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

scoobyjones1

Prism said:

scoobyjones1 said:

The point is what she would like to do with her DB Pension money. How can any IFA say this ancient pension is a good, safe and secure investment for the future if it is so small, fixed but tiny growth...if growth at all, in real terms...

Well to be fair you don't seem willing to find out what an IFA might say since you so far don't want to pay for their services. So its a bit of a moot point what they do or don't advise. If the total amount isn't that important to you, I'm not sure why you wouldn't pay percentage to get that advice. Maybe they might even pursuade you better than we have that keeping the DB pension isn't such a bad idea after all.

so, £7500 to stay as we are? Great...that's 3 years pension wasted for nothing.

Marcon

Linton said:

I am amazed (or perhaps not) that this thread is still running.  The rules are the rules and there seems little point in discussing their rightness or wrongness.  That is up to Parliament.

 Perhaps it would shed some light if I gave a quick history of how we got here. I think it shows that each step was reasonable under the circumstances.  Note this is from memory and my understanding andso  could well be wrong in detail......

1) Ancient history

There were no legal restrictions on transfrerring a DB pension but no right to transfer either - it was up to the trustees to agree.  However having transferred the only way you could access the money was to buy an annuity - drawdown was not available.  But DB pensions were generally higher than annuities so there was no point in transferring unless perhaps you had serious life-limiting health problems.

For most schemes there's been a statutory right to transfer since January 1986...trustees had no right to block it save under exceptional circumstances (usually relating to the scheme's funding position and the viability of the sponsoring employer)


3) Introduction of pension freedom.

In 2015 "pension freedom" was introduced.  This gave the right to "cash in" a DB pension and removed any restrictions on drawdown.

'Pension freedom' did not give the right to cash in a DB pension, save in exceptionally rare circumstances (triviality, serious ill health, or winding up being the 3 most common - and they pre-date 2015). Anyone wishing to do so had to transfer out of the DB scheme first.

The Select Committee scrutinising the proposed law was extremely concerned that naive people with minimal experience of handling large sums of money would cash-in the lot and spend it immediately on luxuries they would never previously have been able to afford (Lamborghinis were often used as an example). Apart from the long term effects on the well-being of the pensioners there was also concern at the cost of the extra benefits that could be required.

However the Government did not want to lose the principle of pension freedom.

Especially not with an election coming up...

After much discussion a compromise was reached whereby people wanting to cash in a DB pension had to receive advice before being permitted to do so.  Then if they did spend the lot in a year or two the Government would (perhaps!) be off the hook.  Pension trustees would not have the skills to advise and did not want the responsibility.  so it was passed to IFAs.

No - you are again confusing 'cash in' and 'transfer'.

I too am amazed this thread is still wending its weary way. Haven't read the previous 26 pages but dipped in at this point!

Corrections above in bold. 

scoobyjones1

Linton said:

I am amazed (or perhaps not) that this thread is still running.  The rules are the rules and there seems little point in discussing their rightness or wrongness.  That is up to Parliament.

 Perhaps it would shed some light if I gave a quick history of how we got here. I think it shows that each step was reasonable under the circumstances.  Note this is from memory and my understanding andso  could well be wrong in detail......

1) Ancient history

There were no legal restrictions on transfrerring a DB pension but no right to transfer either - it was up to the trustees to agree.  However having transferred the only way you could access the money was to buy an annuity - drawdown was not available.  But DB pensions were generally higher than annuities so there was no point in transferring unless perhaps you had serious life-limiting health problems.

2) Early pension freedoms, John Major extended by Gordon Brown

John Major introduced a very limited drawdown option.  The annual amount you could drawdown was limited to something similar to what an annuity would pay and you had to switch to an annuity at 75.  So there was no advantage for most people.

Unlimited flexi-access drawdown was introduced by Gordon Brown whereby people could drawdown however much they wanted but only if they could prove that they had sufficient other guaranteed income.  So this was irrelevent to many DB pensioners and probably only really useful for flexible financial management by the relatively wealthy.

3) Introduction of pension freedom.

In 2015 "pension freedom" was introduced.  This gave the right to "cash in" a DB pension and removed any restrictions on drawdown.

The Select Committee scrutinising the proposed law was extremely concerned that naive people with minimal experience of handling large sums of money would cash-in the lot and spend it immediately on luxuries they would never previously have been able to afford (Lamborghinis were often used as an example). Apart from the long term effects on the well-being of the pensioners there was also concern at the cost of the extra benefits that could be required.

However the Government did not want to lose the principle of pension freedom.

After much discussion a compromise was reached whereby people wanting to cash in a DB pension had to receive advice before being permitted to do so.  Then if they did spend the lot in a year or two the Government would (perhaps!) be off the hook.  Pension trustees would not have the skills to advise and did not want the responsibility.  so it was passed to IFAs.

4) Regulation

However we then had the British Steel crsis.  The company collapsed making a large number of mainly elderly workers redundant holding large DB pots.  Dodgy advisors travelled to the steel works and "helped" the redundant workers cash-in their pensions often through dodgy techniques like transferring to off shore pensions, getting the cash there and returning it to the UK.

However some of the  off-shore pension companies were as dodgy as the advisors and many pensioners lost a lot of money.    So the FCA was charged with cleaning things up for the future.   Their solution was to bring in much stricter regulation of the advisors.

However this led to problems.  There was one case which demonstrates this.   A pensioner wanted to cash in their pension because they believed they could invest for higher income..  The advisor advised that this was a bad idea as it was too risky given the pensioner's level of experience. 

The pensioner went ahead anyway as the platforms had no restrictions other then that advice was received.  Needless to say the pensioner did not succeed in investing for higher income and lost serious money.  So they claimed damages from the advisor.  The Ombudsman agreed with the complaint on the grounds that the warnings aainst transferring the pension were not strong enough.The advisor was instructed to put the pensioner back in the position they would have been in had they not transferred.

5) Consequences

That this was possible worried IFA insurers and their charges increased accordingly  Many IFAs were not prepared to risk their whole business on a relatively small part of their market . It also scared the platforms since they could possibly be accused of mis-selling and also be liable for restitution.

So here we are.

seems to me that this needs looking at again, from scratch. Your post is very informative and thank you. However where we have ended up as a consequence of those events is far from ideal. 

Linton

Marcon said:

Linton said:

I am amazed (or perhaps not) that this thread is still running.  The rules are the rules and there seems little point in discussing their rightness or wrongness.  That is up to Parliament.

 Perhaps it would shed some light if I gave a quick history of how we got here. I think it shows that each step was reasonable under the circumstances.  Note this is from memory and my understanding andso  could well be wrong in detail......

1) Ancient history

There were no legal restrictions on transfrerring a DB pension but no right to transfer either - it was up to the trustees to agree.  However having transferred the only way you could access the money was to buy an annuity - drawdown was not available.  But DB pensions were generally higher than annuities so there was no point in transferring unless perhaps you had serious life-limiting health problems.

For most schemes there's been a statutory right to transfer since January 1986...trustees had no right to block it save under exceptional circumstances (usually relating to the scheme's funding position and the viability of the sponsoring employer)


3) Introduction of pension freedom.

In 2015 "pension freedom" was introduced.  This gave the right to "cash in" a DB pension and removed any restrictions on drawdown.

'Pension freedom' did not give the right to cash in a DB pension, save in exceptionally rare circumstances (triviality, serious ill health, or winding up being the 3 most common - and they pre-date 2015). Anyone wishing to do so had to transfer out of the DB scheme first.

The Select Committee scrutinising the proposed law was extremely concerned that naive people with minimal experience of handling large sums of money would cash-in the lot and spend it immediately on luxuries they would never previously have been able to afford (Lamborghinis were often used as an example). Apart from the long term effects on the well-being of the pensioners there was also concern at the cost of the extra benefits that could be required.

However the Government did not want to lose the principle of pension freedom.

Especially not with an election coming up...

After much discussion a compromise was reached whereby people wanting to cash in a DB pension had to receive advice before being permitted to do so.  Then if they did spend the lot in a year or two the Government would (perhaps!) be off the hook.  Pension trustees would not have the skills to advise and did not want the responsibility.  so it was passed to IFAs.

No - you are again confusing 'cash in' and 'transfer'.

I too am amazed this thread is still wending its weary way. Haven't read the previous 26 pages but dipped in at this point!

Corrections above in bold. 

Interesting point which leads to some extra background...


"Cash in" was the term often used at the time and IIRC the actual issue raised by the Select Committee.    The theory was that people would transfer their DB pension to DC and then use the new pension freedoms to withdraw the lot and buy a Lamborghini.  It was the removal of the previous drawdown restrictrions that opened up this possibility.  So the restrictions on DB/DC transfer were a tweak to the bill to discourage this happening on a large scale without retreatung on the derestriction of drawdown as a whole.

jamesd

The freedoms gave the legal right to transfer against advice. Sadly the advice and destination are FCA regulated and regulation combined with insurance risk have overturned the will of Parliament and in practice eliminated your right to transfer. Parliament will need to revisit this to eliminate both issues.

A potential alternative is to take out a mortgage using the pension income to pay it. Perhaps the retirement interest only type.

QrizB

jamesd said:

A potential alternative is to take out a mortgage using the pension income to pay it. Perhaps the retirement interest only type.

This makes financial sense but people in pension threads seem strangely opposed to it.

See a previous worked example here:

https://forums.moneysavingexpert.com/discussion/comment/80093522/#Comment_80093522 and following posts.

scoobyjones1

Yes, the freedoms mean nothing to us. My Wife cannot do as she wishes without great expense, time and trouble, if at all.
A mortgage may be a work around for some but for my Wife at age 60, with no death benefit from this pension I don't think that would work for her. Thanks for the suggestion though, jamesd.

Silvertabby

The 'Pension Freedoms' were never intended to apply to DB schemes.  Instead, they were designed to be a more flexible alternative to annuities.

Unfortunately, the tabloid media didn't fully explain the difference between DC and DB schemes (or the readers didn't bother to read beyond 'get access to your pension money now')  because there was so much confusion ........

I was a LGPS (Local Government  Pension Scheme) administrator  at the time the 'Freedoms' were announced, and we were swamped with calls from scheme members, both current and deferred, who thought the new rules meant that they could just transfer their benefits straight into their bank accounts.  That obviously wasn't an option - but an easy transfer to a personal pension plan was.  I dread to think how many fly by night pension advice companies were set up, all of which were more than happy to recommend that a transfer to a personal DC scheme would give a better return than staying with a  fully index linked public sector DB scheme.  At the time, my colleagues and I gave it 10 years before at least 90% of those who transferred out realised the error of their ways and the brown stuff hit the fan.  The clock is ticking.....

I reckon that when the powers that were dreamed up the Freedoms they never believed that so many DB fund members would want to transfer out, hence the hasty subsequent action in totally banning transfers to DC schemes from unfunded public sector DB schemes, and increasing the protections for those in the (funded) LGPS and private sector DB schemes.

Yes, I can understand OP's frustrations, but the rules have been set in place for the protection of those less able to understand what they would be giving up.  Unbelievably, many of the dodgy pension transfer 'advisors' recommended that current pension fund members should opt out of public sector DB schemes and transfer their benefits and (their own) future payments to a private plan.  

jamesd

Silvertabby said:

The 'Pension Freedoms' were never intended to apply to DB schemes.  Instead, they were designed to be a more flexible alternative to annuities.

They were intended to apply to DB and did, via transfer out, with specific DB provisions added to the law including a new one barring transfers out of unfunded government DB, which had previously been permitted.

Transfer values were so high for most of the timeframe that those who weren't scammed are likely to have done well, particularly the ones who didn't go high on bonds. It'll be the failures and crooks who get the attention, though.

jamesd

QrizB said:

jamesd said:

A potential alternative is to take out a mortgage using the pension income to pay it. Perhaps the retirement interest only type.

This makes financial sense but people in pension threads seem strangely opposed to it.

See a previous worked example here:

https://forums.moneysavingexpert.com/discussion/comment/80093522/#Comment_80093522 and following posts.

Yes but it's still good to try to educate people about how it can improve their position, in this case likely being cheaper than the almost impossible transfer.