Defined Benefit Transfer Value

philng

I have just received a transfer value on my defined benefit pension and staggered in the apparent increase in the last 12 months.

i am aware it is not the done thing but the offer is £879k v a current drawable pension of £20400 or £23000 in 3 years 9 months when I reach 60. Spouse pension on my death approx £15k and all of course indexlinked.

What is the reason for this apparent large increase? Seems a very attractive offer at over 40 x pension?

ManMadeWays

It based on a mixture of Gilt Yields and how much the pension fund want to get rid off you

Can you/do want to carry on working to 60 ? If so take the offer and join the DC scheme pay in as much as you can afford, retire at 60 Bingo. Of course you take the risk of investment growth and inflation, but lose the risk of dying and leaving nothing, ofc spouse gets the fund handed on as well in that instance. £23,000 pension will net pay £20,900, you can take that tax free out of pot at 2.4% withdrawal rate, quite safe many think. Partner got a pension ?

philng

Wife is already drawing a final salary pension £8400 pa plus has about £150k in pension pot nit being drawn yet she is age 61.

i no longer work at employer where my pension is.

Thrugelmir

There's a raft of previous threads on this topic on this forum. Have a browse and read of those. 

Marcon

philng said:

I have just received a transfer value on my defined benefit pension and staggered in the apparent increase in the last 12 months.

i am aware it is not the done thing but the offer is £879k v a current drawable pension of £20400 or £23000 in 3 years 9 months when I reach 60. Spouse pension on my death approx £15k and all of course indexlinked.

What is the reason for this apparent large increase? Seems a very attractive offer at over 40 x pension?

It's very much the done thing - the problem is that it's often done when it would be better not done!

You haven't said what this staggering increase in your CETV is, so it's a bit hard to comment on this 'apparent large increase'.

NedS

The offer is x 38 at age 60. The reason the offer appears so generous is because the pension fund understand the true cost of guaranteeing to pay you £23k per year, index-linked for life, and then paying your spouse £15k index-linked for the rest of their life. One or both of you may well live for 40 years in retirement. After 40 years of average inflation rises (I modeled the last 40 years from 1980 to 2020), that £23k annual pension could be over £100k/year with inflation increases by the time you die.

How would you have reacted if you had taken this offer a year ago, invested £879k in the stock market, and a week later the Covid crash reduced the value to just over £400k and your income halved? Are you able to absorb that level of risk and volatility?

TVAS

This is a typical googled eyed request about transferring from DB to DC you are concentrating on the large sum rather than concentrating on the scheme benefits. 

You also have not given a good reason for transferring. 

To take benefits at 60 instead of 65 is an incredibly valuable benefit, likewise, spouse and escalation in payment.

Next year your transfer value will be even higher because I do not thinks gilts will increase.

NedS is right how would you feel if you had invested the money in the stock market and it went tits up. 

If you do this you should do it when you are 59. Ask the scheme when they revalue your pension and add that to your deferred benefits and then start the transfer process. At these large sum it would be prudent to adopt medium risk but where equities are not the major component of the fund because you want to preserve the fund rather than put it at risk. So within the funds that are medium risk have varying levels of equities: some have has high as 80% some as little as 20% so you need to pay attention to the fund component yourself as this is your money do not leave it to the IFA, you check yourself. 

You may not get and adviser to sign this off. If they do they will charge an initial fee. As the transfer is a large amount offer 1% they will also want to charge you an ongoing adviser fee of 1% offer 0.25%. 

For the Ongoing Adviser Fee (OAC) they should provide at least one face to face or zoom to zoom meeting a year to discuss your investment. They should also keep you informed by newsletters and such like by post or email. 

If they do not do the above you can contact the provider and ask them to remove the OAC.  

dunstonh

For the Ongoing Adviser Fee (OAC) they should provide at least one face to face or zoom to zoom meeting a year to discuss your investment. They should also keep you informed by newsletters and such like by post or email. 

There is no such requirement

If they do not do the above you can contact the provider and ask them to remove the OAC.  

Which would still leave you owing the adviser firm as you have just changed the method of payment but not cancelled the contract with the adviser firm.

TVAS

https://citywire.co.uk/new-model-adviser/news/fca-concerned-consumers-are-paying-for-ongoing-advice-they-don-t-need/a1434136

Extract from an article December 2020:

""The FCA is ‘concerned’ clients are paying for ongoing advice fees ‘they do not need’ and that advisers are clustering their ongoing charges around certain levels.

In its findings from the retail distribution review (RDR) and Financial Advice Market Review (FAMR) evaluation published today, the FCA has said it is ‘concerned’ that more clients than in previous years are paying ongoing charges for advice.

The FCA added it is worried that advisers are merely putting clients in an ongoing fee bracket as a default option. 

‘We are concerned that so many new customers are placed in ongoing advice arrangements, suggesting that this may be a default option rather than always justified by the consumer’s circumstances. This concerns us because some customers might be paying for a service they do not need,’ the FCA paper said.

According to the FCA’s own data, more than 90% of new clients are paying ongoing advice fees. This is an increase from 60% in 2016, and 70% in 2019"".

Albermarle

philng said:

I have just received a transfer value on my defined benefit pension and staggered in the apparent increase in the last 12 months.

i am aware it is not the done thing but the offer is £879k v a current drawable pension of £20400 or £23000 in 3 years 9 months when I reach 60. Spouse pension on my death approx £15k and all of course indexlinked.

What is the reason for this apparent large increase? Seems a very attractive offer at over 40 x pension?

Might be worth considering that to buy an annuity of £20K pa at age 56 - index linked ; 50% spousal payment would be approx One Million Pounds .
If you take into account there is a profit margin in that then you can see where your CETV is coming from .

dunstonh

TVAS said:

https://citywire.co.uk/new-model-adviser/news/fca-concerned-consumers-are-paying-for-ongoing-advice-they-don-t-need/a1434136

Extract from an article December 2020:

""The FCA is ‘concerned’ clients are paying for ongoing advice fees ‘they do not need’ and that advisers are clustering their ongoing charges around certain levels.

In its findings from the retail distribution review (RDR) and Financial Advice Market Review (FAMR) evaluation published today, the FCA has said it is ‘concerned’ that more clients than in previous years are paying ongoing charges for advice.

The FCA added it is worried that advisers are merely putting clients in an ongoing fee bracket as a default option. 

‘We are concerned that so many new customers are placed in ongoing advice arrangements, suggesting that this may be a default option rather than always justified by the consumer’s circumstances. This concerns us because some customers might be paying for a service they do not need,’ the FCA paper said.

According to the FCA’s own data, more than 90% of new clients are paying ongoing advice fees. This is an increase from 60% in 2016, and 70% in 2019"".

Where does it say face to face or zoom meetings? - it's that bit which I am querying.        A good number of ours are telephone and email (although the majority are face to face).  There are no regulations on the delivery method of the advice.

There are firms that are set up to get ongoing servicing business only. Generally, those are the wealth management firms.  Ours is about 50/50 on new business currently but we are general practice.  I suspect if you broke the figures down across the different business models, you would see those as the broad figures across the types..   

You would also likely see long history firms doing less overall new business than they would have done 10 years ago as it's just part of the general progression of business that you hit a capacity limit unless you expand.  Many do not expand but remain around their capacity level taking on higher net worth ongoing but turning away lower net worth.  They are going to do more ongoing new business clients than transactional just because of where they are in their business life.

The FCA doesn't monitor the different business models of firms but anecdotally, I would suggest that the wealth management firms have been on the increase and general practice firms in decline (often through retirement or selling up to wealth management firms).  Some of the wealth management firms are also nationals or large regionals but most general practice firms are small local firms.   I suspect the FCA is a bit behind on understanding the different business models that exist.

It is worth noting that the FCA also require ongoing advice to be both offered and carried out (where agreed) on pension switches/transfers and that a failure to do so is a breach.