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

Jerry_Mander

MX5huggy said:

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

I know the income is taxable but the money from the pension pot I buy the annuity with isn't taxed, I believe. That's what I was asking.

Jerry_Mander

eskbanker said:

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....

I can't see the logic behind that. Surely if I request the money be frozen so that it doesn't reduce between receiving it and buying an annuity with it is good money management? An alternative would be to leave it at the mercy of the markets and quite possibly have less than I started with by the time I buy an annuity. Being penalised for wanting to retain your money's buying power seems odd.

Dazed_and_C0nfused

Jerry_Mander said:

eskbanker said:

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....

I can't see the logic behind that. Surely if I request the money be frozen so that it doesn't reduce between receiving it and buying an annuity with it is good money management? An alternative would be to leave it at the mercy of the markets and quite possibly have less than I started with by the time I buy an annuity. Being penalised for wanting to retain your money's buying power seems odd.

You aren't maintaining it though, inflation is currently 4%+ and on an upward curve.

Jerry_Mander

Albermarle said:

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

So what what sort of things can I do to give myself the best chance of being able to do a transfer?

Jerry_Mander

Dazed_and_C0nfused said:

You aren't maintaining it though, inflation is currently 4%+ and on an upward curve.

True but it'd only be a matter of a few weeks between freezing the pot and buying an annuity. They must have to take the practicalities of the situation into consideration.

Audaxer

Jerry_Mander said:

Dazed_and_C0nfused said:

You aren't maintaining it though, inflation is currently 4%+ and on an upward curve.

True but it'd only be a matter of a few weeks between freezing the pot and buying an annuity. 

When you said in a recent post that you had thought that you had to buy an annuity, I thought you had finally realized that annuity wasn't necessary for what you want to achieve! 

jimi_man

Jerry_Mander said:

eskbanker said:

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....

I can't see the logic behind that. Surely if I request the money be frozen so that it doesn't reduce between receiving it and buying an annuity with it is good money management? An alternative would be to leave it at the mercy of the markets and quite possibly have less than I started with by the time I buy an annuity. Being penalised for wanting to retain your money's buying power seems odd.

When considering whether to recommend a transfer from your DB pension to a DC pension, a report is done on you and lifestyle/wants/needs and attitude to risk in order to establish whether a transfer is in your best interests. Going from a very risk averse option (the DB pension) to a far more risky option (the DC pension), the report will seek to assess whether this level of risk is commensurate with your attitude to risk.

So in your case, as you've identified and demonstrated, you are highly risk averse (nothing wrong with that by the way) therefore recommending the transfer from (safe) DB to (not as safe) DC is highly unlikely to be in your best interests. 

There are a number of other factors that are considered as well, but the risk element I imagine is likely to be a reasonable factor. 

dunstonh

Is that true? Why is that?

Advisers are not allowed to take a commission.   So, the annuity rate advisers get is the nil commission rate.  DIY annuities are still allowed to have a commission on them.   So, they get a lower annuity rate to factor in the commission paid.

The adviser fee can either be paid via the annuity provider (as a deduction in the value) and the annuity rate would still be no commission.

If the fee and the commission were the same then you would broadly have the same outcome as they are both factoring in the same amount.   However, commission-based ones are a percentage of the fund value.   Some of the direct to consumer/DIY offerings take as much as 3% commission with no cap.   So, 3% on the 75% fund would be £9450.     If you qualify for enhanced annuities, the providers will often haggle the annuity rate given.  Plus, providers have said many times  over the years that IFA enhanced terms tend to be better via an IFA as the IFA will frequently coax better information out of you.   Unlike life assurance, the more conditions you have, the better the annuity rate.   On the whole, people self filling in the medical form frequently leave questions out that could make a difference.

And the IFAs say, of course we can get you a higher quote (for an annuity) than you'd get online

Even the most ardent DIY investors on here have said, over the years, that if they ever wanted an annuity, they would use an IFA.  

bostonerimus

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.

You are worried about the stock market declining, but discount the risks of inflation (and initially the risks of longevity too) and seem fixed on a path to buy an annuity when interest rates are at historical lows. You are not doing a good job of risk assessment, particularly when you say you can live on SP alone. I'm an advocate for DIY, but with the caveat that the DIYer can objectively assess their situation and make sensible decisions. SP, partial lifetime annuity, a cash buffer and some diversified equity funds would give you solid income and the flexibility of access to some capital too.

eskbanker

Jerry_Mander said:

eskbanker said:

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....

I can't see the logic behind that. Surely if I request the money be frozen so that it doesn't reduce between receiving it and buying an annuity with it is good money management? An alternative would be to leave it at the mercy of the markets and quite possibly have less than I started with by the time I buy an annuity. Being penalised for wanting to retain your money's buying power seems odd.

The point about freezing in cash was as an alternative to buying an annuity, but either way round, the likelihood of obtaining a positive transfer recommendation is probably going to be heavily influenced by your ability to demonstrate a mature understanding of what risk really is....