DB Transfer Value

2nd_time_buyer

A few years ago when transfer multiples were cica. 40x plus. There were a lot of people who would have been much better off if they had transferred out who were advised against or put off by the cost of advice/transfer. That seemed clear even at the time, without the benefit of hindsight.

I think there is a case that there was gross miss-not-selling. But it would never stick.

dunstonh

2nd_time_buyer said:

A few years ago when transfer multiples were cica. 40x plus. There were a lot of people who would have been much better off if they had transferred out who were advised against or put off by the cost of advice/transfer. That seemed clear even at the time, without the benefit of hindsight.

I think there is a case that there was gross miss-not-selling. But it would never stick.

That is the opposite of what the FCA thought, though. Despite the extraordinarily high pre-December 2021 CETVS, the FCA still considers many of the transfers that took place to have been missold.   Companies have been shut down and/or fined significant amounts for facilitating what many individuals wanted them to do.

And as mentioned earlier on the thread, the default with DB transfers is that they are missold unless proven otherwise.      
 

2nd_time_buyer

dunstonh said:

2nd_time_buyer said:

A few years ago when transfer multiples were cica. 40x plus. There were a lot of people who would have been much better off if they had transferred out who were advised against or put off by the cost of advice/transfer. That seemed clear even at the time, without the benefit of hindsight.

I think there is a case that there was gross miss-not-selling. But it would never stick.

That is the opposite of what the FCA thought, though. Despite the extraordinarily high pre-December 2021 CETVS, the FCA still considers many of the transfers that took place to have been missold.   Companies have been shut down and/or fined significant amounts for facilitating what many individuals wanted them to do.

And as mentioned earlier on the thread, the default with DB transfers is that they are missold unless proven otherwise.      
 

It seems a strange level of risk adversion. Regardless of whether people transfer or not, there are plenty of other ways to blow a pension. I have a lot of sympathy for IFAs who were/are forced to have to charge a lot to mittigate risk with no guarantee of a positive decision. Do you think the FCA advice fully accounts for the high CETVs in the decision? 

dunstonh

2nd_time_buyer said:

dunstonh said:

2nd_time_buyer said:

A few years ago when transfer multiples were cica. 40x plus. There were a lot of people who would have been much better off if they had transferred out who were advised against or put off by the cost of advice/transfer. That seemed clear even at the time, without the benefit of hindsight.

I think there is a case that there was gross miss-not-selling. But it would never stick.

That is the opposite of what the FCA thought, though. Despite the extraordinarily high pre-December 2021 CETVS, the FCA still considers many of the transfers that took place to have been missold.   Companies have been shut down and/or fined significant amounts for facilitating what many individuals wanted them to do.

And as mentioned earlier on the thread, the default with DB transfers is that they are missold unless proven otherwise.      
 

It seems a strange level of risk adversion. Regardless of whether people transfer or not, there are plenty of other ways to blow a pension. I have a lot of sympathy for IFAs who were/are forced to have to charge a lot to mittigate risk with no guarantee of a positive decision. Do you think the FCA advice fully accounts for the high CETVs in the decision? 

An awful lot of DB pension holders have no experience of investing.   They have never experienced volatility and that puts them at higher behavioural risk compared to an experienced investor.

A lot of new investors panic when it drops 1%.    Let alone a 20-40% drop.   Now factor a CETV of around £800k  and the monetary values on the volatility that you would expect to see are going to be very high.      A lot of people can be told what will happen. Both in percentage and monetary terms and they will say they can handle it but when it actually happens, a good number will backtrack on that.

Then the complaints start rolling in, and I think that is what leads the FCA to its potentially more cautious approach.  it wants to avoid that.    The higher then normal CETVs are not taken into account.  Even though on paper, for an experienced investor, it may appear a no-brainer.    

The FCA is cautious about drawdown as well.  There are a lot more hoops for advisers to jump through on that as well.   

2nd_time_buyer

dunstonh said:

2nd_time_buyer said:

dunstonh said:

2nd_time_buyer said:

A few years ago when transfer multiples were cica. 40x plus. There were a lot of people who would have been much better off if they had transferred out who were advised against or put off by the cost of advice/transfer. That seemed clear even at the time, without the benefit of hindsight.

I think there is a case that there was gross miss-not-selling. But it would never stick.

That is the opposite of what the FCA thought, though. Despite the extraordinarily high pre-December 2021 CETVS, the FCA still considers many of the transfers that took place to have been missold.   Companies have been shut down and/or fined significant amounts for facilitating what many individuals wanted them to do.

And as mentioned earlier on the thread, the default with DB transfers is that they are missold unless proven otherwise.      
 

It seems a strange level of risk adversion. Regardless of whether people transfer or not, there are plenty of other ways to blow a pension. I have a lot of sympathy for IFAs who were/are forced to have to charge a lot to mittigate risk with no guarantee of a positive decision. Do you think the FCA advice fully accounts for the high CETVs in the decision? 

An awful lot of DB pension holders have no experience of investing.   They have never experienced volatility and that puts them at higher behavioural risk compared to an experienced investor.

A lot of new investors panic when it drops 1%.    Let alone a 20-40% drop.   Now factor a CETV of around £800k  and the monetary values on the volatility that you would expect to see are going to be very high.      A lot of people can be told what will happen. Both in percentage and monetary terms and they will say they can handle it but when it actually happens, a good number will backtrack on that.

Then the complaints start rolling in, and I think that is what leads the FCA to its potentially more cautious approach.  it wants to avoid that.    The higher then normal CETVs are not taken into account.  Even though on paper, for an experienced investor, it may appear a no-brainer.    

The FCA is cautious about drawdown as well.  There are a lot more hoops for advisers to jump through on that as well.   

Thanks interesting

Nick_Dr1

Lowtrawler said:

sgill06 said:

Cobbler_tone said:

You won't like the answers you are about to get.

The (transfer) value may have changed but the benefits of the pension won't have. In real terms you haven't 'lost' anything. Especially as to transfer it would have cost you a big chunk of it.

I'm looking for help so will take all the answers i can get, good or bad :-:smile: I realise the benefits are the same whenever i take my pension but had i been able to take it when initially requested, it would have been much more than what it is now, even with costs

Back in 2022, £63k would likely have bought you a £1,500 per year index-linked annuity. Today, £30k will likely buy you a £1,500 per year index-linked annuity. The market has moved and hence the reduction in transfer value. In pension terms, there is no difference between the £63k and £30k.

Well, this is interesting. I was in the same position, with almost identical number as the same time. Unlike the OP, I was allowed to transfer out, and it cost me nothing (the company were paying any fees).
I was offered effectively about £1200 pa as an index linked pension at the time as a comparison. My transfer has a real value now of £65000 so would buy an annuity of £3000 according to the above.

So I would have been actually worse off staying in the DB fund by a significant amount.

I may just have been lucky, but at the time, even my naïve back of the envelope calculations said it had to be a good idea, but this depends on the other potential benefits that the DB scheme may have offered.

Had it been my only pension, I suspect it would have been different, but it is obvious with hindsight that there has been a loss here. Over that period the £63k would have turned into about £70k on a 60/40 portfolio which as is pointed out could now buy a £3000ish annuity.

Going forward though, who knows?

Still have no chance of a complaint being upheld though.

Albermarle

An awful lot of DB pension holders have no experience of investing.   They have never experienced volatility and that puts them at higher behavioural risk compared to an experienced investor.

True, but the large majority of existing DC pension holders are very inexperienced as well. In fact we can see from the forum that many of them are not even aware that their pension is invested, or are at least do not know or understand what it is invested in, until maybe it goes down just before they retire.
They also often panic when it goes down a few percent, but the  FCA does not protect them ......

Lowtrawler

Nick_Dr1 said:

Well, this is interesting. I was in the same position, with almost identical number as the same time. Unlike the OP, I was allowed to transfer out, and it cost me nothing (the company were paying any fees).
I was offered effectively about £1200 pa as an index linked pension at the time as a comparison. My transfer has a real value now of £65000 so would buy an annuity of £3000 according to the above.

So I would have been actually worse off staying in the DB fund by a significant amount.

I may just have been lucky, but at the time, even my naïve back of the envelope calculations said it had to be a good idea, but this depends on the other potential benefits that the DB scheme may have offered.

Had it been my only pension, I suspect it would have been different, but it is obvious with hindsight that there has been a loss here. Over that period the £63k would have turned into about £70k on a 60/40 portfolio which as is pointed out could now buy a £3000ish annuity.

Going forward though, who knows?

Still have no chance of a complaint being upheld though.

Hindsight is a great thing. The markets have performed well in recent years. Would you have felt the same if there had been a 1929 style market crash? What if you had invested the proceeds unwisely and lost 80%?

When transfer values were running around 40x, many experienced investors could see an opportunity and were happy to take on the risks. Even so, if markets had crashed, many would have been aggrieved. I know many people successfully agreed transfers at that time and will be sitting pretty. It doesn't mean that advising against a transfer was poor advice.

Nick_Dr1

Lowtrawler said:

Nick_Dr1 said:

Well, this is interesting. I was in the same position, with almost identical number as the same time. Unlike the OP, I was allowed to transfer out, and it cost me nothing (the company were paying any fees).
I was offered effectively about £1200 pa as an index linked pension at the time as a comparison. My transfer has a real value now of £65000 so would buy an annuity of £3000 according to the above.

So I would have been actually worse off staying in the DB fund by a significant amount.

I may just have been lucky, but at the time, even my naïve back of the envelope calculations said it had to be a good idea, but this depends on the other potential benefits that the DB scheme may have offered.

Had it been my only pension, I suspect it would have been different, but it is obvious with hindsight that there has been a loss here. Over that period the £63k would have turned into about £70k on a 60/40 portfolio which as is pointed out could now buy a £3000ish annuity.

Going forward though, who knows?

Still have no chance of a complaint being upheld though.

Hindsight is a great thing. The markets have performed well in recent years. Would you have felt the same if there had been a 1929 style market crash? What if you had invested the proceeds unwisely and lost 80%?

When transfer values were running around 40x, many experienced investors could see an opportunity and were happy to take on the risks. Even so, if markets had crashed, many would have been aggrieved. I know many people successfully agreed transfers at that time and will be sitting pretty. It doesn't mean that advising against a transfer was poor advice.

Agreed, but it wasn't great advice either! And it wouldn't have been free in most cases, so you would have paid for advice that wasn't great.
Its moot anyway.

phlebas192

2nd_time_buyer said:

A few years ago when transfer multiples were cica. 40x plus. There were a lot of people who would have been much better off if they had transferred out who were advised against or put off by the cost of advice/transfer. That seemed clear even at the time, without the benefit of hindsight.

I think there is a case that there was gross miss-not-selling. But it would never stick.

It wouldn't stick because it was decent advice. Yes, you could have gotten a large CETV, but that sum would only have bought you a similar level of guaranteed income at the prevailing market rates. It's easy to look at it now and see that both the then transfer value and annuity yields would have increased significantly, but anyone giving professional advice at the time would have to consider that both equities and yields could also fall (cf Japan where both the market stagnated and yields even went negative).

The key point for advisors is that you have to have strong evidence to go against market valuations. If the market says that annuity rates are 2.5% then they have to assume that is the "correct" value. Doing otherwise is professional suicide.

FWIW, I am not & never have been a financial advisor so I'm not trying to argue their case. Indeed, I am actually somewhat anti-financial advisors when it comes to maximising returns since they are an extra cost that cannot overcome their fees (no one who could reliably beat the market would ever be able to gain more from giving advice than actually beating the market), but they can help avoid expensive mistakes. And, for most people, giving up a DB pension will always be a mistake whatever the current market valuation of their benefits is.