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

Jerry_Mander

Audaxer said:

Maybe the fact that you are asking for a DB transfer to an annuity, rather than the more common straightforward DB transfer, is pushing up costs being quoted? As mentioned earlier, I would have thought a DB transfer to a DC pension should allow you to cover the house cost from the tax free lump sum?  

I must admit I don't fully understand this part of the process but I thought that the process of transferring my DB pension pot to an annuity implicitly involved converting the DB to a DC pension. I have been told that if my pension is DC I would have no issue converting it to an annuity. Maybe someone can enlighten me as to the process?

Also, what do you mean by a "straightforward DB transfer?"

dunstonh

As far as the negative recommendation goes, if I properly understand what they're telling me, then they will get my quote from the third party and decide whether it is suitable for me before I have to pay anything.

That has been banned by the FCA if the process was DB to Annuity

I have been told that if my pension is DC I would have no issue converting it to an annuity. Maybe someone can enlighten me as to the process?

If the transaction is done as two distinct stages.  i..e DB to DC then DC to annuity then its possible to buy the annuity on a non-advised basis (although it will likely be more expensive than advised given the fund size).     I am also pretty sure the FCA/FOS would take a dim view if the same adviser transacted both stages within a very short time of each other and the annuity purchase intention didnt form part of the DB transfer advice.

Albermarle

As far as the negative recommendation goes, if I properly understand what they're telling me, then they will get my quote from the third party and decide whether it is suitable for me before I have to pay anything.

There is a process called Triage ( as in the medical term ) for DB transfers. It is a kind of unofficial shortened version of the full transfer process. It is to weed out people who will clearly get a negative result and avoid the large costs associated with the full process.

There will be no promises of a positive result only something like 'indications are that it could be the full process could give a positive result '

I do not know how widely available this Triage system is, or whether it is related to your case ,  but for sure it is not free !

Audaxer

Jerry_Mander said:

Audaxer said:

Maybe the fact that you are asking for a DB transfer to an annuity, rather than the more common straightforward DB transfer, is pushing up costs being quoted? As mentioned earlier, I would have thought a DB transfer to a DC pension should allow you to cover the house cost from the tax free lump sum?  

I must admit I don't fully understand this part of the process but I thought that the process of transferring my DB pension pot to an annuity implicitly involved converting the DB to a DC pension. I have been told that if my pension is DC I would have no issue converting it to an annuity. Maybe someone can enlighten me as to the process?

Also, what do you mean by a "straightforward DB transfer?"

By more straightforward, I just meant a DB pension transfer to a DC pension. I hadn't previously heard of anyone converting a DB pension to an annuity, but presumably it would be a further step in the process after the initial transfer into a DC pension first. However I was just wondering why you actually need the transfer into an annuity, as it looks like you would be able to fund your house purchase from the DC pension if just transferred into that alone, especially as you State Pension when received would more than cover your annual spend if it is only £6k per year. It would therefore just be a case of funding £6k per year between now and when your State Pension is received, and I would think the £300k or so left in your DC pension would more than cover that? 

Jerry_Mander

Audaxer said:

By more straightforward, I just meant a DB pension transfer to a DC pension.

I just wasn't aware that that was a possibility, I thought I had to buy an annuity.

Is converting a DB to a DC simpler and cheaper then? Does having the pension pot in a DC pension allow me to do as I please with it? Or do I still need to go through an IFA to get my hands on the money?

Thanks to everyone who is contributing to this discussion by the way, it's proving really helpful.

Prism

Jerry_Mander said:

Audaxer said:

By more straightforward, I just meant a DB pension transfer to a DC pension.

I just wasn't aware that that was a possibility, I thought I had to buy an annuity.

Is converting a DB to a DC simpler and cheaper then? Does having the pension pot in a DC pension allow me to do as I please with it? Or do I still need to go through an IFA to get my hands on the money?

Thanks to everyone who is contributing to this discussion by the way, it's proving really helpful.

With a DC pension you can do what you want with it. Buy an annuity, invest it in stocks and bonds to suit your risk level or keep it as cash. This is why a few people were a little confused with your decision to buy an annuity - other options are available which might be better for you. In fact, a mix and match approach is entirely possible.

Albermarle

Jerry_Mander said:

Audaxer said:

By more straightforward, I just meant a DB pension transfer to a DC pension.

I just wasn't aware that that was a possibility, I thought I had to buy an annuity.

Is converting a DB to a DC simpler and cheaper then? Does having the pension pot in a DC pension allow me to do as I please with it? Or do I still need to go through an IFA to get my hands on the money?

Thanks to everyone who is contributing to this discussion by the way, it's proving really helpful.

Well during the first few pages of this thread there were many posts asking why you wanted an annuity, as it was unusual and probably not the best route if you did transfer the DB pension. Then you argued strongly you wanted an annuity and wanted the security of guaranteed risk free regular payments .

If you have a DC pot ( either from a DB transfer or not ) you can( if you are over 55) 
1) Buy an annuity with it
2) Cash it all in ( although usually you get a big tax bill )
3) Take money from it on a regular basis ( drawdown) or take ad hoc sums from it . The more you take the quicker it runs out.

You do not need an IFA for points 2 and 3 but you do need one to give you a positive recommendation to transfer the DB pension - that's the hard and expensive bit. 

I suggest it might be a good idea to now reread the thread from the start.

By the way if you tell an IFA you want a DB to DC transfer because 'you want to get your hands on the money ' then this will be a big negative. One of the main reasons for all this transfer procedure is to ensure that after the transfer you will still be able to support yourself with a regular pension income , and not blow it all in a few years.

Jerry_Mander

Albermarle said:

Well during the first few pages of this thread there were many posts asking why you wanted an annuity, as it was unusual and probably not the best route if you did transfer the DB pension. Then you argued strongly you wanted an annuity and wanted the security of guaranteed risk free regular payments .

That's quite true, but I think if someone had said at the start, "look just use an IFA to transfer your DB to a DC and that will free up the cash for you to use as you like", I think I'd have understood better as that's exactly what I want. Or did someone say that and I just didn't get it? I will go through the thread again to reassess the advice.

To clarify though, once the DB is transferred to a DC, is the amount in the DC pot going to vary, and if so why? Or is it fixed?

Audaxer

Jerry_Mander said:

Audaxer said:

By more straightforward, I just meant a DB pension transfer to a DC pension.

I just wasn't aware that that was a possibility, I thought I had to buy an annuity.

Is converting a DB to a DC simpler and cheaper then? Does having the pension pot in a DC pension allow me to do as I please with it? Or do I still need to go through an IFA to get my hands on the money?

Thanks to everyone who is contributing to this discussion by the way, it's proving really helpful.

You previously said the CETV was £420k, so if it was transferred into a DC pension, the initial value would be that amount minus the costs associated with the transfer. You said your main requirement from the transfer was to get £100k released for your house purchase. Well, if your remaining DC pot was say, £400k you would be able to take 25% tax free cash which is of course £100k and would seem to meet that need. 

Any further funds you needed to withdraw from the remaining estimated £300k in the DC pension would be subject to income tax if above your annual personal allowance. If you are sure your income needs are only £6k per year (which seems very low), that £300k should be more than enough to cover you until you get your State Pension.

Jerry_Mander

Audaxer said:

Any further funds you needed to withdraw from the remaining estimated £300k in the DC pension would be subject to income tax if above your annual personal allowance.

But if I use the remaining funds to buy an annuity that won't be subject to tax, will it?

And I can find an annuity directly online once my pot is DC. Although I'm not sure if using an IFA to do that for me would overall be the better option as clearly I'd have to factor in their (enormous) charges.

Actually, I'm still a bit confused now. What's the difference between asking an IFA to arrange a DB to an annuity, and asking an IFA to convert my DB to a DC and then arrange an annuity for me? The outcome seems to be the same. Is it just a matter of total charges?