Final salary pension - transfer to drawdown?

[CarlosFandango11]

craig1912 said:

Just got my transfer value- £850000 based on a current pension of £19500 payable from 60 (i'm 56), which is much higher than expected. I also have £140k in a company DC scheme.


Any other considerations?

cheers

You probably realise this, but this brings you very close to the lifetime limit of £1m.

[craig1912]

CarlosFandango11 said:

You probably realise this, but this brings you very close to the lifetime limit of £1m.

I'm not an expert but did realise this. Does that mean that once total fund reaches £1m I can't contribute to a scheme any longer? cheers

[PurpleMoonlight]

craig1912 said:

I'm not an expert but did realise this. Does that mean that once total fund reaches £1m I can't contribute to a scheme any longer? cheers

Funds in excess of £1M MLA are heavily taxed when crystallised.

If you have paid/received pension contributions post 06/04/2016 it's to late to register for £1.25M MLA protection.

The MLA is supposed to increase by CPI from 04/2018 though.

[Jockman]

craig1912 said:

CarlosFandango11 said:

You probably realise this, but this brings you very close to the lifetime limit of £1m.

I'm not an expert but did realise this. Does that mean that once total fund reaches £1m I can't contribute to a scheme any longer? cheers

I will be stopping at that stage. Focus on the wife thereafter.

[pattyg]

craig1912 said:

Just got my transfer value- £850000 based on a current pension of £19500 payable from 60 (i'm 56), which is much higher than expected. I also have £140k in a company DC scheme.

I was thinking of retiring early and looks like I might be able to- off to see an IFA in the new year.

Can anyone give me an idea of the sort of questions I should ask? Other than getting my 15 year old through University I've no mortgage so no great expenses- other than the wife's expensive holidays!

May look at a part time job or voluntary work.

Any other considerations?

cheers

One critical question if you transfer are the ongoing fees from the new provider.

Remember you FS pension is paid for your lifetime and the relevant % for your spouse's lifetime free of any charges.

[craig1912]

JulianPH said:

Typically 3% of the total value upfront and between 0.5% to (more often now) 1% a year. Remember there are all the other SIPP/funds/platform cost to consider as well (though the adviser can be the most expensive).

You could save a considerable amount therefore if you find an adviser that simply charges for their time in the same way a solicitor or accountant does. Expect to pay £150 an hour or a quoted flat fee. These types are very difficult to find however.

Alternatively you could look a a managed service. Ginge R has a company called 'fiver a day' which you can google and The Pension Review Business (flagging a connection with me here) is launching a service called ProInvest in January that provides fully managed SIPPs and ISAs with free advice for half the cost of using a traditional face to face adviser and the same cost as doing it all yourself with someone like Hargreaves Lansdown.

Both these services are online and telephone supported (to achieve the cost savings). So if you do want an IFA to come and see you face to face you will have to pay the higher price.

Interested in hearing more about these services. Seeing an IFA next week and the refer on to a third party for expertise on this- indicative charge is 1.25% (so about £10k) which seems a lot but I do undertsand there are higher risks to the advice given.

[CarlosFandango11]

craig1912 said:

Interested in hearing more about these services. Seeing an IFA next week and the refer on to a third party for expertise on this- indicative charge is 1.25% (so about £10k) which seems a lot but I do undertsand there are higher risks to the advice given.

If you look around there are firms that charge fixed fees which will be much less that 10k. I found one fairly easily for under 1k. If you're just looking for advice, I can't see justification for the fee being a percentage of the transfer value.

[Ginge R]

Julian, aw, thanks - hope your service goes well.

10k for what might be a clear cut DB to DC transfer? If the advice is straightforward, setting aside the monetary value, that has a whiff about it. Fixed fees are fine (I use them if I need to attach a fee, and when things are straight forward) but you have to be mindful of not disadvantaging the smaller pot. One size doesn't suit all.

I heard of a DB transfer multiple of 46 times, over Christmas. Time spent in reconnaissance is seldom wasted. If you're on a DB scheme, there's never been a better time to lift the bonnet.

[craig1912]

CarlosFandango11 said:

If you look around there are firms that charge fixed fees which will be much less that 10k. I found one fairly easily for under 1k. If you're just looking for advice, I can't see justification for the fee being a percentage of the transfer value.

Contacted three IfAs and all are prepared to charge a small fee for advice but if transfer is to go ahead that's when the 1-3% charge kicks in for doing the work and setting up. It would mean £8500 in total for me which seems a little steep but really struggling to find anyone who will work on an hourly basis. I also realise there would be an ongoing charge as I am not savvy/confident enough to manage my own funds.
If anyone has any recommendations please shout
Thanks

[gobuddygo]

craig1912 said:

Contacted three IfAs and all are prepared to charge a small fee for advice but if transfer is to go ahead that's when the 1-3% charge kicks in for doing the work and setting up. It would mean £8500 in total for me which seems a little steep but really struggling to find anyone who will work on an hourly basis. I also realise there would be an ongoing charge as I am not savvy/confident enough to manage my own funds.
If anyone has any recommendations please shout
Thanks

I'm in a similar position but only looking to transfer a sub 100k pension fund 1-3% i would be happy with but the IFA I've contacted has quoted 4k, so looking for guidance if this is reasonable.

[Armitage.Shanks]

CarlosFandango11 said:

craig1912 said:

Just got my transfer value- £850000 based on a current pension of £19500 payable from 60 (i'm 56), which is much higher than expected. I also have £140k in a company DC scheme.


Any other considerations?

cheers

You probably realise this, but this brings you very close to the lifetime limit of £1m.

That transfer limit seems high if it correlates to the LTA. For example my pension forecast pays near double the above pa but the LTA is shown as less than £850k ?

[CarlosFandango11]

Armitage.Shanks said:

That transfer limit seems high if it correlates to the LTA. For example my pension forecast pays near double the above pa but the LTA is shown as less than £850k ?

What's a transfer limit? And what's a LTA?

[Armitage.Shanks]

CarlosFandango11 said:

Armitage.Shanks said:

That transfer limit seems high if it correlates to the LTA. For example my pension forecast pays near double the above pa but the LTA is shown as less than £850k ?

What's a transfer limit? And what's a LTA?

I'm assuming the 'transfer' allowance is the 'total size of the pot which is the LTA? The LTA is the Lifetime Allowance which has reduced to £1m. Anything above this means a tax charge of 55% I believe.

[CarlosFandango11]

Armitage.Shanks said:

CarlosFandango11 said:

Armitage.Shanks said:

That transfer limit seems high if it correlates to the LTA. For example my pension forecast pays near double the above pa but the LTA is shown as less than £850k ?

What's a transfer limit? And what's a LTA?

I'm assuming the 'transfer' allowance is the 'total size of the pot which is the LTA? The LTA is the Lifetime Allowance which has reduced to £1m. Anything above this means a tax charge of 55% I believe.

Still not sure what you mean by transfer limit from the above.
Why did you previously say the LTA is less than 850k and above correctly £1m?

[Ginge R]

Armitage.Shanks said:

That transfer limit seems high if it correlates to the LTA. For example my pension forecast pays near double the above pa but the LTA is shown as less than £850k ?

I was on a beach the other day and watching kids play on high ropes with absolutely no reference to health and safety, and compared that with how things would be in the UK. The current societal trend that we have for having no risk has become a DB pension self fulfilling prophecy, and ironically, 'no risk' has started to dictate some schemes' investment strategy. Whether or not some are in danger of being endangered, I couldn't comment. Covenant evaluation is certainly a new and interesting area of advice expertise.

In respect of the transfer value, much will depends on *how* your scheme invests, and *how* your scheme will value the cost to it to (effectively) buy you out of its obligation to you and a partner for the rest of your life/lives. And that is what it is estimating - buying you out of its obligation. Be assured, it has its own interests firmly at the forefront of its thinking, given half a chance, it would be happy to see you worse off as a result of buying you out, if that meant the scheme was subsequently stronger for remaining members.

You could be in a scheme which arrives at a transfer value at a best estimate method, or at a risk free investment return method (for instance). A scheme which is invested purely in 'safe' gilts (e.g. Royal Mail) will have a relatively high transfer value because the cost of the bonds that provide the certainty to it (and to many other schemes) has gone through the roof. One reason why Royal Mail scheme is being closed - it is costing, ultimately, much too much.

If a scheme invests heavily in bonds for 'security' (liability driven investment), the best estimates discount rate is the gilt rate, or something close to it (called "gilts +") which means that the transfer value is even higher. So, in that instance, an insanely high transfer value may be based on a notionally and ridiculous even higher assumed return on the fund. That may not always be the case in the future. Some schemes have resisted the urge to gorge on bonds, and, consequently if they are still blended with sensible levels of equities to cope with future needs, they will have lower CETVs.  This may be the case with your's.

But more and more schemes are "de-risking" from equities and they are the ones that are offering very high transfer values. If you are in a DB scheme which uses an investment strategy based on gilts, you'll be offered huge transfer vales for as long as interest rates and bond yields remain low. So, it's worth knowing how your scheme invests, and if there are any changes being planned.

Oh, and the country where the kids were playing happily (and 'at risk') is pretty well stuffed, financially.

[HarryW]

Is it just me being a tight git but I would really begrudge someone taking percentage points from my pot for advice, fixed fee yes. Is going DIY and using something like HL, selecting wealth 150+ index trackers at sub percentage points frowned upon then?

One advantage of drawdown etc I can't ignore is keeping your pot within your estate if you fail to make old bones. I've lost count of people I've known that didn't get much past their 70's quite a few pre 70 too....

[Ginge R]

HarryW said:

Is it just me being a tight git but I would really begrudge someone taking percentage points from my pot for advice, fixed fee yes. Is going DIY and using something like HL, selecting wealth 150+ index trackers at sub percentage points frowned upon then?

One advantage of drawdown etc I can't ignore is keeping your pot within your estate if you fail to make old bones. I've lost count of people I've known that didn't get much past their 70's quite a few pre 70 too....

Don't underestimate lonegivity. We all know folk who die young, but we also all know those who die old.

For some clients, percentage works best, sometimes, for others, fixed (or hourly). Clients investing smaller amounts will usually be much better off being charged on a percentage basis. Wealthy clients, possibly, less so - that'll depend on the service and their circumstances.

[HarryW]

Ginge R said:

HarryW said:

Is it just me being a tight git but I would really begrudge someone taking percentage points from my pot for advice, fixed fee yes. Is going DIY and using something like HL, selecting wealth 150+ index trackers at sub percentage points frowned upon then?

One advantage of drawdown etc I can't ignore is keeping your pot within your estate if you fail to make old bones. I've lost count of people I've known that didn't get much past their 70's quite a few pre 70 too....

Don't underestimate lonegivity. We all know folk who die young, but we also all know those who die old.

For some clients, percentage works best, sometimes, for others, fixed (or hourly). Clients investing smaller amounts will usually be much better off being charged on a percentage basis. Wealthy clients, possibly, less so - that'll depend on the service and their circumstances.

Given a balance of fee and percentage point work what's a rough average for the cost of advice and what does that work out for the agent on an hourly basis?
In my mind (warped mind!) I'm thinking no more than an dedicated effort of 8 hours to set up at say an equivalent of £nnn per hour?

[Ginge R]

It's not just the work, it's the ongoing liability for the advice too. And, what kind of work did you have in mind? Most advisers charge in the region of £140-160 an hour, if you wanted to cost it in literal terms.

I mentioned the Royal Mail scheme, they've just voted to strike over it.

https://www.ft.com/content/3aabfa72-2c10-11e7-9ec8...

[HarryW]

Ginge R said:

It's not just the work, it's the ongoing liability for the advice too. And, what kind of work did you have in mind? Most advisers charge in the region of £140-160 an hour, if you wanted to cost it in literal terms.

I mentioned the Royal Mail scheme, they've just voted to strike over it.

https://www.ft.com/content/3aabfa72-2c10-11e7-9ec8...

I'm assuming the ongoing liability is covered by an insurance premium much like the medical defence Union doctors use.
Interesting, Chartered Engineers earn less than a third of that rate, albeit on a regular basis, with little down time I'd anticipate a IFA has between clients.