DB Pension Transfer to SIPP Charges

NedS

Albermarle said:

It is good point . If it is such a rip off/lucrative exercise , then why do the majority of advisors run a mile when you mention DB transfers?

Because the downside of potential litigation massively outweigh the upside of the relatively small fee they can charge to recommend not transferring (the most likely outcome of any advice). Many practices will simply not need to take on that additional risk.

dunstonh

I am sorry, I don't get it. It seems akin to asking a builder for a quote for an extension. Then when it comes back ridiculously high, them justifying it on the basis that if they build it badly it might fall down in the future. If the job is done to a professional standard, to the relevant guidelines, with the customers interests at the heart, there should be little to fear from litigation.

Building an extension is a pretty routine thing to do.    Most builders would have no issues doing a routine transaction like that.

Whereas a DB pension transfer is considered wrong in 9 out of 10 cases historically.   

From a regulatory position, DB pension transfers are considered wrong unless proven otherwise.    This is not a routine transaction but a very high risk one.

And part of the problems with regularity guidelines is that they have a habit of changing and being retrospective applied.  And consumers have a habit of telling lies when they are encouraged to do so by claims management companies and the like.

If liability insurance makes up a very high proportion of the cost, why not say exactly how much? 

Because the cost changes every year. Your DB transfer may cost £x this year but it will also cost £Y next year and £Z the year after.    Some firms have reported as much as 950% increase in their PI premiums over 12 months.  You cannot predict the cost of PI insurance but it just goes up.   One firm reported that their PI premium went up from £13,000 to £130,000 over 4 years.  Another had a 250% increase despite only having done 3 DB transfers in 9 years.

How many builders are still paying the costs of that extension 10-20-30 years later?

2nd_time_buyer

Thanks dunstonh, I appreciate this point of view. 

So from my reading of the situation,  would I be right in saying that the work associated with the transfer itself makes up only a (very) small proportion of the cost?

The high charge is largely a symptom of the uncertainty of potential future litigation. The extent of this litigation is unknown and therefore any company currently taking on the transfers is effectively taking a punt that it won't come back to bite then. 

If this is the case, presumably IFAs who are not able to take on these transfers (e.g. for financial or ethical reasons) are a bit miffed that other companies are profiteering at the potential cost of the reputation of the IFA industry as a whole if it goes tits up?

HappyHarry

2nd_time_buyer said:

So from my reading of the situation,  would I be right in saying that the work associated with the transfer itself makes up only a (very) small proportion of the cost?

The high charge is largely a symptom of the uncertainty of potential future litigation. The extent of this litigation is unknown and therefore any company currently taking on the transfers is effectively taking a punt that it won't come back to bite then. 

If this is the case, presumably IFAs who are not able to take on these transfers (e.g. for financial or ethical reasons) are a bit miffed that other companies are profiteering at the potential cost of the reputation of the IFA industry as a whole if it goes tits up?

The cost is made up of many parts. There is the salaries for those involved, the standard business running costs, the premium for the high-risk transaction, and some profit for the business.

For a DB transfer, there now tends to be far higher input from specialists than there was perhaps five or ten years ago. This is due to the increasing regulation and pressure from the FCA in this area. This means the cost of the work is far higher as (i) there is more work, checking and double-checking to do and (ii) those doing the work are generally higher-paid specialists. The IFA might also have a third-party compliance team signing off each case, which will add further to the staff cost. I would estimate a DB transfer case takes around 20-25 man-hours, of which around half will need to be performed by transfer specialists. 

Standard business running costs will also apply, and as a DB case involves more work, there is more cost associated with this type of business.

The insurance costs are far higher for IFAs doing business in this area, and it seems fair to charge the clients looking for DB transfers for the extra premium, rather than the vast majority of their clients who are not involved in high-risk activities.

The IFA needs to make a profit. Again, an IFA  will want their profit on a DB transfer to be higher than on a normal piece of work, because (i) there is more work involved, and (ii) the risk of needing to do further work (i.e. defending a complaint) is far higher, together with (iii) a risk that a large amount of future compensation will need to be paid.

The IFAs who do not do this type of business do so out of choice. Those of us who do deal with this type of business tend to do so very carefully, and are very wary potential complaints against them. 

Personally, I would like to see DB transfers banned entirely. I appreciate that they are sometimes best for a client, but the damage done to many clients by poor DB transfer advice does, in my opinion, far outweigh the benefits for the few that will benefit. 

There is a lot of comment on these boards that IFAs will now happily charge a large fee and almost always recommend not to transfer, as this is safer route for the IFA.  This does not meet my experience. All IFAs I meet that can advise in this area, are more than happy to recommend transfer where appropriate, and much prefer to weed out the inappropriate cases at a very early triage stage. 

Of course, there are a handful of IFA businesses that still see DB transfers as "easy money", and churn out poorly qualified reports and provide poor advice to their clients in such areas. These IFAs are despised by the rest of us, as they do bring the industry into disrepute. Like many others, I would quite happily see these IFAs strung up.

2nd_time_buyer

"I would estimate a DB transfer case takes around 20-25 man-hours, of which around half will need to be performed by transfer specialists."

In that case, I stand corrected. 

I hope I am not coming across as (too) belligerent. I am just keen to understand the justification of the fees. As on the surface they seem very high. I feel as though I have a better picture now.  

dunstonh

If this is the case, presumably IFAs who are not able to take on these transfers (e.g. for financial or ethical reasons) are a bit miffed that other companies are profiteering at the potential cost of the reputation of the IFA industry as a whole if it goes tits up?

Yes, I think it is fair to say that many are miffed at the companies that set up factory line style delivery to harvest up as many transfers as they could.   Many of which did so with too much copy and paste and pretty generic reasons (one of the FCAs main complaints).   Some of these will then dump their liabilities on the FSCS having profiteered from the process.

Ironically, many of those factory line services were the ones sought out by people on this board who were determined to transfer it regardless of suitability.   They are not going to complain but the FCA could well be instrumental in those people getting redress because of a failure they haven't complained about and didn't care about as they got what they wanted.

On the other hand, the issue may also be overblown.    I know of a firm that was a network member that had an FCA review of cases carried out on all firms belonging to that network.    They had over 100 cases checked as part of that review and initially around half were scored as unsuitable (there was no unclear option at that time. It was either suitable or unsuitable).    They got all but three converted to suitable.  One of the three has a damaged pdf on a minor file that wouldn't have changed the advice outcome but because it was damaged, it was a fail.    Two others were missing a sentence in the risk warnings.  Neither resulted in redress but were classed as unsuitable.      Most of the cases that were initially classed as unsuitable were down to errors by the checker or marking it as unsuitable as the fee was not on the application form (which most providers dont do) or no application form at all (again, many providers are paperless without application forms).    So, things not to do with advice but evidencing the administration post advice.  They were able to get them changed by showing the fee statements and getting the platforms to generate a copy of the data input.

So, you have to be a bit wary of the initial file checking results as the final results may end up being different once firms get the chance to respond with clarifications, corrections and further evidence.     There were clearly some opportunists operating but plenty of firms doing things right have been dragged into it.

Silvertabby

....Then there were the 'free pension review' bods, who sprang out of the woodwork in the wake of the pension freedoms.  Many of these happily recommended that LGPS members should opt out of this DB public sector pension in order to enable them to transfer their benefits into a personal pension/get cash now scheme.

I wonder how many of these companies will still be around when the complaints really start to roll in.

AlanP_2

I've signed the forms to enact a DB transfer in the last few days.

The fee I will pay is a lot less than some of those you see quoted on here as I used the IFA that had an arrangement with the trustees and the trustees subsidised the cost.

The IFA "knows" the scheme and what the benefits are e.g. appropriate inflation linking on the different GMP and excess elements etc, and so does not need to spend a ;ot of time / effort contacting the scheme admins for this sort of information.

The process started with the standard getting to know you (salary, savings, mortgage, expenditure profile, desired retirement income, other pensions, dependents etc). and risk assessment forms.

My wife and I then had a 2 hour call with the advisor where he went through our circumstances which was very thorough. If it was with someone who hadn't spent time on here then very useful (e.g SP and NI top ups, UFPLS v take full TFLS v other drawdown options etc.)

He spent a lot of time focusing on "our plan" for what we wanted to do with the CETV and how it fitted in to our overall retirement plan.

For us this is to withdraw as much as can be fitted in to my 20% tax rate + appropriate TFLS over the next couple of years. We weill live on this so allowing my wife, who will carry on working, to put a larger proportion of her salary into pensions with some of my excess income going into ISA and cash savings.

That way a significant chunk of the transferred pot will be accessed totally tax free as my wife is a HR taxpayer so we will pay 20% on the way out and average 30% on a lower amount going in to hers.

In a couple of years time when my wife stops work we will start the DB schemes we both have and the transferred CETV, wife's SIPP, 2 & S&S ISAs and Cash / PBs will be there for top ups / capital expenditure as required.

He spent a lot of time exploring this and making sure he understood why and how we saw it working out for us.

He then went off to do his analysis and a few weeks later we received an 80 page report that was personalised to us, our circumstances, and our planned approach to the CETV pot and retirement, plus the supporting analysis against annuities from their specialists. 

Along with this was a recommended investment option for the transferred funds with Royal London and a cash flow model showing CETV in / UFPLS payments out over 2 years / fees and investment returns (based on FCA guidance so about 1.8% a year after inflation and fees) so that we could see how much could be in the pot when we start DBs.

The conclusion was that whilst the DB offered better value than transfer & annuity by approx 25% he supported a transfer as we had other DB income to come and other savings / SIPPs AND we had a solid plan for how to make good use of the CETV.

The report was followed up by another 1 hour call to take us through it and ensure we understood everything and answer any questions we had. During this he made it clear that the "solid plan" and other DB incomes were the foundations on which his advice was based, without those it would have been a "do not transfer".

They are now dealing with RL and the DB scheme admins to process the transfer itself. 

They are not providing ongoing advice but do offer a transactional service if required in the future. 


For the amount of work they have undertaken and the thoroughness shown to understand us and our "plan" and how it could be achieved with the transfer I would have gladly paid a lot more than I am being charged for this.


Anyone who thinks that all the IFA has to do is complete a couple of forms has no idea.

Anyone who finds a cheap IFA to just complete a couple of forms for them has no idea and worse, will still have no idea at the end of the process which doesn't bode well.

cloud_dog

2nd_time_buyer said:

I am sorry, I don't get it. It seems akin to asking a builder for a quote for an extension. Then when it comes back ridiculously high, them justifying it on the basis that if they build it badly it might fall down in the future. If the job is done to a professional standard, to the relevant guidelines, with the customers interests at the heart, there should be little to fear from litigation.

Just a comment, the analogy isn't really a good one.

The factor you are missing is that it isn't about the work per se, it is about how a third party (FCA) views the work at an undetermined point in the future, and based on their understanding/position at that point in the future.

cloud_dog

Albermarle said:

It is good point . If it is such a rip off/lucrative exercise , then why do the majority of advisors run a mile when you mention DB transfers?

I think this pretty much sums everything up in one nice, neat sentence.

If these greedy IFAs are really that greedy then, why is it soooo difficult to find one to undertake the DB transfer work?