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

xylophone

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

See

https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/guaranteed-retirement-income-annuities-explained


https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise/explore-your-pension-options

eskbanker

Jerry_Mander said:

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?

At the risk of going round in circles, it depends what you do with it once it's there!  It's normal for DC pots to be invested, thereby being subject to market fluctuations commensurate with the level of risk being taken, but you could freeze it in cash form if you really wanted to (which would therefore subsequently lose value to inflation and/or costs), or if you stuck with your plan A of buying an annuity then the money wouldn't stay in the DC pot for any length of time anyway....

dunstonh

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.

You do realise that buying an annuity online will have higher charges?

Albermarle

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.

I am at risk of getting repetitive ....

The 'enormous charges ' are for the IFA to conduct an investigation into whether they can positively recommend ( or not ) that you are able to transfer out of the DB pension in the first place. ( either to a DC pension or to an annuity) .

If the recommendation is negative , then you probably will not be able to transfer at all .

Jerry_Mander

dunstonh said:

You do realise that buying an annuity online will have higher charges?

Is that true? Why is that?

The thing is, any charges are bound into the quote if I do it online. So if I'm happy with the quote the charges are, in that sense, irrelevant because I get exactly what I'm quoted.

And the IFAs say, of course we can get you a higher quote (for an annuity) than you'd get online, otherwise we'd get no business. Well, on the face of it that may be true, but once you start factoring in their substantial charges, I think it may be less true.

Jerry_Mander

eskbanker said:

but you could freeze it in cash form if you really wanted to

And how would one go about that? is it just a matter of requesting that that happens once the transfer is complete?

Being risk averse I'd be worried that the stock market, or whatever dictates the DC pension, would drop heavily while it's not fixed so I'd want to freeze it in cash immediately.

eskbanker

Jerry_Mander said:

eskbanker said:

but you could freeze it in cash form if you really wanted to

And how would one go about that? is it just a matter of requesting that that happens once the transfer is complete?

Being risk averse I'd be worried that the stock market, or whatever dictates the DC pension, would drop heavily while it's not fixed so I'd want to freeze it in cash immediately.

It'll be under your control - if you were transferring out of a DB pension into a DC one, then you can choose what to do with that pot, so typically you'd open a SIPP, within which you elect exactly how it's deployed.  However, admitting that you're risk averse, to the (relatively extreme) extent of freezing a pot in cash form, is (IMHO) likely to reduce the prospect of securing a positive recommendation to transfer....

QrizB

Jerry_Mander said:

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?

Once you've moved your DB into a DC, and have taken the £100k tax-free, the remaining £300k can be invested as you wish.

Assuming you're 60, you could keep £70k as cash (to mirror your SP until you're 67) then invest the other £230k.

Safe drawdown rates are a topic of hot contention on this board but the £230k invested should let you take £7k per year forever, and potentially more. If you need less you can leave it invested.

Pablo7474

It’s always the outraged… 

MX5huggy

Jerry_Mander said:

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?

The income from an Annuity is taxable. Taking in to account your allowances etc.