Final Salary- Freeze or Transfer?

Retired_I.F.A.

I mentioned actuaries assumptions to show Liverpoolcarl that even though he's had a TVA done and concluded his should not be transfered it should not be a final all time decision. Actuaries assumptions, individuals circumstances, and pension laws never stay the same.

A TVA is not just mathematical assumptions, within such benefits payable now are compared between the possible options as well as in the future along with the charges applicable to each option, the tax position, the tax free cash available, guaranteed minimum pensions, protected rights, and a whole lot more including drawdown. The only actuarial assumptions are those laid down by the FSO in limiting providers in their illustrations of future growth and in annuity rates.

Every single qualified IFA in the country takes the TVA into account when making recommendations in his report which is client specific as the TVA alone has nothing to do with the clients attitude to risk or personal circumstances not involving the pension.

The gay scenario is not a red herring at all. Replace him with a single parent and it could be the child who sues for £500,000.

Final salary schemes provided guaranteed benefits ROFLMAO do they hell as like. FSS guaranteed benefits are merely an employers promise. If the company goes bust or the funds are embezzled your stuck with the Governments Pension Protection fund set up in 2005. Though the guarentee iT gives is only 100% if you don't take the preserved pension till the normal retirement date of the final salary scheme. Retire early and the compensation cap of just under £30.000 applies and even that is on a sliding scale giving you less and less for each year you retire early.

Yes, its a judgment call and I agree a transfer to money purchase can be considered as a gamble as can the final salary scheme as sticking with it your gambling it'll do better in fact the only certainty you'll find is a transfer will give you better death benefits now, more flexibility more control and more options as well as ownership. The decision to or not to transfer should only be made when aware of all the facts and all the options and have had qualified advise.

Somewhere between 75 and 80 % of my clients opted for a transfer when fully aware but that was before the 2005 governments intervention. I'd say today that percentage would be only slightly less as transfer values have I expect risen considerably as lower assumptions by actuaries to the UK equity market have fallen, and money purchase plans charges are cheaper today.

Have a read here NellyG You will find facts not muppets opinions.
http://www.pensionsadvisoryservice.org.uk

EdInvestor

I should point out that I disagree with the blanket tendency by advisors these days to refuse to authorise final salary transfers for fear of misselling complaints.

There are some people who could easily benefit quite substantially from such transfers, in particular people with investment skills who are forced to pay for benefits they will never use because they are unmarried/have no dependants and those who are in early retirement and need to generate a replacment income.

But the view that transfers are effectively 'verboten' seems now to be so ingrained among providers and advisors on a back-protection basis that it frankly seems wrong to suggest people should incur the cost of a TVA when a "No" decision is a racing certainty.

dunstonh

I should point out that I disagree with the blanket tendency by advisors these days to refuse to authorise final salary transfers for fear of misselling complaints.

Transfers do still go on. However, the wish to do it on whim is one that will not sit well should your case get reviewed. Worrying about protecting your backside is quite fair and should not be unexpected given that a number of final salary pension transfers were signed off in the early 90s as being the right thing to do based on acturial figures in use at that time. Hindsight has altered those figures and been used to retrospectively class acceptable sales at that time as mis-sales.

Even the person that set up the pensions review has recently admitted that too many consumers got redress when they shouldnt because the system used to determine good/bad advice was too rigid.

EdInvestor

What's wrong here IMHO is that people are denied the right to take responsibility for their own money. I understand that it's reasonable for the industry to be cautious about getting blamed further down the track if things go pear-shaped , but there should be provision for a fully informed individual to decide to reject advice and do his own thing (with a clear cut disclaimer of course for the advisor/provider ).

The private sector should not be cast in the role of nanny.

Retired_I.F.A.

As far as I understood the rules and presume they still apply if the IFA thinks a FSS transfer to money purchase should not go ahead and the client wants to then as long as there is a TVA on file and the IFA has made his recommendation in a report or reason why letter then the transfer can proceed. The liability upon that IFA is then almost none. I say almost as he is still liable for the accuracy of the TVA regardless of whose software produced it and liable as always as to the fund choice/risk attitude of the client but if he gets them right then as he recommended not to transfer it's almost an execution only case.

However Dunstonh, you have used a few times the phrase "signing off" as if to say it can only proceed if the IFA recommends the transfer. So have the rules changed? I think not and hope not as there are many cases where it's 6 of one and half a dozen of the other. I've sat on the fence a couple of times having listed the pros and cons in my report and simply said the truth is I dont know which is best, think about it for a day or two and then let me know your decision. In those cases the clients decided to transfer and I asked them what swung it for them, one actually said he tossed a coin but then his girlfriend turned round and said he's having you on RIFA it was the fact if he dies before retirement all he will leave is a return of his contributions plus interest. So the transfer went ahead I just wrote another letter to them stating what they had decided and why.

Come to think of it the ombudsmans did a spot check on us once and pulled that file at randon he had no problem with it.

dunstonh

As far as I understood the rules and presume they still apply if the IFA thinks a FSS transfer to money purchase should not go ahead and the client wants to then as long as there is a TVA on file and the IFA has made his recommendation in a report or reason why letter then the transfer can proceed.

Compliance departments are wary of using insistent client or execution only in high risk areas. The FOS generally believe that a high risk transaction cannot go through without some sort of advice being given somewhere. Execution only and insistent client transactions have been overturned in favour of the client with complaints.

However Dunstonh, you have used a few times the phrase "signing off" as if to say it can only proceed if the IFA recommends the transfer.

Many firms need the application to come through an IFA. In those cases the liability is not with the provider but the IFA. Whether the IFA chooses to do it without advice is between them, their compliance department and their PI insurer! Its generally a risk that most are not willing to take.

I've sat on the fence a couple of times having listed the pros and cons in my report and simply said the truth is I don't know which is best, think about it for a day or two and then let me know your decision. In those cases the clients decided to transfer and I asked them what swung it for them, one actually said he tossed a coin but then his girlfriend turned round and said he's having you on RIFA it was the fact if he dies before retirement all he will leave is a return of his contributions plus interest. So the transfer went ahead I just wrote another letter to them stating what they had decided and why.

That isn't likely to be enough nowadays. The "you chose" excuse is not valid. We can list pros and cons and document they were discussed and based on those discussions you accepted the risks involved and therefore I recommended.....blah blah.

You wouldn't believe the level of documentation that is needed in some areas nowadays compared to just 5 years ago, let alone 10 or 15. A lot of it is down to the birth of the claims companies who have no problem making up a load of lies in a complaint in the hope that the documentation isn't quite up to standard or there is a risk warning missing.

I go to meetings where someone from the complaints department of the network is there (who also used to work for the FOS). We get shown examples of complaints. You wouldn't believe the amount of fraud that goes on with some of these complaints. Whilst personally written complaints are generally not trying it on, many complaints from certain claims companies do try it on. We have seen disputes on execution only cases where the person complaining has said their adviser told them to put it through that way as it would be a little cheaper for them and that they didn't know if it was right or wrong but was relying on the adviser. The adviser then has to prove that they didn't give advice and that typically means going to a balance of probability decision. If the individual is inexperienced at investing and cautious (you wouldn't believe the number of people who suddenly become cautious when they complain but medium risk when things go up and want to invest) then the FOS is likely to say that the person didn't have the skills or knowledge to make that decision under execution only. Last November a rule came in that said advisers have to consider and document the IQ of the client. It doesn't say IQ but that is effectively what you have to do now. You have to document that the person is sufficiently clever enough to understand the recommendation being made. You would link this back to their occupation, conversations had and general background. If you do a technical transaction for someone with a low IQ, then you are asking for the complaint to be upheld. Effectively you have to dumb down your advice to suit certain individuals.

The consumer wanted more accountability and protection in the industry. Well, they have it. However, these are the consequences.

Retired_I.F.A.

Kin ell !

It's not just professional indemnity cover you need then, a barrister is just as vital.

EdInvestor

I think it is fair to say that there is considerable frustration over this issue in the private investor community.Why should intelligent people with years of successful investing experience be denied access to their own savings?

The people causing the basic problem are the bureaucrats at the DWP and the likes of ex ands current staff at the FOS - ie. employees with nanny state attitudes and no idea about investing.

It would be much better if the insurers challenged their views, rather than simply hiding behind IFA signoffs.After all, in the end all this does is send the better off people away to the execution-only industry (growing apace) or out of pensions altogether.

dunstonh

I agree Ed. However, the problem is that the nanny state attitude allows people to make decisions that if they turn out wrong then give them opportunity to blame someone else to try and claim their money back.

There has to be a balance between caveat emptor and consumer protection which is not currently in place.

The FSA and FOS seem to think that most people are cautious investors and thick as a plank. That is not reality but when you analyse the stats on complaints, that generally is what many complainants say they. So, you can see their point. Mainly as they know they are more likely to get their complaint upheld. Probably as they have been prompted to say that by an unprofessional complaints company that is using this nanny state situation to its advantage.

Things always seem to go to extremes. First you have no consumer protection and there is abuse. Then you get so much that it restricts what you can do.

Technically, there is nothing stopping a final salary pension being transferred on execution only. It is only the fear of comeback later on.