Transferring out of a defined benefit pension to an annuity. Getting charged £13000!

jamesd

Jerry_Mander said:

theoretica said:

Have you talked to a mortgage broker?
https://www.which.co.uk/money/mortgages-and-property/mortgages/types-of-mortgage/retirement-interest-only-mortgages-explained-a9z9k0h9lbfy

More debt! That's the last thing I want.

It might be the best way to achieve the house objective. What you can do is make mortgage capital payments only when the work pension income exceeds the level annuity income, achieving much of what you're after. There's still the matter of the years when DB is paying less than level annuity, though, but tax free lump sum can cover part of that.

However, there is still the potential option of a transfer against advice, which in current market failure conditions may require you to set up a SSAS to receive the transfer. 

Albermarle

Jerry_Mander said:

Albermarle said:

I am not sure I understand what you are saying . The process ( simplified) is normally

I think I do understand but my experience (so far) does not seem to match what you're saying "normally" happens. I have in writing from two IFAs that I will get a figure for what they will be able to get for me as an annuity before I have to pay any money. In other words up to that point it's free advice and I'll know what they're offering is actually good value or not. They have arrangements with third parties that enables them to do that.

You ( and the IFA's ) seem to be putting the cart before the horse, unless I misunderstand .

Buying an annuity is not an issue, and quite probably as they say the IFA's can get a better deal than you can yourself.

However first you have to go through the process of taking the CETV and actually getting the money . This is the expensive and potentially complicated bit, and quite possibly you might never get to the stage where you have the funds in your hand to buy an annuity.

Aretnap

Albermarle said:

Jerry_Mander said:

Albermarle said:

I am not sure I understand what you are saying . The process ( simplified) is normally

I think I do understand but my experience (so far) does not seem to match what you're saying "normally" happens. I have in writing from two IFAs that I will get a figure for what they will be able to get for me as an annuity before I have to pay any money. In other words up to that point it's free advice and I'll know what they're offering is actually good value or not. They have arrangements with third parties that enables them to do that.

You ( and the IFA's ) seem to be putting the cart before the horse, unless I misunderstand .

Buying an annuity is not an issue, and quite probably as they say the IFA's can get a better deal than you can yourself.

However first you have to go through the process of taking the CETV and actually getting the money . This is the expensive and potentially complicated bit, and quite possibly you might never get to the stage where you have the funds in your hand to buy an annuity.

Not sure that it's putting the cart before the horse as such. If the OP has told an IFA "I want to transfer my DB pension and use some of the proceeds to buy an annuity", then whether that's a good idea will depend at least in part on how much of an annuity the OP can buy with the proceeds. So it seems to make sense to get a quote for an annuity before starting the rest of the advice process. 

Getting the quote for the annuity will still be cheap, quick and simple in comparison to the rest of the process however. 

Albermarle

Getting the quote for the annuity will still be cheap, quick and simple in comparison to the rest of the process however. 

That is the point I was trying to make anyway .

Audaxer

If you can live on only £6,000 per year, I'm not sure why you need an annuity at all. You only need to bridge the gap until you get your State Pension of around £9,500 at 67 which will more than cover all your spend. I'm not sure how many years that is, but if your DB pension has a CETV of £420,000, presumably if you were able to get it transferred without then turning it into an annuity, your 25% tax free element when taken could cover your £100k needed for the house purchase. You would then still have about £300k left to invest or even keep a fair proportion as cash to drawdown to cover your annual spend until you get to State Pension age.

Apologies if I've missed something, but I can't see why you need to take an annuity to get the funds for your house purchase?  

bostonerimus

Audaxer said:

If you can live on only £6,000 per year, I'm not sure why you need an annuity at all. You only need to bridge the gap until you get your State Pension of around £9,500 at 67 which will more than cover all your spend. I'm not sure how many years that is, but if your DB pension has a CETV of £420,000, presumably if you were able to get it transferred without then turning it into an annuity, your 25% tax free element when taken could cover your £100k needed for the house purchase. You would then still have about £300k left to invest or even keep a fair proportion as cash to drawdown to cover your annual spend until you get to State Pension age.

Apologies if I've missed something, but I can't see why you need to take an annuity to get the funds for your house purchase?  

Agreed, I think the OP is risk averse and also wants the 100k for the house. So they have settled on taking the CETV and using it to buy the house and an annuity. However, the annuity they have looked at actually is a risky option as the 25 year term does not give any longevity insurance. As the OP states they can live on just SP they have lots of options and this is a situation where an IFA should develop a long term income plan for the OP that might include SP, a partial annuity, cash and an investment portfolio for growth and income. If the OP is buying a new house they must factor the ongoing costs of that into their budget ie council tax, repairs, utilioties etc.

Jerry_Mander

Just to show what a con this game is, I went through a website to try to find an IFA and the the website only has sort of tick boxes for how much your pension pot is, so I had to tick £250k+ as mine is £420k. An IFA got back to me and quoted about £6k for the work based on what he saw from the website which was £250k. But then I told him my actual pension pot is £420k and so he recalculated and came back with around £10k costs!  So, he'll be doing exactly the same job for £10k that he was going to do for £6k before he knew the real size of my pension pot. Bloody infuriating.

Jerry_Mander

bostonerimus said:

If the OP is buying a new house they must factor the ongoing costs of that into their budget ie council tax, repairs, utilioties etc.

Which I have done, and I can still quite comfortably manage on the state pension. The only assumption I've made is that the state pension will keep up with real inflation.

Pablo7474

Is that a con really? Would an estate agent sell a £250k house for the same fee as a £1m house? 

Linton

Pablo7474 said:

Is that a con really? Would an estate agent sell a £250k house for the same fee as a £1m house? 

For the IFA the situation is worse.  The greater value of the pension the greater the liability.  If the IFA approves the DB transfer a customer who loses his money through subsequent foolish investing can claim compensation on the grounds that the transfer was in fact inappropriate considering his lack of knowledge.  The ombudsman may then require reimbursement of the losses from the IFA.  And yes, this has happened in the past.