DB Pension Transfer Out - Good Reasons?

RUReceiving

Hi,
Can anyone advise me on what sort of reasons an IFA would approve a transfer-out other than medical reasons, etc?

I have a Defined Benefit pension and the trustees have offered me a transfer value which is 50x the annual pension, amounting to several hundred thousand pounds. They've also offered me an early retirement advance of one-eighth (with a corresponding reduced annual pension). I'm already retired, married in my mid-fifties, no children, debt-free and I'm in the fortunate position of having enough cash, assets and other pensions to maintain my retirement quite comfortably so I certainly do not need to depend on my DB pension.

I'm considering the transfer of my DB pension as the 50x value seems generous and I can manage this myself in an alternative pension but am I right in thinking that:

1. I'd be able to take 25% of the new pension's value tax-free as this would far exceed my DB pension's early retirement advance value

2. An IFA would probably recommend me to take the transfer value as I won't be depending on its annual pension value due to my circumstances.

Thank you.

HappyHarry

1. Yes, to a maximum of 25% of your remaining Lifetime Allowance.
2. Possibly. It will require a full analysis of; your situation, the DB pension itself and your future plans. Without completing that, no one can say what the recommendation should be.

Marcon

RUReceiving said:

Hi,
Can anyone advise me on what sort of reasons an IFA would approve a transfer-out other than medical reasons, etc?

I have a Defined Benefit pension and the trustees have offered me a transfer value which is 50x the annual pension, amounting to several hundred thousand pounds. They've also offered me an early retirement advance of one-eighth (with a corresponding reduced annual pension). I'm already retired, married in my mid-fifties, no children, debt-free and I'm in the fortunate position of having enough cash, assets and other pensions to maintain my retirement quite comfortably so I certainly do not need to depend on my DB pension.

I'm considering the transfer of my DB pension as the 50x value seems generous and I can manage this myself in an alternative pension but am I right in thinking that:

1. I'd be able to take 25% of the new pension's value tax-free as this would far exceed my DB pension's early retirement advance value

2. An IFA would probably recommend me to take the transfer value as I won't be depending on its annual pension value due to my circumstances.

Thank you.

2. is highly unlikely - but it doesn't matter. You don't need a positive recommendation to transfer; you just need to provide evidence to your DB scheme that you have received advice from an appropriately qualified and authorised individual. An IFA is now required to confirm they have done so (assuming they have!). Their 'approval' of the transfer isn't required before the DB schemer will proceed with the transfer.

The only SIPP currently accepting transfers without a positive IFA recommendation is AJ Bell. Otherwise you could transfer to any stakeholder pension (which must accept all transfers from any UK registered scheme) and then transfer, with no exit penalty, to any pension scheme of your choice without the need for further advice (it'll be a DC to DC transfer).

jamesd

Being an experienced investor with ample other assets will help. But the FCA still normally wants a key part of the decision to be based on what annuity in one you can buy with the money, regardless of how wasteful to that is compared to income drawdown.

Transfer and drawdown allows flexibility like taking more income at younger ages then following the well known pattern of people ordinarily decreasing spending as they get older. It offers potential inheritance benefits, for any money remaining at death. Spousal benefit is 100% of the income because they can get the whole pot. In case of care needs before the end of the planning horizon, the capital is available or income taken can be increased, though not for as long as at the original level.

RUReceiving

HappyHarry said:

1. Yes, to a maximum of 25% of your remaining Lifetime Allowance.
2. Possibly. It will require a full analysis of; your situation, the DB pension itself and your future plans. Without completing that, no one can say what the recommendation should be.

Thanks - regarding the 25%, it would be roughly double what the trustees are offering as an early retirement advance so that's quite significant.

From what I can tell, I've left it too late to do anything now - it could take several weeks to get the necessary advice, select an alternative provider and submit the documentation so I'll have to request another transfer-out value from my scheme's trustees and set everything in motion as soon as I receive it.

It does seem odd that there's an arbitrary (£30k) threshold at which advice is deemed necessary but you can't simply sign a document stating that you have several times the transfer value in cash assets as an alternative to the pension (so you're not dependent on the pension).

Albermarle

It does seem odd that there's an arbitrary (£30k) threshold at which advice is deemed necessary but you can't simply sign a document stating that you have several times the transfer value in cash assets as an alternative to the pension (so you're not dependent on the pension).

There would be a worry that dodgy advisers would encourage naive  people to sign such documents before then transferring the money to a non mainstream pension investing in tropical rain forests .
Are you sure it is 50X ? Are you looking at the updated annual pension value at your normal retirement age ?
Not the one you were given when you left the company , or the reduced pension that you will get if you retire early ?

HappyHarry

RUReceiving said:

HappyHarry said:

1. Yes, to a maximum of 25% of your remaining Lifetime Allowance.
2. Possibly. It will require a full analysis of; your situation, the DB pension itself and your future plans. Without completing that, no one can say what the recommendation should be.

Thanks - regarding the 25%, it would be roughly double what the trustees are offering as an early retirement advance so that's quite significant.

From what I can tell, I've left it too late to do anything now - it could take several weeks to get the necessary advice, select an alternative provider and submit the documentation so I'll have to request another transfer-out value from my scheme's trustees and set everything in motion as soon as I receive it.

It does seem odd that there's an arbitrary (£30k) threshold at which advice is deemed necessary but you can't simply sign a document stating that you have several times the transfer value in cash assets as an alternative to the pension (so you're not dependent on the pension).

Given the time it takes to transfer a DB pension, it would normally be worth employing an adviser, and letting them request the transfer value. If you get a transfer value then hunt for an adviser, you wasting valuable time.

As Albermarle says above, the risk is that many people would end up with their pension funds in entirely unsuitable investments. Whilst I would hope that there are few "dodgy" advisers around that could recommend these transfers, there will always be some, and there will also be many people that insist they want to invest in the latest / greatest get-rich-quick scheme, and will sign anything in order to do it.

The £30,000 threshold is as it is. If the threshold was higher, this could have a significantly detrimental effect on the least wealthy in our society, who may end up giving up a small but essential part of their guaranteed lifetime income in exchange for some temporary spending money. 

RUReceiving

Albermarle said:

It does seem odd that there's an arbitrary (£30k) threshold at which advice is deemed necessary but you can't simply sign a document stating that you have several times the transfer value in cash assets as an alternative to the pension (so you're not dependent on the pension).

There would be a worry that dodgy advisers would encourage naive  people to sign such documents before then transferring the money to a non mainstream pension investing in tropical rain forests .
Are you sure it is 50X ? Are you looking at the updated annual pension value at your normal retirement age ?
Not the one you were given when you left the company , or the reduced pension that you will get if you retire early ?

Point taken about the rainforests but I was thinking more along the lines of the larger, trusted pension companies like HL, AJ Bell, and so on, providing an option to execute the transfer option on your behalf if you're able to prove alternative assets and perhaps cleared funds e.g. the same kind of thing which can be necessary when buying a house at auction..

The cash equivalent transfer value is actually 50.91 times the "accrued pension at the date of leaving" - this figure is given in the section "Deferred Pension Details" which then states it is "on which the transfer value has been based". However, on the paperwork I was given a few days before the documentation for the transfer value, I was offered two options at the age of 55 - one for the full pension and the other for a Pension Commencement Lump Sum. For the former, the total pension is £6,241,76 and if I was to use this figure, the CETV would be a fair bit lower at just 41 times. Hopefully, the figure from the transfer value documentation is the correct one to use though.

Marcon

RUReceiving said:

Albermarle said:

It does seem odd that there's an arbitrary (£30k) threshold at which advice is deemed necessary but you can't simply sign a document stating that you have several times the transfer value in cash assets as an alternative to the pension (so you're not dependent on the pension).

There would be a worry that dodgy advisers would encourage naive  people to sign such documents before then transferring the money to a non mainstream pension investing in tropical rain forests .
Are you sure it is 50X ? Are you looking at the updated annual pension value at your normal retirement age ?
Not the one you were given when you left the company , or the reduced pension that you will get if you retire early ?

1. Point taken about the rainforests but I was thinking more along the lines of the larger, trusted pension companies like HL, AJ Bell, and so on, providing an option to execute the transfer option on your behalf if you're able to prove alternative assets and perhaps cleared funds e.g. the same kind of thing which can be necessary when buying a house at auction..

2. The cash equivalent transfer value is actually 50.91 times the "accrued pension at the date of leaving" - this figure is given in the section "Deferred Pension Details" which then states it is "on which the transfer value has been based". However, on the paperwork I was given a few days before the documentation for the transfer value, I was offered two options at the age of 55 - one for the full pension and the other for a Pension Commencement Lump Sum. For the former, the total pension is £6,241,76 and if I was to use this figure, the CETV would be a fair bit lower at just 41 times. Hopefully, the figure from the transfer value documentation is the correct one to use though.

1. An open door for scammers and fraudsters...it would be so easy to falsify documents and sell them to anyone eager to transfer out of their DB scheme
2. A good example of why advice can be both informative and necessary. The accrued pension at date of leaving revalues in deferment (i.e. the time from when you left to the time you access your scheme benefits), so a CETV of 50.91x isn't the correct multiple to use and is over-egging your take on how good the transfer value is.

Mutton_Geoff

RUReceiving said:

Point taken about the rainforests but I was thinking more along the lines of the larger, trusted pension companies like HL, AJ Bell, and so on,

You're not comparing like with like. I haven't looked but you probably could invest in rainforests through a fund on HL, AJ Bell etc who run platforms not pension companies. And big is not necessarily better as many of Neil Woodford's customers (self included) will testify.The platform will offer you no protection regarding your choice of investments.

Albermarle

The cash equivalent transfer value is actually 50.91 times the "accrued pension at the date of leaving" 

Most likely your pension will have increased each year with RPI from when you left the employer, until  today.

Often this current figure is not readily available from some schemes and you need to work it out yourself. You can find RPI info on google. This is the pension figure you should use to calculate the multiple .

A multiple is only a rough guideline of course and takes no account of your circumstances . Anything above 40 is pretty high . Anything below 30 is not great.

but I was thinking more along the lines of the larger, trusted pension companies like HL, AJ Bell, and so on, providing an option to execute the transfer option on your behalf i

I think you can assume that HL and AJ Bells lawyers /insurers would be less than keen on this type of arrangement !