Should I Transfer My Final Salary Pension Fund?

pensionnovice wrote: »

I know a few people who are in the same boat as me who have taken the decision to transfer their pension fund into either a private pension or an annuity scheme. I've heard conflicting opinions on whether or not you should do this.

Just because it's right for your mate doesn't mean it's right for you...or vice versa.

pensionnovice wrote: »

I have spoken to a financial advisor and she says I should definitely transfer it. She makes it seem like a no-brainer.

It's rarely a no-brainer. Traditionally, there have been some people for whom it can be easier to justify a transfer. These include people with reduced life expectancy who wouldn't get full value out of the final salary pension. Also single people who don't have a spouse to benefit from the spousal benefits of a DB pension. More recently, it has become easier to recommend a transfer in some other circumstances. These might include when someone can comfortably cover there expected outgoings in retirement and so can readily cope with the investment fluctuations that could occur in a DC scheme. However, the regulator regards advice on pension transfers as high risk and suggest that advisers always start from the perspective that a transfer won't be a their client's best interests. They've also found that only about half of advice given can be clearly shown to be right.

pensionnovice wrote: »

I'm just worried that she could be telling me this so that she will get commission. I'm hoping that's not the case, but you can never be sure.

There is no commission on pension transfer advice. Some advisers will levy a charge irrespective of whether they recommend a transfer. Others will only charge you (out of the transferred pot) if they recommend a charge. In the latter case, it could be argued there is an incentive to recommend a transfer as otherwise, they don't get paid. Don't forget, that if you will need to get advice every year after you transfer, there will be charges on that too and they'll probably add up to more than whatever you pay for the transfer in the first place.

pensionnovice wrote: »

When I saw my financial advisor, I described my attitude to risk as "balanced" from the options she gave me.

In itself that is a rubbish way to determine someone's attitude to risk. A proper approach consists of a questionnaire (which is fed into a computer and spits out a number between 1 in 10, or 1 in 7, or whatever scale the risk profiler uses), plus a conversation with the adviser about the stockmarket and how you would react to crashes, to ensure that you understand what the result of the questionnaire means and that it is in fact accurate.

But the vast majority of people end up with a "balanced" risk profile so the result may have been accurate, albeit by accident.

If you are describing her risk profiling process accurately - all you did was choose a risk profile from a menu - then she is behind the times by ten years and is asking for an unpleasant visit from the FCA. That isn't good enough anymore.

She works for a company called "True Potential". Before, she worked for Legal & General.

Check if she's independent. True Potential is a network, and I believe some of its advisers will be independent and others will be restricted salespeople.

Any reputable adviser is extremely cautious about recommending defined transfers because of a) FCA advice that a defined benefit transfer is unsuitable until proven otherwise b) the vast, potentially career-ending cost if you later complain and the FOS rules against the adviser (professional indemnity insurers can't get away from this area fast enough) c) scandals like British Steel.

We've already pointed out the reasons why a defined benefit transfer is very rarely a no-brainer. The above is why very few advisers would make it sound like a no-brainer even when it was.

Unless you have enough guaranteed income to easily meet your retirement needs and the DB pension does little for you except create a tax problem, or there's some other reason that makes it objectively a no-brainer, I would be cautious about anyone who makes it seem like one.

MrStanners wrote: »

Please can you explain this James? I must be thick because I don't understand why the transfer value is affected by age and would increase as you got older, apart from due to any inflation indexing included in a deferred pension.

Because this is far more than inflation:

pensionnovice wrote: »

I will not get my full pension until I am 65 on 30/11/2023. I can access it when I want, but I will lose 5% for each year under 65 years old. For example, I would lose 25% if I was to access it when I'm 60.

That's a big cut in their payment obligation in the earlier years.

pensionnovice wrote: »

I don't have any experience of investment.

Then you probably are going to need financial advice, at least about investments and investing. We can make suggestions like 60%:40% mixture of global eqyuity tracker and global bond funnd that are decent, but that's not the same as personal advice. We can also give opinions on any investment recommendations an IFA makes and their approach to working out how much income to take.

pensionnovice wrote: »

A lot of the info posted is news to me. In fact, pretty much all of it.

That's normal, just take your time.

pensionnovice wrote: »

My Dad passed away last year. I don't have any siblings, so he left everything to me. His house and enough money for me to live on for a few years, as long as I don't spend extravagantly. I could possibly last until I'm 65

You have one of the higher reductions for each year taken early that I've seen, so whether you plan to take the pension income or transfer it's probably a good move to use this money to delay a few years. Not to the point of skimping on spending, but maybe spending what the pension or the pension plus your state pension will pay.

pensionnovice wrote: »

My health is generally good. I keep myself fit, so I would like to think I'll live for a long time, but you never know what might be round the corner of course.

One thing I did a few years ago was pay for a private health screening that used x-ray CT scanning to check out my heart and internal organs for problems. Nothing of great concern found but then I had actual data, not wondering.

pensionnovice wrote: »

I don't like the idea of putting all my trust in a financial advisor. One of the comments was that I should find an INDEPENDENT financial advisor. Aren't they all supposed to be independent?

They are all independent to some degree but those with independent in their title must:
1. offer advice on the full range of issues
2. consider all products on the market

One without the word independent:
1. can restrict the services they offer, perhaps to specialise
2. doesn't have to consider all products and could just use own-brand products.

So no independent could be a retirement specialist considering all products related to that or could in effect just sell their own firm's products, making it harder for you to know they are suitable.

pensionnovice wrote: »

Thanks guys for all your posts. There's a lot for me to consider. My instinct tells me that if the decision to transfer or not is borderline and not clear-cut, then I might as well leave things as they are.

Agreed. If you don't transfer out of the scheme, you can always transfer out later. (The CETV offered might be lower, but transferring out of the scheme because you're afraid of missing out on an inflated CETV is a terrible reason for transferring.) If however you do transfer out of the scheme, you can never go back.