Costs of monving from a DB Pension Scheme into a SIPP

blueshortshorts

I just wanted to check with anyone who has been through this process, as to thie experience with doing this.

I find myself in a situation where I am being quoted a transfer value of £390K to move my DB into a SIPP, which is what i want to do. The rules however state that I need to demonstrate I have received FCA regulated advice before doing so, which I understand.

I also understand that there are only a select few firms who will now provide this advice, so they seem to have a guaranteed stream of work coming there way, even for people like me, who understand the risks, and are comfortable with giving up the guarantees a DB scheme provided.

I have approached a firm, been through the online fact find/risk profiling etc, and we are now moving to abridged advice.

My concern is that the Terms of business state, that the cost of advice would be £10K (which is a reasonable % of the pot), however this would be payable even if they decide at full advice to advise me NOT to transfer. This surely cant be right? Totally understand them taking a fee of this size once the transfer has been executed, but surely they cant advise against it, then hold me liable for a fee of that size..this would mean there is no incentive for them to do the actual transfer, as they get paid either way.

Does anyone have any experience of this, am I missing something?

NoMore

You are paying them to give you advice not to give you the answer you want. So yes they charge you , doesn’t matter what outcome they recommend.

daveyjp

To save £10k reassess why you think moving a DB to a SIPP is the best approach for what you want to achieve and think how you can achieve that using the DB pension income.

Marcon

Totally understand them taking a fee of this size once the transfer has been executed, but surely they cant advise against it, then hold me liable for a fee of that size..this would mean there is no incentive for them to do the actual transfer, as they get paid either way. 

Does anyone have any experience of this, am I missing something?

It most certainly is correct. The FCA banned contingent charging in 2020 to ensure that advisers had no financial incentive to advise in favour of a transfer: https://handbook.fca.org.uk/handbook/cobs19/cobs19s19?timeline=true

You will as you probably know require full advice before any transfer could proceed. Abridged advice can only give the answer 'no' or 'need more investigation' - so the abridged advice shouldn't cost £10K. Any fee you pay for that would normally be deducted from the full fee for full advice, assuming you use the same firm to give both.

Be aware that your SIPP is highly unlikely to accept the transfer if the advice is not to proceed. The only type of scheme required to accept a transfer from any UK regulated pension scheme is a stakeholder pension (you'd still need to have received advice before the ceding scheme can transfer the money, given that your transfer value is over £30K). You can set one up for yourself and then arrange your own transfer if your adviser won't do it.

You could then transfer from the stakeholder to your SIPP - a DC to DC transfer with no 'safeguarded benefits', so no advice requirement for that 'onward transfer'.

etienneg

You would most probably receive the advice NOT to transfer out of the DB pension, simply because in most cases that is the best outcome. You would then find it all but impossible to find a SIPP willing to accept the transfer. So you would have wasted £10k for no purpose.

Why are you so certain you want to transfer out? The legal requirement for advice is there exactly for people like you who think they know best but need protection!

Cobbler_tone

You have to pay advice but can still transfer it if you don't get the answer you wanted. The important part is that you have had the advice. If they say it is a bad idea then maybe consider why an advisor thinks it is.

JoeCrystal

Yep, they would still charge you for the works they undertook like any other businesses. Having said that, CETV have gone down a lot since the peak few years ago.

What are the pension you are giving up in today terms and is it index linked and if so, what are the caps if any?

Marcon

You would most probably receive the advice NOT to transfer out of the DB pension, simply because in most cases that is the best outcome. You would then find it all but impossible to find a SIPP willing to accept the transfer. So you would have wasted £10k for no purpose.

Not quite. See my post above - there's a work round for the utterly determined!

dunstonh

I also understand that there are only a select few firms who will now provide this advice, so they seem to have a guaranteed stream of work coming there way, even for people like me, who understand the risks, and are comfortable with giving up the guarantees a DB scheme provided.

You don't see many DB transfers happening nowadays. The drop in CETVs by around half what they were at their peak in November 2021 pretty much made most transfers unsuitable (bar a very small range of justifications). The reduced number of cases and the increased risks from the FCA saw most firms pull out as it wasnt worth it.

My concern is that the Terms of business state, that the cost of advice would be £10K (which is a reasonable % of the pot), however this would be payable even if they decide at full advice to advise me NOT to transfer. This surely cant be right? 

That is correct. You are buying advice. The advice can be to transfer or not to transfer. Either way, it is advice. DB transfers are not allowed to have contingency fees (i.e. only paid if you transfer).

otally understand them taking a fee of this size once the transfer has been executed, but surely they cant advise against it, then hold me liable for a fee of that size..this would mean there is no incentive for them to do the actual transfer, as they get paid either way.

There should be no incentive for them to transfer it or not transfer it. That is the whole point of not allowing contingency fees as it removes any potential for bias.

Does anyone have any experience of this, am I missing something?

With current CETVs so low, the statistical likelihood of a DB transfer being recommended is back around 1 in 10. So, statistically, the odds are not with you. However, you seem confident that you are in the 1 in 10 where is suitable. So, it shouldn't really worry you.

Be aware that your SIPP is highly unlikely to accept the transfer if the advice is not to proceed. The only type of scheme required to accept a transfer from any UK regulated pension scheme is a stakeholder pension (you'd still need to have received advice before the ceding scheme can transfer the money, given that your transfer value is over £30K). You can set one up for yourself and then arrange your own transfer if your adviser won't do it.

Just to add to that point, if a stakeholder is used, then the OP would need to pay the advice fee directly to the firm out of their own money. It cannot come out of the pension fund.

Silvertabby

Advice will be based on all factors, not just the value of the CETV.

The advisor will also consider:

Value of DB pension benefits being given up.

How the DB pension would be increased once in payment (CPI uncapped, CPI capped at 3%, etc)

DB scheme survivor's benefits

Your own personal circumstances - ie, health, marital status, other dependants, etc.

Your full finances. ie, is this your only pension or do you have others/other savings.

It's certainly not a 5 minute job, hence the costs involved. Which includes the cost of insurance to cover them if they get it wrong (or, more likely, if you later try to claim that they got it wrong).

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81945769#Comment_81945769

Your full finances. ie, is this your only pension or do you have others/other savings.

AIUI, you have a better chance of getting a positive recommendation if you have other sources of guaranteed income, such as other DB pensions.

OP - This was a popular topic on the forum up to a couple of years ago, but less so now that CETV values have approx halved. If you type ' DB Transfer' in the Search box at the top of the forum, a few older threads should pop up.