HSBC DB Pension - why has my transfer out quote dropped?

dunstonh

Perhaps we'll have the golden era of CETV values again? Most things seem to go in circles.

Interest rates went to historic lows post credit crunch and took gilt yields with them.   So, I wouldn't be holding your breathe on that one.

Out of interest, what was the driving motivation behind the change in legislation? Was it purely to offer flexibility or an attempt to save failing DB schemes? I know my business had to throw £200m in across 3 years.

Nothing to do with DB schemes.   People have been able to transfer out for generations.

Silvertabby

The change in legislation/aka pension freedoms weren't aimed at DB schemes.  They were intended to give DC savers more options, ie drawdown rather than be tied in to a poor value annuity.  

My theory is that whoever drew up the legislations never dreamt that this would lead to people wanting to cash in their so-called gold plated DB schemes....

But they did.  As I've said before, the LGPS (and other public sector DB schemes) were swamped with transfer out demands, from current as well as deferred members, because "the new rules mean we can have our cash now".  Even though the public sector transfer factors (set by GAD) were p. poor.

The rush to transfer out was so bad the unfunded public sector schemes (ie, all bar the LGPS) had to put a block on transfers out to non DB schemes little more than a year later, to much whining.  

Hoenir

Cobbler_tone said:

Perhaps we'll have the golden era of CETV values again? Most things seem to go in circles.

The QE cheap money era era was a neccessary response to the financial damage inflicted to the global banking system following the GFC. An exceptional period. That today leaves another set of problems to be resolved. If interest rates again reduce . It will be as a direct result of a debt crisis. Though the likelihood of further QE is somewhat remote. As this time around won't be the financial institutions that suffer the bulk of the hit. 

Cobbler_tone

dunstonh said:

Perhaps we'll have the golden era of CETV values again? Most things seem to go in circles.

Interest rates went to historic lows post credit crunch and took gilt yields with them.   So, I wouldn't be holding your breathe on that one.

It won't impact me, as not a part of my plans. Things tend to go full circle and rarely seem to be 'unprecedented'. You can still see there are people chomping at the bit from the demographic on here, without usually understanding the impact granted.

Linton

The interest in transferring out of DB pensions was an unintended consequence of the flexibility given to DC pensions. This increase in flexibility was a policy agreed by both parties, started by John Major, significantly extended under Gordon Brown and fully implemented by the Cameron Government.

Previously the only thing most people could do with a DC pension was to buy an annuity. You had always been able to transfer out of a DB pension but the annuity you could buy with the money  would normally be much smaller so very few people wanted to do it.

When the DC freedoms came in you would have been able to transfer your boring DB pension to a DC pension and then drawdown the lot for £££ - Pay off the mortgage, take a world cruise and/or buy a Lamborghini.

The select committee scrutinising the legislation was very concerned about this possibility bearing in mind what happened when the Merthyr steelworks closed in the early 2000. Elderly redundant but financially naive ex-steelworkers with DB pensions were enticed by dodgy “advisors” to pay for even dodgier schemes like QROPS transfers to Cyprus where under the local legislation the pension could be cashed-in. Needless to say, the pensioners who took up the option lost a lot of money.

There was a risk that the legislation would be blocked and so a compromise was agreed with the Government that independent advice would be required to transfer out. This was then gold-plated by the regulators.

Marcon

Linton said:

You had always been able to transfer out of a DB pension but the annuity you could buy with the money  would normally be much smaller so very few people wanted to do it.

Not so. It was introduced on 1 January 1986 as a statutory right for leavers on or after that date. On 6 April 1997 the right was extended to pre-1 January 1986 leavers.

House of Commons briefing document on the reforms, dated 2019, for those interested: https://researchbriefings.files.parliament.uk/documents/SN06891/SN06891.pdf

QrizB

Hoenir said:

The QE cheap money era era was a neccessary response to the financial damage inflicted to the global banking system following the GFC. 

Whether it was necessary or not can be debated (preferably elsewhere!) but yes, it happened and "we are where we are" as a friend was fond of saying.