different is one of the reasons I really do not like these one-size-fits-all investment solutions.

zagfles

Mickey666 said:

wiimixer said:

To everyone replying - thanks for the genuinely helpful advice. 

The IFA has come back to me with more info., and total on-going cost (inc. IFA fee, Fund management fee, Platform fee) is 1.65% pa.

As cloud_dog says, I would be able to transfer to a cheaper scenario in due course - that said, it would be preferable to get it 'right' first time. 

Why should there be ANY on-going IFA or platform fees?
I understand there will be a one-off IFA fee because of the need to get formal advice for such a move, but after that I see no reason for further on-going fees.
Why not just put the £800k into a managed fund with drawdown?  Eg, Royal London annual fee for that amount of money would be around 0.35% pa.  The fund would only have to increase by 1.75% pa to return the £14k alternative of not transferring the money, which seems fairly safe to me.
No doubt the IFA will argue that their management would result in a higher return, but would it really?  I guess that's the bet.

Well, my management has resulted in higher returns, there was a previous thread where plently of other "DIY" investors were saying the same. Of course without full data, comparisons may not be fair.

If any IFA tries to sell their services based on past performance of their portfolios, make sure you get any past performance claims in writing, as it will have to comply with FCA rules on how past performance can be used for marketing. Don't believe any vague, off the record claims.

Also worth checking them on the financial ombudsman site as per link I posted earlier, and any earlier reincarnations if they've tried to rebrand or merged with another firm.

wiimixer

ZingPowZing said:

wiimixer said:

1) Transferring out 


2) Investing the Proceeds
 

2) Should be your major consideration. Your investment journey is likely to be a long run and your choices will almost certainly impact the ongoing value by six figures quite soon. For example, if your adviser had ushered you into True Potential three years ago, instead of a popular benchmark like VanguardLifestrategy - your portfolio would be adrift a minimum of £80,000 already, on any of either's five risk profiles. In fact, TP's agressive portfolio has performed worse than VL20.
This deficit would be aside from on-going fees.

wiimixer, has your IFA calculated his total on-going fee on the basis of a transfer to TruePotential?

Thanks for this ZingPowZing. Just had a look at the VanguardLifestrategy funds, and I guess that's the type of arrangement I'd be looking for if I was left to my own devices. Lump my investment in with many others, and the fund managers take a small slice of a big pie. Of course, as has been pointed out previously; wiser to pay 1% for 10% growth than pay 0.2% for 5% growth. However, if Vanguard funds are outperforming TruePotential AND fees are much cheaper - it starts to look very attractive.

wiimixer

And can anyone recommend a Defined Benefit Pension Transfer Advisor who could help me transfer into a VanguardLifeStrategy fund? (should that be what I decide to do)