DB Transfer

kuratowski

HappyHarry said:

Though worth remembering that the "pension freedoms" were designed to apply only to DC schemes, and not DB schemes.

Yes, ironically the very act increasing freedoms for holders of DC pensions also reduced freedoms for holders DB pensions. 

Earlier today, I re-read in Hansard the comments of Steve Webb when the amendments were introduced; the government’s line then was definitely that transfers out of DB pensions were not in most people’s interests. 

But of course, Macron and Jamesd have made valid points, no one foresaw the current messy situation.

hyubh

ZingPowZing said:

I think the concept that quite a few posters are missing is self-determination. 
"Pension Freedom" was not just a slogan but a central tenet of Conservative Party ideology, the freedom/responsibility of the individual to decide for themselves. Clearly, a large part of the financial services industry would gladly go back to the days when their only obligation to the members of their plans was a yearly statement, six-months in arrears. But if those pension plans had not been generating such lousy projected returns in the DC market, Govt may not have had to shake them out of their complacency.

This will be from the same Chancellor who nationalised the assets of the Royal Mail pension fund and socialised its liabilities with the claim this was reducing the national debt...

[Deleted User]

HappyHarry said:

Bear in mind too that at the time these famous 'freedoms' were introduced, there was no suggestion that the FCA and PI insurers would take their current stance...

Though worth remembering that the "pension freedoms" were designed to apply only to DC schemes, and not DB schemes.

Odd. The first line of the summary is
 "Pension freedoms have rightly given people the choice of what to do with their own savings," https://publications.parliament.uk/pa/cm201719/cmselect/cmworpen/917/917.pdf
Elsewhere
Provisions in the Pension Schemes Act ensure that the new flexibilities operate as intended. These include:

• new safeguards to support individuals if they wish to transfer out of their existing Defined Benefit scheme to access the new flexibilities. 

I have read that pension freedom was not supposed to apply to DB pensions (mainly on this board). Although that would have been inconsistent with its ethos, as stated above, the more obvious point is this: If DB pensions were meant to have been excepted from pension freedom, you imagine it may have been written into law.  

HappyHarry

ZingPowZing said:

HappyHarry said:

Bear in mind too that at the time these famous 'freedoms' were introduced, there was no suggestion that the FCA and PI insurers would take their current stance...

Though worth remembering that the "pension freedoms" were designed to apply only to DC schemes, and not DB schemes.

Odd. The first line of the summary is
 "Pension freedoms have rightly given people the choice of what to do with their own savings," https://publications.parliament.uk/pa/cm201719/cmselect/cmworpen/917/917.pdf
Elsewhere
Provisions in the Pension Schemes Act ensure that the new flexibilities operate as intended. These include:

• new safeguards to support individuals if they wish to transfer out of their existing Defined Benefit scheme to access the new flexibilities. 

I have read that pension freedom was not supposed to apply to DB pensions (mainly on this board). Although that would have been inconsistent with its ethos, as stated above, the more obvious point is this: If DB pensions were meant to have been excepted from pension freedom, you imagine it may have been written into law.  

Agreed, but a DB pension is not part of an individual's own savings. They are are assets of the employer sponsored pension scheme designed to provide an income for their employees in retirement. In no sense could these be counted as an individual's savings.

In many (most?) cases, the DB scheme is unfunded so there are not even any assets to pretend otherwise with.

The safeguards are necessary, though some may think they are too strict.

Personally, I would happily see a blanket ban on DB transfers. I recognise that there are times it is in an individual's best interest to transfer, but this is overshadowed by the amount of damage that can be done, and is done, when it is not. 

jamesd

HappyHarry said:

Bear in mind too that at the time these famous 'freedoms' were introduced, there was no suggestion that the FCA and PI insurers would take their current stance...

Though worth remembering that the "pension freedoms" were designed to apply only to DC schemes, and not DB schemes.

The original pension freedoms legislation allowed transfers from DB to DC with no advice requirement at any value. Even with the 30k advice requirement there was a substantial improvement but with hindsight that requirement looks like a bad mistake on the freedom front. The FCA and PI insurers didn't originally have any impact because there was originally no compulsion to use regulated advice.

jamesd

ZingPowZing said:

HappyHarry said:

Bear in mind too that at the time these famous 'freedoms' were introduced, there was no suggestion that the FCA and PI insurers would take their current stance...

Though worth remembering that the "pension freedoms" were designed to apply only to DC schemes, and not DB schemes.

Odd. The first line of the summary is
 "Pension freedoms have rightly given people the choice of what to do with their own savings," https://publications.parliament.uk/pa/cm201719/cmselect/cmworpen/917/917.pdf
Elsewhere
Provisions in the Pension Schemes Act ensure that the new flexibilities operate as intended. These include:

• new safeguards to support individuals if they wish to transfer out of their existing Defined Benefit scheme to access the new flexibilities. 

I have read that pension freedom was not supposed to apply to DB pensions (mainly on this board). Although that would have been inconsistent with its ethos, as stated above, the more obvious point is this: If DB pensions were meant to have been excepted from pension freedom, you imagine it may have been written into law.  

The "new safeguards" bit is referring to the 30k advice requirement that had been added since the original version of the legislation was proposed.

As you rightly suggest, and the quote says, it was the intent from the start that those with DB pensions should get access to the new freedoms.

The FCA found a window, via the advice requirement, to circumvent the intent of Parliament and has been very vigorously exploiting the well meant loophole to try to block DB transfers. Circumventing the will of Parliament isn't its role and the most effective solution is to take it out of the picture by using the earlier version without the loophole.

It's also worth noting that the advice requirement seems to have been an enabler of improper conduct, since in say the British Steel case people were forced by the advice requirement into the hands of those who did improper things. Absent that they could easily have done a totally mainstream transfer to a DC product without any advice firm to mistreat them. Substituting advice requirement with say a requirement to initially transfer to Stakeholder with balanced managed default fund would protect against that and be decently cautious. People could then switch funds or DC if they wished.

jamesd

HappyHarry said: 

Agreed, but a DB pension is not part of an individual's own savings. They are are assets of the employer sponsored pension scheme designed to provide an income for their employees in retirement. In no sense could these be counted as an individual's savings.

In many (most?) cases, the DB scheme is unfunded so there are not even any assets to pretend otherwise with.

The DB pension is part of an individual's retirement plan and it's right that they should be able to adjust that plan when it seems right to do so.

Almost all work DB pensions by count are funded, as are about three quarters by benefit value, since most are private sector and have to be funded. The notable exceptions are schemes that are in the public sector with large member counts. Looking at 2018 values form the ONS Pensions in the national accounts, a fuller picture of the UK’s funded and unfunded pension obligations: 2018 instead of numbers of schemes those values are:

C: £2,600 billion non-public workplace DB & DC, of which
  A £364 billion DC mostly active was 14%. Personal and group personal not included.
  B £2,184 billion DB & hybrid was 84% mostly deferred or retired.
E: £414 billion public sector funded
G: £1,180 billion public sector unfunded 
H: £4,792 billion state pension

It's those DB with the 31% by value in unfunded public sector schemes who are locked out of the freedoms, though the basis for calculation of transfer values in the rest of the public sector also greatly restricts what's wise compared to the private sector.

Those numbers also illustrate the state pension difference compared to how some other countries do things, with only around half of pension value being delivered in that way.

HappyHarry

jamesd said:

HappyHarry said: 

Agreed, but a DB pension is not part of an individual's own savings. They are are assets of the employer sponsored pension scheme designed to provide an income for their employees in retirement. In no sense could these be counted as an individual's savings.

In many (most?) cases, the DB scheme is unfunded so there are not even any assets to pretend otherwise with.

The DB pension is part of an individual's retirement plan and it's right that they should be able to adjust that plan when it seems right to do so.

Whilst it is part of an individual's retirement plan, I could argue that it isn't right that they should be able to adjust it, certainly not without decent advice, if only to protect many from making poor life-affecting decisions.

After all, an individual has little choice with what they do with a state pension, bar deferring it. Similarly, those in unfunded DB schemes have little choice bar choosing to take it earlier or later than standard, and adjusting the balance between the pension  and the tax-free lump sum. 

Why make a special case for those in funded DB pensions? These individuals signed up to the plan which provided a guaranteed lifetime income, many of whom never paid in a penny to the scheme. It seems overly generous that they then get the option to transfer it to an investment fund of their choice, where many with state pensions or unfunded pensions cannot do the same.

Whilst I am not suggesting it is never right to transfer a DB pension, there are many people pursuing such an option when it is clearly not in their own best interest to do so. In this case, either the individual frustrates themselves and countless others in their attempts to find someone to "sign-off" the transfer, or worse, the individual finds someone willing to help, and finds their longer-than-expected retirement wrecked by their earlier poor choices.

The whole "it's my money I should be able to do what I want" brigade do need saving from themselves sometimes. I am not in favour of a nanny state particularly, but I have been an adviser for long enough to see the kinds of errors that many have made, and have come to the conclusion that many people do need saving from themselves.

On the flip side, there are a group of people looking for DB transfers for whom such an approach is sensible, who are quite capable of taking the rational decision themselves, and really have no need to pay an adviser or have obstacles put in their way.

How it might be legislated to determine who is who I do not know. However, on balance, I think a complete ban would be a better option for most would be transferees.

Thanks for those figures jamesd, they are most illuminating.

xylophone

https://www.gov.uk/government/publications/pension-freedoms-a-qualitative-research-study-of-individuals-decumulation-journeys/pension-freedoms-a-qualitative-research-study-of-individuals-decumulation-journeys#:~:text=The Pension Freedoms legislation enabled,a combination of the 2.

https://commonslibrary.parliament.uk/research-briefings/cbp-8848/

Looking at the above, it seems that the intention of the legislation was to enable those with DC pensions to have choice  in how they accessed their retirement savings.

[Deleted User]

HappyHarry said:

jamesd said:

HappyHarry said: 

Agreed, but a DB pension is not part of an individual's own savings. They are are assets of the employer sponsored pension scheme designed to provide an income for their employees in retirement. In no sense could these be counted as an individual's savings.

In many (most?) cases, the DB scheme is unfunded so there are not even any assets to pretend otherwise with.

The DB pension is part of an individual's retirement plan and it's right that they should be able to adjust that plan when it seems right to do so.

The whole "it's my money I should be able to do what I want" brigade do need saving from themselves sometimes. I am not in favour of a nanny state particularly, but I have been an adviser for long enough to see the kinds of errors that many have made, and have come to the conclusion that many people do need saving from themselves.



I think a complete ban would be a better option for most would be transferees.

As one of those who was "saved from themselves" by a financial adviser (for £7,600) let me tell you that we do not see DB pensions and DC pensions as different species. Quite a few of us had both, sometimes with the same company. Like discriminating between types of financial adviser, it can seem to those outside a nice but artificial distinction. Sure, I gave up certain guarantees on the transfer of my DB pension but I could easily buy them back on subsequent gains.

And now that I have full control over my SIPP, I make no distinction between investments there and outside - they are highly correlated. And that is how I am going to use what was my DB pension, for growth in a tax-sheltered environment; at least until I near LTA.

Are you currently advising on DB pension transfers, HappyHarry?