Tips on how to ensure your Financial Advisor gives the green light to transfer DB pension to SIPP.

dunstonh

Would I assume correctly that a business plan submitted to support the holiday let business help such a decision, the returns on the holiday let would certainly exceed the pension and with a ROI of around 4 years, would be seriously contributing to the coffers some 5 years before the pension would start paying out. To me it would be a no brainer. 

Your overall scenario (based on the limited information you have given) has issues.   You are short of cash but you want to give up the security to go into niche investing in an area that is rife with fraud and failures.    Holiday lets are also prone to high maintenance costs and require more frequent refurbishment than residential.   Yet you don't have the cash.   A period like the lockdowns would have seen you suffer significantly if you are reliant on the income.

A net rate of return that sees you cover the cost within 4 years does not sound feasible.   It's the sort of figure that scams use.    In the UK, the average rate of return on holiday lets is 8% p.a. (before costs and tax).  So, if you are quoting circa 25% p.a. after costs and tax then that sets alarm bells ringing.

xylophone

after being quoted £6,000 to £10,000 to go through the process, I need to be as confident as possible that the decision will be in my favour before investing such a sum as it would cause a great deal of hardship if lost

You aren't investing, you are paying for a service, and by the sounds of it, one you cannot  comfortably afford?

Have you  (and spouse(?)) obtained state pension forecasts?

https://www.gov.uk/check-state-pension

Albermarle

Probably the fact that you actually need the cash will work against you. A DB transfer is easier when you already have a lot of significant assets already.

ANotInUseName

I have to confess Malthusian, the only information received on this pension was an email from the administrators which says and quote:
If you retire before age 65 your pension will have increases at the discretion of 'the company' (the last time they gave one was 1% in 2008) up until age 65.  From age 65, or if you retire at age 65, part of your pension (the GMP, Guaranteed Minimum Pension, which is the contracted-out part of your pension) will have CPI increases capped at 3% p.a. and the other part will have increases at the discretion of 'the company'.

So my understanding of this comment was that the contribution by the company has been trailing CPI, and this has been confirmed by the annual statements. I also fear introduction of change, for example CBDC within the next 9 years, usually we don't come away unscathed when there's changes to fiat currencies.

Albermarle, if possible would you be able to share a link to the information regarding the devaluation of DB's in 2022. Would be interested to read.

D&C, I see where you're coming from re: litigation, is it really like that in the financial industry if I put a business plan forward as the argument in favour of going down the route of transferring the DB, then the business plan doesn't work out say I didn't get planning permission or we go into a depression and no one wishes to take holidays, I could then take legal action against the financial advisor? I will have to conduct the due diligence needed in the business plan after all it's not in my interest to let such a venture fail 

dunstonh

re: litigation, is it really like that in the financial industry if I put a business plan forward as the argument in favour of going down the route of transferring the DB, then the business plan doesn't work out say I didn't get planning permission or we go into a depression and no one wishes to take holidays, I could then take legal action against the financial advisor?

Yes.   Although it's more typically the FOS rather than legal action.   And the FOS are very liberal in their views.   i.e. the adviser let you do something that put you in that position and they should have spotted the issues and prevented it.

There was a complaint upheld against Barclays that led to compensation as they allowed someone to do a transaction on their non-advised investment service that they lost money on because they didn't understand it.   The FOS decided that Barclays didn't do enough to prevent it despite it being a non-advised DIY proposition.  That is the sort of mentality that exists in consumer protection nowadays.

I will have to conduct the due diligence needed in the business plan after all it's not in my interest to let such a venture fail  

Yet plenty do fail even with the best due diligence.

Albermarle

Albermarle, if possible would you be able to share a link to the information regarding the devaluation of DB's in 2022. Would be interested to read.

My comment was about the devaluation of DC pensions so far this year. If you have a DB transfer, then it has to go to a DC pension.

I do not think any link is necessary. Most investments are down 10 to 20 % and inflation is 10%. So in real terms nearly all investment portfolios, including DC pensions are down minimum 20% in real terms this year.

Another poster I think commented that the transfer quotations for transferring out of a DB scheme are also dropping, which is a different story.

xylophone

When you left the company, were you given a statement of deferred benefits showing the split between GMP and excess at date of leaving service?

When did you leave the company?

How are GMP and excess revaluing in deferment?

Have you and your spouse obtained state pension forecasts?

Malthusian

ANotInUseName said:

I have to confess Malthusian, the only information received on this pension was an email from the administrators which says and quote:
If you retire before age 65 your pension will have increases at the discretion of 'the company' (the last time they gave one was 1% in 2008) up until age 65.  From age 65, or if you retire at age 65, part of your pension (the GMP, Guaranteed Minimum Pension, which is the contracted-out part of your pension) will have CPI increases capped at 3% p.a. and the other part will have increases at the discretion of 'the company'.

So my understanding of this comment was that the contribution by the company has been trailing CPI, and this has been confirmed by the annual statements.

Yes, I should have qualified my statement. It is unusual for someone to have a DB pension where a significant part of the pension is old enough to not have inflation-linking.

But the lack of inflation-linking is taken into account in the transfer value, so in itself it doesn't make cashing it in more suitable.

I also fear introduction of change, for example CBDC within the next 9 years, usually we don't come away unscathed when there's changes to fiat currencies.

Given the current political climate over landlords and second homes, there is far more chance that the Government will change the law to negatively impact the returns of holiday let owners than people with DB pensions.

But there's little need to debate politics. The important factor is that there is no chance that you will get a positive recommendation to transfer on the grounds that you are worried about CBDCs or other bogeymen.

ANotInUseName

Thanks for the comments all, Malthusian, appreciate the comment 'But the lack of inflation-linking is taken into account in the transfer value, so in itself it doesn't make cashing it in more suitable.', re: CBDC this was referenced from the BofE website research section, so it appears to be something under discussion if nothing else, didn't think the statement was either political or conspiritual due to the source, the sentiment behind the reference was to appreciate such risks and to allow me to make the decision whether to follow through with trying to transfer the pension.
Xylaphone, I left the company back in 1996, on my leaving statement GMP (post 88) just over £4k pa with GMP increases by 7% pac for each complete year between the leaving date and state pension age.
Balance, or excess is just over £7k increasing in line with RPI up to a maximum of 5%
Both £4k and £7k values were 'estimated at age 60'
This was on the leaving statement from 1996, the company was subsequently taken over.
Both wife and I will have a the full state pension based on the latest forecast for £185 per week.

Brie

This was on the leaving statement from 1996, the company was subsequently taken over.

Does this mean you haven't had any updates since then?  First thing to do is to get a request in to both pensions to ask what your pension would be if you started taking it on X date.  (1st Oct 2022 maybe?)  Then you can see what the reductions would be for taking thing early and they will likely give you a transfer value as well.

As for getting a yes or no decision.....just because you have a business plan why should an IFA believe you?  Essentially it's little different from those in debt who want to apply for a loan to pay off all their credit cards.  A bank won't believe that's what they will do with the money as it's just one future out of many possibles.   They might pay off the cards or they might blow it on the dogs. The only reason a good IFA will say yes is if you can make them believe your time on this earth is so short that you need the money now as you won't be able to spend it in a year or two.