Final Salary Pension Transfer

RoadToRiches

arty688 said:

I am struggling to see how complicated the advise could be. I know you get hundreds of pages of probably 99% of which are probably an output from a pension application. Take average Bob say he has 2 pension pots worth £500k and a db pension of £2k and owns his house. How hard can it be ? Surely it must be just putting numbers in a application/spreadsheet?

is it just the fear of a mid selling scandal that makes the process so complicated ?

sounds like smoke and mirrors to me.

I very much suspect that it is a regulation thing, that the IFAs have been instructed to "take their time" when doing the reports, setting up meetings, sending questionnaires etc that is involved in full advice. This is a big decision at the end of the day to be fair and this does allow you time to think it over, as once it is done there is no going back. 

Diplodicus

jamesd said:

rich744 said:

no one has been able to name a scheme that will accept an insistent client since AJ Bell closed the door. 

Many suggest that it 'should' be possible, but there is no evidence of a successful route.

Any small self-administered scheme (SSAS) should be suitable if ordinary pensions accepting transfers against advice cease to exist. The FCA is not the regulator for SSASs.

In which case, to comply with the principle of the client making the decision, (I)FAs would be advising clients that they could proceed by using a vehicle not regulated by the FCA.



The FCA has gone so far as to say it's using regulations to try to make the advice too expensive to be affordable

Would you provide a link to the FCA quote, please, jamesd?

 Thanks in advance.

jamesd

FCA quote is part of their consultation and decision on contingent charging.

SSAS was proposed by an IFA to facilitate a transfer. FCA says that SSAS aren't regulated by them but by the Pensions Regulator instead.

Diplodicus

jamesd said:

FCA quote is part of their consultation and decision on contingent charging.

SSAS was proposed by an IFA to facilitate a transfer. FCA says that SSAS aren't regulated by them but by the Pensions Regulator instead.

https://www.fca.org.uk/publication/consultation/cp19-25.pdf
 https://www.fca.org.uk/publication/policy/ps20-06.pdf

The FCA consultation runs to 162 pages, the Policy Statement 149.

Could you be more specific, please,  jamesd? I found the FCA statement "We are using regulations to try to make the advice too expensive to be affordable" - really surprising, and at odds with other of their concerns about what advice should cost, and the potentially debilitating effect of long-term ongoing advice fees.

Edit: Help appreciated.  If anyone has a ready link to the quote, it would save this reader a lot of time. 

Pablo7474

If it is just putting a few numbers in a spreadsheet and only takes a couple of hours, surely advisers could do four per day and as it costs about £5k, that’s £20k per day or about £5,000,000 per year. If that was the case wouldn’t every IFA be doing it and retiring after a years work? - No, thats right they are not. All this really does is show your lack of understanding and probably why a DB is best for you. 

RoadToRiches

It goes something like this.

Initial Meeting (Telephone)
Fill in a bunch of forms to register, pay a fee and watch a series of videos
write up your case for Why you want to transfer out
Fill in a Attitude to Risk/Capacity of Loss questionnaire
Have a recorded skype call to discuss findings and make a decision to continue to full advice or not.
Receive an abridged advice report with findings,
Fill in another questionnaire for full advice
A further skype call that is recorded for findings
Full Report Produced with Recommendation, 2 week cooling off - but this can be bypassed by client agreement
Getting the Sign Off forms completed

As you will see there is quite a bit that happens and the gap between each can be substantial and eat into your 3 months CETV deadline.

You have no chance of doing 4 a day lol

Pablo7474

Plus the weeks and weeks it can take to get all the scheme information. 

RoadToRiches

Pablo7474 said:

Plus the weeks and weeks it can take to get all the scheme information. 

To be fair I had all that at the start and just sent it all on.

arty688

Pablo7474 said:

Plus the weeks and weeks it can take to get all the scheme information. 

I’m not convinced waiting time is chargeable?
I am looking at it from a over simplistic point of view , but surely most people’s finances are broadly similar? I also understand most people haven’t really kept on top of their pensions as life gets in the way. So I can see getting the numbers being a pain in the neck. I don’t appreciate the arrogance of the lack of understanding of an overly complicated process means I don’t understand the implications of the transfer.

jamesd

Haven't completed it yet and not found the bit I recall that was more explicit about intent and which I think appeared in a HTML page rather than PDF because I'm short of time but here's a start, my bold. This post is likely to be very heavily edited with additional things as I work through them again so I suggest not replying definitively until I remove this editing caveat. But there are some things that may be of interest here so far.

CP19/25

"3.15 In summary, it is difficult to prove a clear link between contingent charging and unsuitable advice. But contingent charging creates an obvious conflict and an obvious incentive to give unsuitable advice. Moreover, in contingent charging models, the

charge is essentially opaque as consumers may not easily see how much they are paying. We consider that consumers who are required to pay an upfront charge are more likely to think twice before taking advice to transfer. This is likely to reduce the number of consumers exposed to unsuitable advice. On the other hand, we are conscious that, if we ban contingent charging, there may be consumers who would benefit from a transfer who are unable or unwilling to pay for advice."

"3.25 We have considered limiting the carve-out further for those with insufficient funds to pay for advice. As assessing affordability is likely to be complex, subjective and open to ide interpretation, we consider it is not appropriate to do this."

"96. For the purpose of our modelling, we have made some additional assumptions:

o The price of advice after our intervention is at the upper end of what we consider is a reasonable price and varies from £3,500 to £4,500, compared with an average contingent price of £7,500 currently, ie 2% of an average transfer value, based on

our DB4 data.

o Willingness to pay for advice by those who have funds varies from 30% to 50%, and we assume 60% have sufficient funds, informed by the ONS data (see paragraph 90). We think this assumption of limited willingness to pay is conservative. Noting that very few consumers will increase their lifetime income by transferring out of a DB scheme, industry participants have told us that most consumers who would benefit are relatively better off. They might for example have ample reliable income from other sources, or be engaged in inheritance planning (see paragraph 50). If so, this cohort of consumers may have a greater willingness to pay for advice.

o Gains forfeited by those who do not proceed to take advice but would have been suited to a transfer range from £0 to £52,500 (see paragraphs 88-89)."

Very few? Try just about everyone in a private sector DB scheme in current market conditions. Notice how few are expected to have both willingness and sufficient funds.

"106. We recognise that, in all our scenarios, some consumers will not take advice when it would have been suitable for them to transfer. Some of these consumers may be able to consider a transfer at a future point in time when they are more able to afford advice. ..."

CP19/25 also has this potentially useful information:

"3.28 ... our rules do not prevent firms from allowing consumers to pay in instalments over a 12-month period."

If firms were to offer this it would provide a potential way to pay out of post-transfer pension funds, assuming a consumer intent to transfer regardless of advice.

"50. There are some valid reasons why consumers may want to transfer their DB pensions. Health or crippling debt may drive a preference for transferring and these consumers are identified in our carve-out from the prohibition on contingent charging. Then  there are those consumers, often more able to afford advice ones, whose preferences revolve around wealth management and inheritance planning. From our work, we consider that only a small number of these clients are likely to be suitable for a transfer.

The main categories of client suited to a transfer includes:

o consumers in households with multiple DB or other guaranteed pension income sources that is sufficient to meet their needs so that they can accept investment risk to acquire additional flexibility

o consumers in households with significant other assets, where a transfer allows better tax planning

o consumers in households with significant DC pensions or other assets, and the DB scheme is not required to meet their needs

o in rare cases, where employer solvency is at risk, consumers who have a DB pension that exceeds the Pension Protection Fund limit

o a small number of consumers who have emigrated so that currency matching of assets and liabilities and/or tax differences outweigh the loss of guaranteed income"

"Loss of access to advice – forfeited gains ...
89. There may be a small number of consumers who transfer and do make a monetary gain. Typical transfer values are around 23 times the level of current revalued income. This implies that the internal rate of return on a transfer value is 4.4%. A consumer with  sufficient capacity for loss to invest 70% in equities and 30% in gilts could achieve a net of charges rate of return of 5%, assuming the assumptions in FG17/9 hold for equities and fixed interest over a typical lifetime of 20 years, and a reduction in yield for charges of 0.75%. This consumer would forfeit gains of 15% of the transfer value which is equivalent to £52,500 on an average transfer value."

Small number? 23 times? There appears to be a disconnect between the FCA and the reality of at least private sector transfers, where the multiple is currently typically in the 30-40 times range and just about everyone will make a very substantial gain, commonly coming close to doubling their potential income and being able to retire earlier even if they use a safe withdrawal rate that worked in the worst conditions seen in the last hundred plus years, let alone the almost 75% higher average performance (US market, 4% rule is worst case seen, average case was 7%). By contrast, public sector transfers use far lower values and in this forum typically result in a suggestion not to transfer. The unqualified people in this pub-equivalent venue seem to have a better idea of market reality than the FCA expressed.