Pension transfer costs

MrPauly

I’ve been tempted by a very large cash equivalent transfer value to transfer my DB pension in to a pot to drawdown. However I’ve been shocked by the initial and ongoing charges for doing this. I’ve been quoted 11k to get it authorised, about 0.86% annually to the advisor, 0.9% annually to the pension platform and 0.8% annually  for the investments. 

This all seems a lot to me and I’m worried it will erode my pot before I begin to drawdown. I am told by my advisor that these are typical costs and there may be cheaper alternatives but the growth would be poorer in comparison. Does anybody know if these costs are typical or are they excessive?

MallyGirl

Have you read all the threads on here about how difficult it is to get a positive recommendation to transfer?
What is your compelling reason to move away from a guaranteed income for life? Seeing lots of £ signs doesn't count.

MrPauly

Hi, primarily it is to get to my pension earlier. My current DB scheme has moved the goalposts several times since I joined and early retirement is no longer an option in the scheme without massive penalties. I have also looked at my guaranteed benefits and to be honest envisaged a more generous pension in retirement. Drawdown attracted me because of the flexibility and yes the £ signs if I’m honest. I want more money while I’m young enough to enjoy it and less when I’m older.

JoeCrystal

So how big is your CETV, what is your expected pension at what normal retirement age and if it is index-linked, what to and is it capped? Considering how large the initial charge is, I assume it must be more than a million pounds? If so, then you got LTA to consider and so on top. You still haven't given a compelling reason, though.

It is also possible that the initial charge is so high precisely your IFA really really does not want to do it.

Marcon

MrPauly said:

I’ve been tempted by a very large cash equivalent transfer value to transfer my DB pension in to a pot to drawdown. However I’ve been shocked by the initial and ongoing charges for doing this. I’ve been quoted 11k to get it authorised, about 0.86% annually to the advisor, 0.9% annually to the pension platform and 0.8% annually  for the investments. 

This all seems a lot to me and I’m worried it will erode my pot before I begin to drawdown. I am told by my advisor that these are typical costs and there may be cheaper alternatives but the growth would be poorer in comparison. Does anybody know if these costs are typical or are they excessive?

£11K is far too much - £5K is closer to the current norm. The rest sounds like marketing spiel. Your adviser can't know what your alternative choices would be, so saying the 'growth would be poorer in comparison' is clearly nonsense. The lower the fees, the more there'd be in the pot to fund that growth!

MrPauly said:

Hi, primarily it is to get to my pension earlier. My current DB scheme has moved the goalposts several times since I joined and early retirement is no longer an option in the scheme without massive penalties. I have also looked at my guaranteed benefits and to be honest envisaged a more generous pension in retirement. Drawdown attracted me because of the flexibility and yes the £ signs if I’m honest. I want more money while I’m young enough to enjoy it and less when I’m older.

Those 'massive penalties' will look horrible, but they will be based on attempting to ensure that they are 'cost neutral' - i.e. by the time you die, the total amount of pension you will have received will be the same whether you retired early or at the scheme's normal retirement date. The goalposts aren't moving arbitrarily (although it probably feels that way!) - they are being updated to reflect changing marketing/funding conditions.

dunstonh

However I’ve been shocked by the initial and ongoing charges for doing this. I’ve been quoted 11k to get it authorised, about 0.86% annually to the advisor, 0.9% annually to the pension platform and 0.8% annually  for the investments. 

There isnt a platform that is charging 0.9% p.a.   Typical platform charge is in the 0.2x% ballpark.

£11k adviser fee could well be correct but it indicates an adviser that doesn't want to do it and is pricing it high to put you off.  But if you are willing to pay that much, they would do it.

0.8% for the investments is not high.   It's ballpark for a fully active portfolio.   you can get cheaper if you go passive or hybrid (a combination of the two).

So, in respect of your question about normal, you would target around £3500-£5000 as initial adviser charge
Platform charge in the 0.2x% range 
Investment fund costs would depend on your preferences but 0.1% for passive, 0.2x%-0.3x% for hybrid and 0.8% for active.   ESG & Ethical portfolios tend to cost more than conventional.   It is your choice to instruct the adviser of the style you want if you have preferences.

Note: if the adviser is not an IFA but an FA, they may not have access to passive or hybrid portfolios.   If they are not an IFA then the next thing to say is that you shouldn't use an FA as they are typically more expensive and restrictive.

Albermarle

MrPauly said:

I’ve been tempted by a very large cash equivalent transfer value to transfer my DB pension in to a pot to drawdown. However I’ve been shocked by the initial and ongoing charges for doing this. I’ve been quoted 11k to get it authorised, about 0.86% annually to the advisor, 0.9% annually to the pension platform and 0.8% annually  for the investments. 

This all seems a lot to me and I’m worried it will erode my pot before I begin to drawdown. I am told by my advisor that these are typical costs and there may be cheaper alternatives but the growth would be poorer in comparison. Does anybody know if these costs are typical or are they excessive?

If you do find an advisor with more reasonable prices your troubles are far from over .
The advisor has to go through a full analysis of whether the transfer is suitable for you. The default position is that it will not be suitable , unless there are some particular circumstances . Such as a life limiting disease, other sources of guaranteed income, extensive investment experience etc 
If you get a negative recommendation , you can still transfer as an 'insistent client'. However you will find it very difficult to find a pension provider who will accept a transfer from an insistent client , so you will be stuck and out of pocket.

Everybody is scared that you will make a mess of the investments , blow all the money on fast cars etc . Then come back looking for compensation for your 'lost' guaranteed income . 

Have you discussed with any IFA's what they think your chance of being successful actually are ?

MrPauly

The IFA I’m currently talking to has said they wouldn’t refer it if they thought it wouldn’t get through. To be fair to them they do keep telling me the pitfalls and reminding me what I’m giving up.
I know it’s difficult to get through but I have lots of colleagues who have done it with no problem. I have asked them what charges they pay and they don’t really know so maybe they’re not as thorough as me. Most of them are like me, can’t face work much longer but too old to change careers. 

Incidentally my DB scheme was closed in 2015 so I am a deferred member and I now contribute to a DC scheme with generous employer contributions and I would probably combine this in my pot with the DB CETV.
 Thanks to all for the replies I definitely need to think about this a lot more.

xylophone

You mention a "current" DB scheme.

Are you looking to transfer a  deferred pension from a former employment?

MrPauly

Hi, sorry it’s my current employer but they closed the scheme in 2015. They reduced benefits numerous times since the early 2000,s under the promise that they needed to do it to keep the scheme going but closed it anyway eventually. 

When I joined the scheme I was promised an un reduced pension at 55 but that benefit has long gone now 

Alexland

If you are currently contributing to a DC scheme then could you contribute enough to draw it first and leave the DB scheme alone until it's normal retirement age? Seems a shame to waste all that money on upfront and ongoing charges and give up the security of guaranteed income for later in life.