IFA costs

Studio46

I have an AVC of around £58,000. I am nearing retirement and my AVC company refuses to let me transfer without proven advice from an IFA. The problem is that the quotes I have range from £5,000 to £7500. This is a substantial portion of my hard earned AVC which would diminish its potential significantly. Are these companies taking advantage? I have had my PensionWise meeting and done a lot of homework and want to transfer monies to a SIPP after taking my tax free sum. They won't let me. Is this legal. I am aware of the risks and can afford to live without this if it goes pear shaped.

Studio46

Meant to say, are people aware of any reasonably prised IFA's?

AlanP_2

Is this an AVC pot that has been set up to run alongside your employer's Defined Benefit scheme or someting else?

Why do you want to transfer it?

Are the options available in a SIPP better than on offer with the current provider?

Are there any special terms / guarantees?

If there are special terms / guarantees with the current setup then the law can require that advice is taken if value >£30k but without a bit more information it's difficult to comment on whether it is correct or not.

dunstonh

AVCs do not require an IFA to sign the transfer forms unless there is a safeguarded benefit or you are looking to take the DB pension with it.  Many AVCs are still linked directly to the main scheme and cannot to be transferred without moving the main scheme.

Is it the AVC provider/administrator that is insisting on advice or the receiving scheme?

I have had my PensionWise meeting and done a lot of homework and want to transfer monies to a SIPP after taking my tax free sum.

As you have done your homework, you can tell us what the safeguarded benefit is that is requiring an IFA to handle it. So, what is it?

Is this legal.

We dont know what the issue is so that cannot be answered but almost certainly it is.

Joey_Soap

Even if something is legally OK, it's my experience that some firms deliberately gold plate over and above the legally required action to discourage people from leaving them. It's an abhorrent practice, but I guess it's not that uncommon.

dunstonh

Joey_Soap said:

Even if something is legally OK, it's my experience that some firms deliberately gold plate over and above the legally required action to discourage people from leaving them. It's an abhorrent practice, but I guess it's not that uncommon.

I have done thousands of pension transfers and never come across it.  I will have to bow your experience.  How many transfers have you done by the way?

gm0

Given the various scandals (British Steel ibid) around DB/DC transfer - it is not really surprising that the market changes happened to later shut the stable door Regulatory action to force advice in all but the tiny end of the fund range.  High adviser liability insurance for lifetime recourse on innappropriate transfer advice.  Changes in what is allowed on charging basis.  Higher advice fees (to pay for the insurance) and price risk and yes - it's a sellers market as it is a forced one - no need to compete especially hard or discount to gain share. Transferring DB into chargeable ongoing management is one thing.  Taking the lifetime liability to do a transfer for someone to another destination on a transaction fee is - context regulation and prior scandal - not that attractive business.  Unsurprisingly the supply of people doing it at all let alone on the cheap has withered.  The regulator wants to play whackamole with popup transfer farms who aren't doing it properly.  They don't want a quick and dirty transfer services like the rogues around the example above to reappear in the market.

Stopping the horror story of rogues preying on the naive and farming innappropriate transfers comes at a cost for DB pensioners who want to explore this now.  And sadly *if* your AVC is tied to the transfer out of your DB in the original trust and terms then you may be just caught up in it on the 30k value rule - whether that seems "fair" or not.  Schemes have to support a full transfer out - it's the law.  But as I understand it they don't have to offer partial transfers - it's a choice they can make to add it (and change their paperwork and operations to do so). But you can't force them to split DB and AVC or a DC pot if that's how they are setup.  Sometimes this does get fixed by the trustees.  My own trust didn't support partial transfer out (of DC) for many years. Now it does.  So there is hope.  A query to the operator/trustees on separating out the AVC / partial transfer would seem sensible.

Studio46

Thanks for your responses. It is an AVC set up with the Pru as a teacher. I am not intending doing anything immediately owing to the volatility of the markets and the fact that my teacher's pension, state pension and other savings would afford an adequate income. I was looking to leave my AVC where it is for the time being and invest the balance of my AVC as we begin to bounce back in a year or so. I have been looking into the mechanics and costs ahead of this. The IFA costs would mean that any possible gains on my relatively small pot would be wiped out for a number of years. I am now thinking that I don't have any realistic option other than going to graduated drawdown. Annuities would not be of any interest with current rates. I do appreciate that a SIPP contains an element of risk and that IFA's need to cover their own risks because of previous practices. However, for someone in my position the costs are extortionate where I require little other than appropriate advice and an endorsement of my chosen option. I assume that an IFA would require me to sign something that confirms that I am making my own choice following advice and thus limiting their liability. I suppose the bottom line is that, whilst it is wise to seek advice, it is my money and following the advice to seek assistance I should be able to do what I want with it, whether it be give it to a cat rescue centre, put it into home improvements, squander it on a sports car or invest in a financial product.

dunstonh

 I assume that an IFA would require me to sign something that confirms that I am making my own choice following advice and thus limiting their liability.

No.   The FOS view it that you are not in a position to sign away your rights on something you may not understand.  Disclaimers do not work in areas like this.  

I suppose the bottom line is that, whilst it is wise to seek advice, it is my money and following the advice to seek assistance I should be able to do what I want with it, whether it be give it to a cat rescue centre, put it into home improvements, squander it on a sports car or invest in a financial product.

And the problem is that too many people squander the money and then go looking to blame someone.  They then claim they didn't understand what they were told, or what the disclaimer meant and only did what the adviser told them to do.     You should see the lies that get told on complaints. Especially from claims companies coaching people what to say.

That said, in most areas you are free to buy a Lamborghini with your pension money.    Unless you have safeguarded benefits on the pension with a value over £30,000.   That is the only time the ceding scheme requires an adviser to sign off on it.    And they dont require you to follow the advice.   Pru don't need it unless you are still an active member of the Teachers Pension scheme (i.e still employed and building benefit)

Are you sure Pru have told you that you need to have advice to transfer it out?   They recommend it (I just checked the AVC documentation from Pru and it says they recommend it but they dont insist on it)

 I am nearing retirement and my AVC company refuses to let me transfer without proven advice from an IFA. The problem is that the quotes I have range from £5,000 to £7500. 

Now we have a bit more information, I suspect those fees are not correct.  A fee of that amount is the sort you see for a defined benefit transfer or where there is a safeguarded benefit being overruled.     For a £58k defined contribution plan with no safeguarded benefits, the figures of £1500-£2500 would be more typical.   
Or it could be that they are pricing the figure high to act as a passive blocker.  i.e. they dont want to do it so set the figure high to intentionally put you off.

Albermarle

I am not intending doing anything immediately owing to the volatility of the markets 
as we begin to bounce back in a year or so. 

If you are going to leave it invested ( even involuntarily ) then it is  probably a good idea to keep more up to speed with investments and markets in general .

Firstly the markets are not particularly volatile at the moment, and haven't been for a while. Certainly they have been more volatile in the past, and for sure they will be again in the future . So this should not be any reason not to do anything.

Following the Covid drop in the markets back in March , most markets have fully recovered and the typical investor in a typical pension fund is probably a few per cent up on this time last year. Clearly there are current economic problems but financial markets tend to look to the future rather than the present.

Studio46

Thanks dunstonh and Albermarle for you kind advice. I am retired and taking my teachers pension as I was made redundant last year. The Pru advisor was adamant that I could not make any transfer with an IFA having agreed. I have spoken twice to them since and did point out their statement that it was a recommendation but they still insisted that they would not transfer funds without. I live in a rural part of the South West and have contacted 5 different IFA's from a radius of around 35 miles, hoping in better times for a face to face meeting. If indeed I could find an IFA within the £1500-£2000 range I would far more comfortable. Perhaps this might be available in larger cities where there is more competition, I don't know. I probably used the wrong term 'volatile'. I am aware of the depression during the earlier months of the pandemic and the subsequent improvements in different markets. What I mean is that I would be waiting until I feel more clear about the specific SIPP's I would want to transfer into. I have narrowed general options down to Fidelity and Hargreaves Lansdowne and have been thinking about the various options regarding ongoing costs and differing portfolios. I was following things rather more avidly last year but having been rebuffed by the Pru and being horrified by the IFA costs I have been less inclined to follow markets until such time as there is a realistic option of making progress with my funds.  I have the Pru refusing to act upon my instructions without IFA approval and all the IFA's contacted thus far expecting a very handsome chunk of my investment. Drawdown seems to be the only financially viable option as things stand.