What would you do with a £1million pension?

What would you do with a £1million pension?

Author
Discussion

Ginge R

4,761 posts

218 months

Thursday 20th April 2017
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As an aside for any pension pros who are reading, I'm organising a DB transfer discussion day in June. It started off as an idea for a bit of a small get together but has attracted a lot of great speakers giving their time for free (Steve Webb, Rory Percival etc), and will encompass ethical aspects, actuarial considerations, indemnity issues, behavioural finance etc. It's not for consumers, alas, but if any pension pros want to attend, please just drop me a note.

To the more recent posts, any DB transfer is not just about ringing a bell by reaching a required critical yield. And in respect of how markets do, yes, it's vital. You don't win the race on the first bend, but you can quite easily lose it there. Advisers refer (rightly) to sequential return risk - cash flow modelling is imho absolutely vital, and can mean an absolutely huge difference between success and failure.

Also, don't underestimate longevity. You can be sprightly right until the end these days. Guaranteed income might allow you to enjoy life in your late nineties, and those years could be just as enriching and as important to you as your early sixties. It's your strategy, everyone is different.

Finally, more broadly, transfer demand on DB pensions is now so great that some companies are changing their investment strategies to reflect it - when scheme CIO are now altering investment strategies to more cash purely in anticipation of paying out large slugs of cash, and not long term income required (transfer values will fall as the discount rate lowers).

CarlosFandango11

1,914 posts

185 months

Thursday 20th April 2017
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Ginge R said:
transfer values will fall as the discount rate lowers.
Are you sure about this bit?

Ginge R

4,761 posts

218 months

Thursday 20th April 2017
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Fairly corrected - ultimately, as written, I was wrong.

CarlosFandango11 said:
Ginge R said:
transfer values will fall as the discount rate lowers.
Are you sure about this bit?
Edited by Ginge R on Thursday 20th April 12:34

Cheib

23,112 posts

174 months

Monday 24th April 2017
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OP - Do you know what multiple he's been offered to get the £1mil ? Buy out multiples vary massively but I heard of one the other day at 51 times.

And as for the bloke whose IFA just joined SJP ask him to explain in detail how there fees work. Chances are he can't.....and if he could you'd say "thanks and goodbye"

jon-

Original Poster:

16,497 posts

215 months

Monday 24th April 2017
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Cheib said:
OP - Do you know what multiple he's been offered to get the £1mil ? Buy out multiples vary massively but I heard of one the other day at 51 times.

And as for the bloke whose IFA just joined SJP ask him to explain in detail how there fees work. Chances are he can't.....and if he could you'd say "thanks and goodbye"
I don't, I can find out if it's interesting.

It looks increasingly likely it will be drawn down and placed to a fund manager via a SIPP (my terminology is probably bad, I've not been too in the loop!)

The biggest shock to me is the fee of the mandatory IFA. For a simple meeting and a written report he's charging 1%. £10k for nothing it seems! I'm' sure his report will be well written enough to cover his own back.

JulianPH

9,912 posts

113 months

Monday 24th April 2017
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In fairness, the IFA is taking on board full liability for the advice given, so from that perspective 1% is quite cheap if they advise it.

But what if they advise against? Is the client now discharged from this obligation having sought advice (I believe so)..? Or does the advice need to come from a G60 qualified adviser?

WindyCommon

3,354 posts

238 months

Monday 24th April 2017
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The real world issue is that many (most?) SIPP providers won't accept a transfer from a DB plan without positive advice to transfer having been given.

Ginge R

4,761 posts

218 months

Monday 24th April 2017
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I can think of just one, and even that was a while back. Fixed fee is the fairest way.

CarlosFandango11

1,914 posts

185 months

Monday 24th April 2017
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Cheib said:
OP - Do you know what multiple he's been offered to get the £1mil ? Buy out multiples vary massively but I heard of one the other day at 51 times.
The OP mentioned a transfer value of just over £1m or final salary scheme benefits of £200k lump sum and £39k pa pension.

Assuming a transfer value of £1m gives a multiple of 20.5
Assuming a transfer value of £1.1m gives a multiple of 23.1

To me the offer seems extremely low. I recently transfered a final salary scheme benefit to a SIPP at a multiple of 42. For me, a multiple of 23 would have been far to low a value considering the risk transfer.

sidicks

25,218 posts

220 months

Monday 24th April 2017
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CarlosFandango11 said:
The OP mentioned a transfer value of just over £1m or final salary scheme benefits of £200k lump sum and £39k pa pension.

Assuming a transfer value of £1m gives a multiple of 20.5
Assuming a transfer value of £1.1m gives a multiple of 23.1

To me the offer seems extremely low. I recently transfered a final salary scheme benefit to a SIPP at a multiple of 42. For me, a multiple of 23 would have been far to low a value considering the risk transfer.
£39k pension inflating at RPI??

CarlosFandango11

1,914 posts

185 months

Monday 24th April 2017
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sidicks said:
£39k pension inflating at RPI??
Theres no mention of what the inflationary increases are. Not sure what point you're trying to make though...


sidicks

25,218 posts

220 months

Tuesday 25th April 2017
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CarlosFandango11 said:
Theres no mention of what the inflationary increases are. Not sure what point you're trying to make though...
It was a question!


Edited by sidicks on Tuesday 25th April 07:38

CarlosFandango11

1,914 posts

185 months

Tuesday 25th April 2017
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sidicks said:
CarlosFandango11 said:
Theres no mention of what the inflationary increases are. Not sure what point you're trying to make though...
It was a question!

Surely a flat annuity would have a factor of 20ish, whereas an RPI annuity would have a factor of more like 40Ish?
I would be very surprised if a final salary scheme didn't use some sort of inflation measure for revaluation and escalation of benefits.

The point is that the transfer value appears very low compared to what other schemes are offering at present.

Adam B

27,142 posts

253 months

Tuesday 25th April 2017
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jon- said:
The biggest shock to me is the fee of the mandatory IFA. For a simple meeting and a written report he's charging 1%. £10k for nothing it seems! I'm' sure his report will be well written enough to cover his own back.
negotiate a fixed fee, 1% is high - his report will be off the shelf with a handful of tweaks to make it look custom (rightly so as there are a known range of parameters and pretty standard models)

Ginge R

4,761 posts

218 months

Friday 28th April 2017
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CarlosFandango11 said:
I would be very surprised if a final salary scheme didn't use some sort of inflation measure for revaluation and escalation of benefits.

The point is that the transfer value appears very low compared to what other schemes are offering at present.
Surely, the TVAS would have taken them into account, from information provided by the scheme trustees?

CarlosFandango11

1,914 posts

185 months

Friday 28th April 2017
quotequote all
Ginge R said:
CarlosFandango11 said:
I would be very surprised if a final salary scheme didn't use some sort of inflation measure for revaluation and escalation of benefits.

The point is that the transfer value appears very low compared to what other schemes are offering at present.
Surely, the TVAS would have taken them into account, from information provided by the scheme trustees?
I'm not aware than any Transfer Value AnalysiS has taken place here?

I'm have never been involved in TVAS, but I'm 100% certain that any inflationary increases and the transfer value would be taken into account.

jon-

Original Poster:

16,497 posts

215 months

Friday 28th April 2017
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If we're still talking about the final salary scheme monthly payments, then yes they're inflation linked.

Ginge R

4,761 posts

218 months

Friday 28th April 2017
quotequote all
CarlosFandango11 said:
I'm not aware than any Transfer Value AnalysiS has taken place here?

I'm have never been involved in TVAS, but I'm 100% certain that any inflationary increases and the transfer value would be taken into account.
Unless the client wished to crystallise benefits immediately after the transfer and is at normal retirement age, a TVAS needs to be done (I assume your transfer was at retirement and with crystallisation). There are a range of compulsory metrics and other requirements that need to be observed, and these are provided by the scheme trustees for use in that TVAS.

CarlosFandango11

1,914 posts

185 months

Friday 28th April 2017
quotequote all
Ginge R said:
CarlosFandango11 said:
I'm not aware than any Transfer Value AnalysiS has taken place here?

I'm have never been involved in TVAS, but I'm 100% certain that any inflationary increases and the transfer value would be taken into account.
Unless the client wished to crystallise benefits immediately after the transfer and is at normal retirement age, a TVAS needs to be done (I assume your transfer was at retirement and with crystallisation). There are a range of compulsory metrics and other requirements that need to be observed, and these are provided by the scheme trustees for use in that TVAS.
I've no idea where you're going with this or why!

Ginge R

4,761 posts

218 months

Friday 28th April 2017
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You stated you would be "very surprised if a final salary scheme didn't use some sort of inflation measure for revaluation and escalation of benefits". There is such a measure, it's obligatory and forms part of a TVAS (the information for which is approved by the scheme trustees and provided by the scheme administrators).

You suggested you had just done a transfer, but "never been involved in TVAS". I suggested it must have been someone at their scheme normal retirement age (NRA) transferring and crystaliding benefits. As you'll know, a transfer report taking into account all incremental rises is obligatory, unless as written above, the transfer relates to a member crystallising benefits at scheme NRA. beer