Being forced to use a Financial Advisor to transfer pension to pension.

scoobyjones1

QrizB said:

scoobyjones1 said:

"They may well by dying out but I think you will find there are more people trying to get one (local government, NHS, civil service, teachers jobs etc) than there are people wanting to transfer out of them."

Are these DB Pensions still available? I know that my Wife's firm stopped using them decades ago. Surely a DC pension or maybe stake holder type is better. I don't know... And with her one they changed the rules...and not to the benefit of the pensioners. Hence people scrambling to get out. But we are getting off topic... all the best.

On the whole, the DB pensions that remain available are much better deals than a DC one.

The reasons that many emloyers (including mine) closed their DB schemes was that they were too expensive to the employer, not because of any widespread preference for DC schemes among the employees.

Take the UK civil service Alpha scheme as an example, and consider an employee earning £40k pa.

The employee will contribute 5.45% of their salary, £2180 a year. In exchange they will earn a pension of 2.32% of their salary, £928 a year. Put another way, their contribution would pay for less than three years of their pension.

To buy a £928 index-linked annuity (a reasonable analogue to the Alpha scheme pension) would cost a 67-year-old something like £20000. That's ten times the employee's pension contribution.

OK, you might say that civil service pensions are famously generous. Let's use a private sector one as an example. There was a poster a few months back who was asking if he should bay 16% of his salary in order to keep his employer's pension that paid out 1.67% of his salary. So the pension was 1/10th of his contribution. The overwhelming opinion of the board was yes, it's still less than half the price of the equivalent annuity.

Very interesting, sounds good from that point of view...still would be difficult to transfer out of but if you are getting a good amount then that would not be a problem, unless you needed a large cash sum for something someday perhaps. Also it would have to have some growth when you take it, ie above inflation. My Wife's one has declined due to not matching recent inflation. I think it's wrong that scheme rules can be changed just before you may take your pension, especially to the detriment of the pensioner.

scoobyjones1

Pat38493 said:

scoobyjones1 said:already done so for 10 years and the amount she is being offered per annum 

I am sure you are right, re the advice we would be given. Read the whole thread and hopefully you will see her reasons. In a nutshell, this is a bonus pension, a small amount she did not even know was there until recently. It was not part of our pension planning and she would rather have access to the amount (£60k) now, in her long established SIPP, aged 60 than get a small amount (£166) every month for 20/30 years. We feel we can make it grow and use it in the way we have other investments and savings. This would help us now...while we have some health and mobility left! We will be fine later on...we already have that put by and may even eventually get our State Pensions! You never know...
Also..this DB fund has recently changed it's rules so that it "grows" at inflation level but capped at 5% max. So a lot of members are trying to transfer out but seem to be finding it very expensive....and they have much larger pots, most of them. 

So if this is a bonus that she didn't know she had before, it seems to be causing a lot of stress for a bonus.  If you want the £60K to spend now.....

All other things equal, by putting this DB pension into payment at £3K per year or whatever it was, she will reduce the need to take out that money from her other pensions each year.  As such, if your calculations are that you had enough even before you found out about this pension, you can simply take out £60K from the existing DC funds that you have and spend it now.  That's the bonus.  You won't need that £60K in future as it would have been funding the amounts that are now covered by your DB.  In that way you have done a "theoretical" transfer and withdrawal of the money  

Sorted! 

However, as DunstonH said you seem to be assuming that investments returns will continue to deliver what they have done during the last 10 years - the last 10 years have been unusually good compared to the previous 100 years, so it might not be a good benchmark to assume that this will continue for another 30 or 40 years.  It has not done that in the past.

I see where you are coming from and yes, it seems it's too stressful and too expensive to achieve what we want to do. It seems crazy to me that it may cost 16-17% of her whole CETV just to pay for the advice we legally have to take in order to access it. That is prohibition in my view. We can not assume an IFA would advise what we want to do as a good choice so we may pay for nothing and also that IFA is probably biased, as they have to protect themselves from liability. It's not a great set up for any pensioner.

And we assume nothing re share values. 2022 was a bad year ...certainly not "unusually good". 2023 has been a record year and most of the people I listen to...for professional advice, including Professors way smarter than I am, are seeing 2024 as an up year from here. 2025...who knows? Beyond that we do not have to put the money into shares, there are secure bonds or we could sell at anytime and go to cash at 4.8% interest. 

QrizB

scoobyjones1 said:

Also it would have to have some growth when you take it, ie above inflation. My Wife's one has declined due to not matching recent inflation.

What makes you think that your wife's pension has declined? For pensions that are not yet in payment, the calculation for inflation-based increases isn't especially sensitive to one high-inflation year.

scoobyjones1 said:

We can not assume an IFA would advise what we want to do as a good choice so we may pay for nothing

We can be fairly sure that the advice will be not to transfer.

scoobyjones1

QrizB said:

scoobyjones1 said:

Also it would have to have some growth when you take it, ie above inflation. My Wife's one has declined due to not matching recent inflation.

What makes you think that your wife's pension has declined? For pensions that are not yet in payment, the calculation for inflation-based increases isn't especially sensitive to one high-inflation year.

scoobyjones1 said:

We can not assume an IFA would advise what we want to do as a good choice so we may pay for nothing

We can be fairly sure that the advice will be not to transfer.

QrizB said:

scoobyjones1 said:

Also it would have to have some growth when you take it, ie above inflation. My Wife's one has declined due to not matching recent inflation.

What makes you think that your wife's pension has declined? For pensions that are not yet in payment, the calculation for inflation-based increases isn't especially sensitive to one high-inflation year.

scoobyjones1 said:

We can not assume an IFA would advise what we want to do as a good choice so we may pay for nothing

We can be fairly sure that the advice will be not to transfer.

Last year, some people in the same company got a 12.5% rise to their pension and those in the DB scheme, same company got only 5%...this is why many of them want out. At best hers will only ever match CPI and if that rises above 5% again (it was almost 10% for 18 months or so) then her pension is capped and would be in decline in real terms. It has done well up till recently as the contributions were generous from the company but they changed their schemes in order to save money and the DB scheme was dropped, decades ago. We are nit picking here...the facts still remain. What we would like to do is seeming too difficult and practically impossible. Good luck to everyone and anyone else if they are happy with it and a Merry Xmas to everyone. 

xylophone

A question for you, xylophone. The amount of tax free cash is clear, approx £12k and then annual amounts of £12k, rising with CPI.

Annual amounts of £2000?

Have you a copy of the scheme guide/rules?

As far as I can see from the information given, there is no automatic lump sum in your wife's scheme.

The pensioner has a choice of the full amount (£2300 per annum in your wife's case) or commutation of part of the pension so as to take a pension commencement lump sum.

Read the link here https://techzone.abrdn.com/public/pensions/Tech-guide-tax-free-cash again concerning how that lump sum is calculated.

It appears that the CF in your wife's scheme is approx 24.

After that lump sum is taken, I do not see how there could be any other lump sum (taxed or otherwise) available.

It would be like asking the  scheme to pay some part of your pension in advance?

JoeCrystal

scoobyjones1 said:

QrizB said:

scoobyjones1 said:

Also it would have to have some growth when you take it, ie above inflation. My Wife's one has declined due to not matching recent inflation.

What makes you think that your wife's pension has declined? For pensions that are not yet in payment, the calculation for inflation-based increases isn't especially sensitive to one high-inflation year.

scoobyjones1 said:

We can not assume an IFA would advise what we want to do as a good choice so we may pay for nothing

We can be fairly sure that the advice will be not to transfer.

QrizB said:

scoobyjones1 said:

Also it would have to have some growth when you take it, ie above inflation. My Wife's one has declined due to not matching recent inflation.

What makes you think that your wife's pension has declined? For pensions that are not yet in payment, the calculation for inflation-based increases isn't especially sensitive to one high-inflation year.

scoobyjones1 said:

We can not assume an IFA would advise what we want to do as a good choice so we may pay for nothing

We can be fairly sure that the advice will be not to transfer.

Last year, some people in the same company got a 12.5% rise to their pension and those in the DB scheme, same company got only 5%...this is why many of them want out. At best hers will only ever match CPI and if that rises above 5% again (it was almost 10% for 18 months or so) then her pension is capped and would be in decline in real terms. It has done well up till recently as the contributions were generous from the company but they changed their schemes in order to save money and the DB scheme was dropped, decades ago. We are nit picking here...the facts still remain. What we would like to do is seeming too difficult and practically impossible. Good luck to everyone and anyone else if they are happy with it and a Merry Xmas to everyone. 

That depends on the inflation rules in the scheme rules. Some schemes average out over the period rather than focusing on one year and still come under the limit. For example, if over ten years averaged out at 5% then it is pretty much index-linked. Again, it depends on the scheme rules.

Does it sound like someone misunderstood about a 12.5% rise to their pension? Are you referring to a different DB pension scheme or a DC pension? If the latter, then yes, I would understand that; after all, it is still much cheaper to pay staff with DC pensions than the staff with DB pensions which will be on their books for life or until the insurance buyout or joins the PPF.

xylophone

This type of DB pension is dying out and I can see why people want to leave them. 

They may well be dying out but why do you suppose that is?

By way of example, I know somebody  in receipt of a DB pension that was non contributory while he was employed and where the excess over GMP is uncapped RPI.....

scoobyjones1

xylophone said:

A question for you, xylophone. The amount of tax free cash is clear, approx £12k and then annual amounts of £12k, rising with CPI.

Annual amounts of £2000?

Have you a copy of the scheme guide/rules?

As far as I can see from the information given, there is no automatic lump sum in your wife's scheme.

The pensioner has a choice of the full amount (£2300 per annum in your wife's case) or commutation of part of the pension so as to take a pension commencement lump sum.

Read the link here https://techzone.abrdn.com/public/pensions/Tech-guide-tax-free-cash again concerning how that lump sum is calculated.

It appears that the CF in your wife's scheme is approx 24.

After that lump sum is taken, I do not see how there could be any other lump sum (taxed or otherwise) available.

It would be like asking the  scheme to pay some part of your pension in advance?

Thanks again, xylophone. The company gave her 3 options, defer for now...kick the can down the road...that's a no from her. Option 2 was approx £2300 per year for life, but paid in small, monthly amounts, That's out, she says.
Option 3 was approx £12400 as a tax free, lump sum and then around £2015 per year but in monthly instalments. This is probably what she will take and yes that's nice as this was only discovered recently as a long lost pension. It's not her preferred choice which would be to transfer out into her already up and running, UK registered pension, her own SIPP. To achieve that though is too expensive, stressful and time consuming.
The feeling I get on here is that most people would also take the easy / "safe" option and also it seems that many, IFA's do not like folk having SIPPs.
All the best to you for your kind help and advice.

scoobyjones1

xylophone said:

This type of DB pension is dying out and I can see why people want to leave them. 

They may well be dying out but why do you suppose that is?

By way of example, I know somebody  in receipt of a DB pension that was non contributory while he was employed and where the excess over GMP is uncapped RPI.....

I said why...because it costs the firm more..
My Wife's was non contributory while she was employed and hers was originally uncapped...very nice...but then they changed it, presumably due to very high interest rates that were costing them too much. So the person you know was / is better off and sounds pretty happy to be in that DB scheme. Good luck to them.

Pat38493

scoobyjones1 said:

xylophone said:

This type of DB pension is dying out and I can see why people want to leave them. 

They may well be dying out but why do you suppose that is?

By way of example, I know somebody  in receipt of a DB pension that was non contributory while he was employed and where the excess over GMP is uncapped RPI.....

I said why...because it costs the firm more..
My Wife's was non contributory while she was employed and hers was originally uncapped...very nice...but then they changed it, presumably due to very high interest rates that were costing them too much. So the person you know was / is better off and sounds pretty happy to be in that DB scheme. Good luck to them.

The reason it costs the firm more is that DB pensions are generally much better than DC pensions due to the guaranteed benefits for life.