Transferring from DB after divorce.

Marcon

DRS1 said:

This may be a stupid question (and may well not be what the OP would want to do anyway) but is it possible to make a direct transfer from a DB scheme to an immediate annuity.

Usually you would not want or need to do that but if the OP could get a better pension from an annuity provider than the LGPS could it be done by a direct transfer or would it have to go via a DC scheme?

If it can be done direct would that make the IFAs advice burden easier (and cheaper?) because the recipient would be paying a DB style benefit and it is just a case of saying A is bigger than B so you are better off making the transfer.

Not stupid at all - but it would first have to be transferred out, after taking the requisite financial advice to allow the DB scheme to release the funds to a DC scheme.

The likelihood of getting a positive recommendation is going to be much increased if OP uses the funds to buy an immediate annuity, and that annuity provides better benefits than the LGPS pension they would otherwise receive.

DRS1

Marcon said:

DRS1 said:

This may be a stupid question (and may well not be what the OP would want to do anyway) but is it possible to make a direct transfer from a DB scheme to an immediate annuity.

Usually you would not want or need to do that but if the OP could get a better pension from an annuity provider than the LGPS could it be done by a direct transfer or would it have to go via a DC scheme?

If it can be done direct would that make the IFAs advice burden easier (and cheaper?) because the recipient would be paying a DB style benefit and it is just a case of saying A is bigger than B so you are better off making the transfer.

Not stupid at all - but it would first have to be transferred out, after taking the requisite financial advice to allow the DB scheme to release the funds to a DC scheme.

The likelihood of getting a positive recommendation is going to be much increased if OP uses the funds to buy an immediate annuity, and that annuity provides better benefits than the LGPS pension they would otherwise receive.

Yes the stupid bit was thinking you could cut out the DC scheme and go straight from DB Scheme to annuity.  I don't see that the annuity provider should have a problem - they can accept transfers from any registered pension scheme.  But maybe the transfer out powers of the DB Scheme would not encompass an immediate annuity? Though I am not sure why - I had a look at some papers sent to me by Standard Life when I bought an annuity last year.  That described two types of annuity Open Market and Transfer (the distinction being who pays the TFLS).  The Transfer version was described as a personal pension plan so surely it could take a direct transfer from a DB scheme?

Anyway this is all theoretical unless the OP decides that an annuity might be of any interest at which point we could worry about whether a direct transfer is potentially a possibility and if it is whether it would make an IFA's life any easier.  

And as I said before it is the sort of thing which would not normally be contemplated because why would you want to swap a DB pension for an annuity?  Maybe only in the OP's case where an annuity might give a higher monthly payment because of health issues.  So highly unlikely any IFA would have come across it.

sandsy

If the OP doesn't want the scheme pension, then they don't require advice to transfer out, even if the pension credit is over £30k. The advice requirement applies to transfer values in respect of safeguarded benefits, not pension credits. The FCA confirmed this in guidance for advisers a few years ago (para 2.6 of FG21/3: https://www.fca.org.uk/publication/finalised-guidance/fg21-3.pdf)

Marcon

sandsy said:

If the OP doesn't want the scheme pension, then they don't require advice to transfer out, even if the pension credit is over £30k. The advice requirement applies to transfer values in respect of safeguarded benefits, not pension credits. The FCA confirmed this in guidance for advisers a few years ago (para 2.6 of FG21/3: https://www.fca.org.uk/publication/finalised-guidance/fg21-3.pdf)

Not sure that's what 2.6 says:

'You do not need the permission at all if you are advising a client on whether to join a DB scheme. Similarly, you do not need the permission if you advise an ex-spouse whether to use a pension credit awarded from a pension sharing order to acquire rights in a DB scheme. DWP has told us that where the ex-spouse has the option of becoming a member of a DB scheme, the pension credit is not regarded as safeguarded benefits (or money purchase or cash balance benefits) or a transfer payment but as a right in itself. If you advise an ex-spouse on using the pension credit to acquire rights in a DB scheme, this falls outside FCA-regulation. But if you advise them on acquiring rights in an FCA-regulated DC scheme, you must have the relevant investment advice permission.'

That seems to tally with what OP says they have been told:

'I am not currently employed and I am informed via the pension paperwork that I can transfer out to another qualifying pension arrangement as long as advice sought from an IFA as it is over £30k.'

DRS1

So when the OP talks about charges of 2% upfront and 1% per annum he is not talking about the advice for taking a transfer only the advice for setting up a personal pension scheme.  If so the 2% and 1% can be avoided by doing it yourself - set up a SIPP with someone (HL, Iweb, AJBell the list goes on) and transfer the money.

But before doing that I would personally check what pension the DB scheme would pay me and what other benefits there were - eg spouse's pension if you have/get a new one or children's pension if you have any young enough.  Maybe just ask them what happens if you take the pension and then you die.

Marcon

DRS1 said:

Marcon said:

DRS1 said:

This may be a stupid question (and may well not be what the OP would want to do anyway) but is it possible to make a direct transfer from a DB scheme to an immediate annuity.

Usually you would not want or need to do that but if the OP could get a better pension from an annuity provider than the LGPS could it be done by a direct transfer or would it have to go via a DC scheme?

If it can be done direct would that make the IFAs advice burden easier (and cheaper?) because the recipient would be paying a DB style benefit and it is just a case of saying A is bigger than B so you are better off making the transfer.

Not stupid at all - but it would first have to be transferred out, after taking the requisite financial advice to allow the DB scheme to release the funds to a DC scheme.

The likelihood of getting a positive recommendation is going to be much increased if OP uses the funds to buy an immediate annuity, and that annuity provides better benefits than the LGPS pension they would otherwise receive.

Yes the stupid bit was thinking you could cut out the DC scheme and go straight from DB Scheme to annuity.  I don't see that the annuity provider should have a problem - they can accept transfers from any registered pension scheme.  But maybe the transfer out powers of the DB Scheme would not encompass an immediate annuity? Though I am not sure why - I had a look at some papers sent to me by Standard Life when I bought an annuity last year.  That described two types of annuity Open Market and Transfer (the distinction being who pays the TFLS).  The Transfer version was described as a personal pension plan so surely it could take a direct transfer from a DB scheme?

Anyway this is all theoretical unless the OP decides that an annuity might be of any interest at which point we could worry about whether a direct transfer is potentially a possibility and if it is whether it would make an IFA's life any easier.  

Instead of describing it as 'stupid', put a positive spin on it. It's an entirely sensible suggestion which, in that immortal phrase, is 'unprejudiced by knowledge' !

Some small DB schemes do have an Open Market Option, but I've only ever seen that where the scheme isn't large enough to sustain the risks of providing (all) annuities through the scheme itself. The larger schemes aren't going to risk members self-selecting against the scheme by transferring out if they can get a better deal elsewhere - funding relies on having a good cross-section of members who will provide a cohort large enough to get the benefit of 'averages' (people die in a reasonably predictable pattern, which the scheme actuary will tailor to the experience of the membership). The unfunded public sector schemes definitely aren't going to shell out real money if they can avoid it!

DRS1 said:

And as I said before it is the sort of thing which would not normally be contemplated because why would you want to swap a DB pension for an annuity?  Maybe only in the OP's case where an annuity might give a higher monthly payment because of health issues.  So highly unlikely any IFA would have come across it.

I'm sorry if I sound contrary, but this is a situation plenty of IFAs will have seen - both before and after 'advice' became mandatory where transfers from DB schemes were at least £30K. A now-retired friend of mine used to make an excellent living by specialising in advising people who were single and had any sort of health issue (even quite a minor one). It was almost always possible for them to transfer their benefits out of a (private sector) scheme and get both a much larger tax free lump sum and a pension which was not just comparable but better than their scheme pension, with the one proviso that there was no spouse's pension.

Silvertabby

Marcon said:

sandsy said:

If the OP doesn't want the scheme pension, then they don't require advice to transfer out, even if the pension credit is over £30k. The advice requirement applies to transfer values in respect of safeguarded benefits, not pension credits. The FCA confirmed this in guidance for advisers a few years ago (para 2.6 of FG21/3: https://www.fca.org.uk/publication/finalised-guidance/fg21-3.pdf)

Not sure that's what 2.6 says:

'You do not need the permission at all if you are advising a client on whether to join a DB scheme. Similarly, you do not need the permission if you advise an ex-spouse whether to use a pension credit awarded from a pension sharing order to acquire rights in a DB scheme. DWP has told us that where the ex-spouse has the option of becoming a member of a DB scheme, the pension credit is not regarded as safeguarded benefits (or money purchase or cash balance benefits) or a transfer payment but as a right in itself. If you advise an ex-spouse on using the pension credit to acquire rights in a DB scheme, this falls outside FCA-regulation. But if you advise them on acquiring rights in an FCA-regulated DC scheme, you must have the relevant investment advice permission.'

That seems to tally with what OP says they have been told:

'I am not currently employed and I am informed via the pension paperwork that I can transfer out to another qualifying pension arrangement as long as advice sought from an IFA as it is over £30k.'

Marcon beat me to it.  In this case, the pension credit benefits would be transferred from a public sector DB scheme to a private sector DC scheme.  Not only will the LGPS require at least an element of financial advice to be taken but they will also do their own due diligence to ensure that the benefits aren't being transferred to a 'dodgy dealer'.  

Silvertabby

DRS1 said:

So when the OP talks about charges of 2% upfront and 1% per annum he is not talking about the advice for taking a transfer only the advice for setting up a personal pension scheme.  If so the 2% and 1% can be avoided by doing it yourself - set up a SIPP with someone (HL, Iweb, AJBell the list goes on) and transfer the money.

But before doing that I would personally check what pension the DB scheme would pay me and what other benefits there were - eg spouse's pension if you have/get a new one or children's pension if you have any young enough.  Maybe just ask them what happens if you take the pension and then you die.

No survivor's pensions - just a one off lump sum if the pension credit member were to die either before starting to draw the pension or within 5 years of pension commencement, with the latter being on a sliding scale (ie, die 4 years and 11 months into retirement and the death grant will be very little).  

DRS1

Silvertabby said:

Marcon said:

sandsy said:

If the OP doesn't want the scheme pension, then they don't require advice to transfer out, even if the pension credit is over £30k. The advice requirement applies to transfer values in respect of safeguarded benefits, not pension credits. The FCA confirmed this in guidance for advisers a few years ago (para 2.6 of FG21/3: https://www.fca.org.uk/publication/finalised-guidance/fg21-3.pdf)

Not sure that's what 2.6 says:

'You do not need the permission at all if you are advising a client on whether to join a DB scheme. Similarly, you do not need the permission if you advise an ex-spouse whether to use a pension credit awarded from a pension sharing order to acquire rights in a DB scheme. DWP has told us that where the ex-spouse has the option of becoming a member of a DB scheme, the pension credit is not regarded as safeguarded benefits (or money purchase or cash balance benefits) or a transfer payment but as a right in itself. If you advise an ex-spouse on using the pension credit to acquire rights in a DB scheme, this falls outside FCA-regulation. But if you advise them on acquiring rights in an FCA-regulated DC scheme, you must have the relevant investment advice permission.'

That seems to tally with what OP says they have been told:

'I am not currently employed and I am informed via the pension paperwork that I can transfer out to another qualifying pension arrangement as long as advice sought from an IFA as it is over £30k.'

Marcon beat me to it.  In this case, the pension credit benefits would be transferred from a public sector DB scheme to a private sector DC scheme.  Not only will the LGPS require at least an element of financial advice to be taken but they will also do their own due diligence to ensure that the benefits aren't being transferred to a 'dodgy dealer'.  

OK Let me ask this if we cut out the DC scheme and tried to transfer the pension credit transfer payment direct to an immediate annuity which qualified as a personal pension plan would that annuity be regarded as DC or DB?  Given that it provides an income of a specified amount per annum I would have thought it was DB.  If so could we not say the bit in bold does not apply?

I grant that you and @Marcon think we can't cut out the DC scheme middleman.  Or maybe you just know that any personal pension plan is regarded as DC because by and large that is what they are.

On the dodgy dealer issue there are a limited number of annuity providers and I would have thought most of them would pass the smell test (although if it is going via a DC scheme then it may not be obvious that the money will end up with eg Standard Life).

Marcon

DRS1 said:

Silvertabby said:

Marcon said:

sandsy said:

If the OP doesn't want the scheme pension, then they don't require advice to transfer out, even if the pension credit is over £30k. The advice requirement applies to transfer values in respect of safeguarded benefits, not pension credits. The FCA confirmed this in guidance for advisers a few years ago (para 2.6 of FG21/3: https://www.fca.org.uk/publication/finalised-guidance/fg21-3.pdf)

Not sure that's what 2.6 says:

'You do not need the permission at all if you are advising a client on whether to join a DB scheme. Similarly, you do not need the permission if you advise an ex-spouse whether to use a pension credit awarded from a pension sharing order to acquire rights in a DB scheme. DWP has told us that where the ex-spouse has the option of becoming a member of a DB scheme, the pension credit is not regarded as safeguarded benefits (or money purchase or cash balance benefits) or a transfer payment but as a right in itself. If you advise an ex-spouse on using the pension credit to acquire rights in a DB scheme, this falls outside FCA-regulation. But if you advise them on acquiring rights in an FCA-regulated DC scheme, you must have the relevant investment advice permission.'

That seems to tally with what OP says they have been told:

'I am not currently employed and I am informed via the pension paperwork that I can transfer out to another qualifying pension arrangement as long as advice sought from an IFA as it is over £30k.'

Marcon beat me to it.  In this case, the pension credit benefits would be transferred from a public sector DB scheme to a private sector DC scheme.  Not only will the LGPS require at least an element of financial advice to be taken but they will also do their own due diligence to ensure that the benefits aren't being transferred to a 'dodgy dealer'.  

OK Let me ask this if we cut out the DC scheme and tried to transfer the pension credit transfer payment direct to an immediate annuity which qualified as a personal pension plan would that annuity be regarded as DC or DB?  Given that it provides an income of a specified amount per annum I would have thought it was DB.  If so could we not say the bit in bold does not apply?

I grant that you and @Marcon think we can't cut out the DC scheme middleman.  Or maybe you just know that any personal pension plan is regarded as DC because by and large that is what they are.

On the dodgy dealer issue there are a limited number of annuity providers and I would have thought most of them would pass the smell test (although if it is going via a DC scheme then it may not be obvious that the money will end up with eg Standard Life).

Pension transfers are between 'registered pension schemes'. An immediate annuity is a long-term contract of insurance, not a personal pension plan. Although buying an annuity using funds from a pension scheme involves a transfer of funds (don't blame me - I didn't write this stuff...), it isn't a 'pension transfer' per se.