DB pension transfer query
Discussion
My better half is tidying up a few old DC pensions into her SIPP. All fairly straightforward. However, she has a DB pension from when she worked for Barclays for a few years in the 1980’s. She thought this was worth not a lot but asked for a valuation. The Guaranteed Minimum Pension (GMP) is £135 per annum. Alternatively the transfer value is circa £50K. To me, this appears too much of a no brainer that I must be missing something? She’ll need to take advice apparently because it’s over £30K, but any ideas as to what I’m missing?
The ratio works out at around 370:1 which looks like it is seriously incorrect. Is the GMP only a portion of the entire pension with Barclays or is it the total? Assuming that it is correct I think that Barclays should be asked to comment on the figures: are they correct, and if so can the ratio be explained?
People have no right to benefit by the mistakes of others, so if something is wrong it's better to get it sorted now rather than take action based on incorrect information and then have to sort it out later, with the potential distress etc that nay cause.
R.
People have no right to benefit by the mistakes of others, so if something is wrong it's better to get it sorted now rather than take action based on incorrect information and then have to sort it out later, with the potential distress etc that nay cause.
R.
The ratio works out at around 370:1 which looks like it is seriously incorrect. Is the GMP only a portion of the entire pension with Barclays or is it the total? Assuming that it is correct I think that Barclays should be asked to comment on the figures: are they correct, and if so can the ratio be explained?
People have no right to benefit by the mistakes of others, so if something is wrong it's better to get it sorted now rather than take action based on incorrect information and then have to sort it out later, with the potential distress etc that nay cause.
R.
People have no right to benefit by the mistakes of others, so if something is wrong it's better to get it sorted now rather than take action based on incorrect information and then have to sort it out later, with the potential distress etc that nay cause.
R.
Are you sure the annual figure isn't in fact a monthly one? The cash equivalent figure would then line up with others I've seen from Barclays.
DB transfers are a contentious area and advisors who've done a lot of them are struggling to get indemnity insurance (which is a necessity). About 1/3 of advisors have the qualifications and FCA permissions to advise on a DB transfer, far less will actually advise on them.
The biggest issue will be that it's only £50k, which is below what many advisors who will advise on DBs will work with.
DB transfers are a contentious area and advisors who've done a lot of them are struggling to get indemnity insurance (which is a necessity). About 1/3 of advisors have the qualifications and FCA permissions to advise on a DB transfer, far less will actually advise on them.
The biggest issue will be that it's only £50k, which is below what many advisors who will advise on DBs will work with.
janesmith1950 said:
Are you sure the annual figure isn't in fact a monthly one? The cash equivalent figure would then line up with others I've seen from Barclays.
DB transfers are a contentious area and advisors who've done a lot of them are struggling to get indemnity insurance (which is a necessity). About 1/3 of advisors have the qualifications and FCA permissions to advise on a DB transfer, far less will actually advise on them.
The biggest issue will be that it's only £50k, which is below what many advisors who will advise on DBs will work with.
Thanks. It’s definitely yearly but pension value quoted as of 1988. I know what you’re saying about the amount. She had all but forgotten about this one and was only enquiring for the purposes of tidying up loose ends. Absolute confirmation of the confirmation required I think. DB transfers are a contentious area and advisors who've done a lot of them are struggling to get indemnity insurance (which is a necessity). About 1/3 of advisors have the qualifications and FCA permissions to advise on a DB transfer, far less will actually advise on them.
The biggest issue will be that it's only £50k, which is below what many advisors who will advise on DBs will work with.
troika said:
As an aside, any views on what she should be paying for an IFA to review to authorise a transfer?
Ask the questions of her employer and then come back here with proper figures. You'll soon get a few hints and tips as to whether the conversion rate of pension to cash transfer makes anything obvious in terms of a decision. You'll need to say what level of indexation applies to the pension in payment and whether there's a widower/spouse pension as well (and its amount, e.g. 50%). Otherwise you're trying to compare an apple with a banana.The world is full of "advisers" who will be more than happy to charge a fat fee for what might turn out to be very little....
£50,000 is relative peanuts in the world of pensions. For instance, at a conversion rate of 30:1 it would buy about £1,700 p.a. of decent pension, which is a princely £140 a month. (That GMP figure you mentioned of £135 p.a. is almost certainly only part of a bigger picture)
rockin said:
troika said:
As an aside, any views on what she should be paying for an IFA to review to authorise a transfer?
Ask the questions of her employer and then come back here with proper figures. You'll soon get a few hints and tips as to whether the conversion rate of pension to cash transfer makes anything obvious in terms of a decision. You'll need to say what level of indexation applies to the pension in payment and whether there's a widower/spouse pension as well (and its amount, e.g. 50%). Otherwise you're trying to compare an apple with a banana.The world is full of "advisers" who will be more than happy to charge a fat fee for what might turn out to be very little....
£50,000 is relative peanuts in the world of pensions. For instance, at a conversion rate of 30:1 it would buy about £1,700 p.a. of decent pension, which is a princely £140 a month. (That GMP figure you mentioned of £135 p.a. is almost certainly only part of a bigger picture)
The appeal of a large cash equivalent transfer value (CETV) can be significant and some clients refer to this as winning the lottery (you used “no brainer” in this thread, and that’s a typical response). The ability to have a fund in your wife’s own name and for her to be able to access if with complete flexibility is very tempting. This is often more tempting than receiving a steady income for life (even if this is worth more).
“Rockin” made reference to a ‘conversion rate’, it is sometimes more often referred to by advisers as a multiple. He alludes to the impact on the decision based on that multiple, and that is usually derived from an transfer analysis which arrives at a critical yield. In my opinion, the size of the multiple should never inform the decision in itself, but it can be a factor when dealing with a client for whom a transfer might be suitable anyway.
I don’t consider TV size to be a good reason to transfer in most cases. Transfer values are high mainly due to market conditions – low yield on gilts and corporate bonds, a low overall inflation and good investment return environment. But a transferred fund is then also subject to the same market conditions and hence the drawdown returns may also be comparatively low. So, has your cash flow modelling taken this into account? In general, I would treat the multiple as *the* reason to transfer with significant caution.
The requirement for a transfer value analysis and evaluation in itself of the critical yield ceases on 1 October of this year. However, the FCA has stated that it is up to firms whether or not they still use it as part of the advice process. The critical yield is a fairly blunt tool and can only give a broad indication of the value offered by the scheme and the ability to provide comparable benefits in the open market.
However, it is not personalised for your wife’s needs, and in many cases is comparing apples with oranges (ie, her DB scheme provides a steady income whereas a flexible arrangement may be used in different ways). From October, advisers will have to carry out an Appropriate Pension transfer Analysis (APTA) and cash flow modelling. The flexibility afforded by the APTA will be, in my opinion, a better way of comparing the two options and providing a broad ‘real’ indication of the value of the CETV.
As Jane mentions, there is a huge surplus of clients compared to the number of advisers available to service them. *Alleged* (my emphasis) miss-selling DB transfer scandals have bought the niche to its knees this year (only today we see another *alleged* one finally making the trade headlines), problems arising out of the British Steel Pension Scheme metamorphosis into PPF or New British Steel Pension Scheme are quite widely known about. Maybe the insurers will ultimately succeed where the regulator has failed to stop the *alleged* adviser shysters and the *alleged* appalling professional practice by some providers.
“Rockin” made reference to a ‘conversion rate’, it is sometimes more often referred to by advisers as a multiple. He alludes to the impact on the decision based on that multiple, and that is usually derived from an transfer analysis which arrives at a critical yield. In my opinion, the size of the multiple should never inform the decision in itself, but it can be a factor when dealing with a client for whom a transfer might be suitable anyway.
I don’t consider TV size to be a good reason to transfer in most cases. Transfer values are high mainly due to market conditions – low yield on gilts and corporate bonds, a low overall inflation and good investment return environment. But a transferred fund is then also subject to the same market conditions and hence the drawdown returns may also be comparatively low. So, has your cash flow modelling taken this into account? In general, I would treat the multiple as *the* reason to transfer with significant caution.
The requirement for a transfer value analysis and evaluation in itself of the critical yield ceases on 1 October of this year. However, the FCA has stated that it is up to firms whether or not they still use it as part of the advice process. The critical yield is a fairly blunt tool and can only give a broad indication of the value offered by the scheme and the ability to provide comparable benefits in the open market.
However, it is not personalised for your wife’s needs, and in many cases is comparing apples with oranges (ie, her DB scheme provides a steady income whereas a flexible arrangement may be used in different ways). From October, advisers will have to carry out an Appropriate Pension transfer Analysis (APTA) and cash flow modelling. The flexibility afforded by the APTA will be, in my opinion, a better way of comparing the two options and providing a broad ‘real’ indication of the value of the CETV.
As Jane mentions, there is a huge surplus of clients compared to the number of advisers available to service them. *Alleged* (my emphasis) miss-selling DB transfer scandals have bought the niche to its knees this year (only today we see another *alleged* one finally making the trade headlines), problems arising out of the British Steel Pension Scheme metamorphosis into PPF or New British Steel Pension Scheme are quite widely known about. Maybe the insurers will ultimately succeed where the regulator has failed to stop the *alleged* adviser shysters and the *alleged* appalling professional practice by some providers.
Ginge R said:
The appeal of a large cash equivalent transfer value (CETV) can be significant and some clients refer to this as winning the lottery (you used “no brainer” in this thread, and that’s a typical response). The ability to have a fund in your wife’s own name and for her to be able to access if with complete flexibility is very tempting. This is often more tempting than receiving a steady income for life (even if this is worth more).
“Rockin” made reference to a ‘conversion rate’, it is sometimes more often referred to by advisers as a multiple. He alludes to the impact on the decision based on that multiple, and that is usually derived from an transfer analysis which arrives at a critical yield. In my opinion, the size of the multiple should never inform the decision in itself, but it can be a factor when dealing with a client for whom a transfer might be suitable anyway.
I don’t consider TV size to be a good reason to transfer in most cases. Transfer values are high mainly due to market conditions – low yield on gilts and corporate bonds, a low overall inflation and good investment return environment. But a transferred fund is then also subject to the same market conditions and hence the drawdown returns may also be comparatively low. So, has your cash flow modelling taken this into account? In general, I would treat the multiple as *the* reason to transfer with significant caution.
The requirement for a transfer value analysis and evaluation in itself of the critical yield ceases on 1 October of this year. However, the FCA has stated that it is up to firms whether or not they still use it as part of the advice process. The critical yield is a fairly blunt tool and can only give a broad indication of the value offered by the scheme and the ability to provide comparable benefits in the open market.
However, it is not personalised for your wife’s needs, and in many cases is comparing apples with oranges (ie, her DB scheme provides a steady income whereas a flexible arrangement may be used in different ways). From October, advisers will have to carry out an Appropriate Pension transfer Analysis (APTA) and cash flow modelling. The flexibility afforded by the APTA will be, in my opinion, a better way of comparing the two options and providing a broad ‘real’ indication of the value of the CETV.
As Jane mentions, there is a huge surplus of clients compared to the number of advisers available to service them. *Alleged* (my emphasis) miss-selling DB transfer scandals have bought the niche to its knees this year (only today we see another *alleged* one finally making the trade headlines), problems arising out of the British Steel Pension Scheme metamorphosis into PPF or New British Steel Pension Scheme are quite widely known about. Maybe the insurers will ultimately succeed where the regulator has failed to stop the *alleged* adviser shysters and the *alleged* appalling professional practice by some providers.
Many thanks for taking the time to respond in such detail, much appreciated. Most definitely food for thought and further investigation required. I’m in the ‘if it looks too good to be true, it probably is’ camp, hence my initial surprise at the numbers...“Rockin” made reference to a ‘conversion rate’, it is sometimes more often referred to by advisers as a multiple. He alludes to the impact on the decision based on that multiple, and that is usually derived from an transfer analysis which arrives at a critical yield. In my opinion, the size of the multiple should never inform the decision in itself, but it can be a factor when dealing with a client for whom a transfer might be suitable anyway.
I don’t consider TV size to be a good reason to transfer in most cases. Transfer values are high mainly due to market conditions – low yield on gilts and corporate bonds, a low overall inflation and good investment return environment. But a transferred fund is then also subject to the same market conditions and hence the drawdown returns may also be comparatively low. So, has your cash flow modelling taken this into account? In general, I would treat the multiple as *the* reason to transfer with significant caution.
The requirement for a transfer value analysis and evaluation in itself of the critical yield ceases on 1 October of this year. However, the FCA has stated that it is up to firms whether or not they still use it as part of the advice process. The critical yield is a fairly blunt tool and can only give a broad indication of the value offered by the scheme and the ability to provide comparable benefits in the open market.
However, it is not personalised for your wife’s needs, and in many cases is comparing apples with oranges (ie, her DB scheme provides a steady income whereas a flexible arrangement may be used in different ways). From October, advisers will have to carry out an Appropriate Pension transfer Analysis (APTA) and cash flow modelling. The flexibility afforded by the APTA will be, in my opinion, a better way of comparing the two options and providing a broad ‘real’ indication of the value of the CETV.
As Jane mentions, there is a huge surplus of clients compared to the number of advisers available to service them. *Alleged* (my emphasis) miss-selling DB transfer scandals have bought the niche to its knees this year (only today we see another *alleged* one finally making the trade headlines), problems arising out of the British Steel Pension Scheme metamorphosis into PPF or New British Steel Pension Scheme are quite widely known about. Maybe the insurers will ultimately succeed where the regulator has failed to stop the *alleged* adviser shysters and the *alleged* appalling professional practice by some providers.
As has been said, check the pension amounts with the scheme administrator.
The GMP is the minimum the scheme would have had to provide if contracted out of SERPS (at the time), and it is very likely there is a pension amount on top of this.
The GMP will probably be revalued at a fixed rate which is dependent on date of leaving. From memory, if this was pre 88 it is 8.5% for each complete tax year between date of leaving and age 60. It might be subject to another revaluation factor depending on what method the scheme chose at the time. The excess pension will revalue at a different rate depending on the period it was accrued. It can be complicated.
All this info should be in the transfer statement/statement of benefit. Or ask the scheme administrator.
The GMP is the minimum the scheme would have had to provide if contracted out of SERPS (at the time), and it is very likely there is a pension amount on top of this.
The GMP will probably be revalued at a fixed rate which is dependent on date of leaving. From memory, if this was pre 88 it is 8.5% for each complete tax year between date of leaving and age 60. It might be subject to another revaluation factor depending on what method the scheme chose at the time. The excess pension will revalue at a different rate depending on the period it was accrued. It can be complicated.
All this info should be in the transfer statement/statement of benefit. Or ask the scheme administrator.
number2 said:
As has been said, check the pension amounts with the scheme administrator.
The GMP is the minimum the scheme would have had to provide if contracted out of SERPS (at the time), and it is very likely there is a pension amount on top of this.
The GMP will probably be revalued at a fixed rate which is dependent on date of leaving. From memory, if this was pre 88 it is 8.5% for each complete tax year between date of leaving and age 60. It might be subject to another revaluation factor depending on what method the scheme chose at the time. The excess pension will revalue at a different rate depending on the period it was accrued. It can be complicated.
All this info should be in the transfer statement/statement of benefit. Or ask the scheme administrator.
Thank you, that’s spot on, however, there is no other pension amount over and above the GMP stated on the documents. By my calcs, the PV of the GMP is circa £1,560. This makes the current transfer value circa 32X. The thing is, if she leaves it alone until the retirement age, I calculate that the GMP will roughly double to circa £3K. The joys of compound interest! I guess the question which nobody knows the answer to, is what will happen to the transfer value by then. I’ll get her to speak to them, but this would appear to make much more sense now. Thanks all for your input.The GMP is the minimum the scheme would have had to provide if contracted out of SERPS (at the time), and it is very likely there is a pension amount on top of this.
The GMP will probably be revalued at a fixed rate which is dependent on date of leaving. From memory, if this was pre 88 it is 8.5% for each complete tax year between date of leaving and age 60. It might be subject to another revaluation factor depending on what method the scheme chose at the time. The excess pension will revalue at a different rate depending on the period it was accrued. It can be complicated.
All this info should be in the transfer statement/statement of benefit. Or ask the scheme administrator.
janesmith1950 said:
If you can find it (easier said than done) take professional advice. Many firms will look at it on a contingent basis with regards fees (which is part of the controversy...).
Of course, I’d be the first to encourage that rather than make any financial decision because people say so on the internet! The input on here has, however, been very helpful in making the penny drop for me on how these schemes work. It’s not such a ‘no brainer’ and should be carefully considered. Luckily, it’s gravy, so not quite so critical. I’m starting to feel very sorry for the poor souls who are getting fleeced of their only retirement pot, I can see how easily it could happen. As already mentioned, the annual pension quoted is at the date of leaving, there will have been 30 years worth of increments since then.
Barclays do not quote the current (inc increases) on the CETV statement, only the pension at the date of leaving. This means that you need to refer to the supplementary guide to check the rate on increase that applies to your particular benefit within the scheme (I assume its the UKRF 1964 scheme?)
Once this has been calculated, you will find the quoted CETV is likely correct (probably 30x to 50x deferred benefit).
From the ones I've dealt with, they have all been pretty strong transfer values in comparison to other DB schemes.
You main challenge will be finding someone to advise on it due to the size of fund. Expect to pay between £2.5-£4k.
.
Barclays do not quote the current (inc increases) on the CETV statement, only the pension at the date of leaving. This means that you need to refer to the supplementary guide to check the rate on increase that applies to your particular benefit within the scheme (I assume its the UKRF 1964 scheme?)
Once this has been calculated, you will find the quoted CETV is likely correct (probably 30x to 50x deferred benefit).
From the ones I've dealt with, they have all been pretty strong transfer values in comparison to other DB schemes.
You main challenge will be finding someone to advise on it due to the size of fund. Expect to pay between £2.5-£4k.
.
darreni said:
As already mentioned, the annual pension quoted is at the date of leaving, there will have been 30 years worth of increments since then.
Barclays do not quote the current (inc increases) on the CETV statement, only the pension at the date of leaving. This means that you need to refer to the supplementary guide to check the rate on increase that applies to your particular benefit within the scheme (I assume its the UKRF 1964 scheme?)
Once this has been calculated, you will find the quoted CETV is likely correct (probably 30x to 50x deferred benefit).
From the ones I've dealt with, they have all been pretty strong transfer values in comparison to other DB schemes.
You main challenge will be finding someone to advise on it due to the size of fund. Expect to pay between £2.5-£4k.
.
Yep, 1964 scheme. As you say, current values are not stated on their documents, which is not particularly helpful! I’ve taken the GMP as at 1988, the PV of which at 8.5% revaluation rate is circa £1,560, so roughly 32X transfer value. I guess the decision is to just leave it until the retirement age, by which time the GMP will be circa £3K, take the transfer now or transfer later. If it’s going to cost thousands to transfer, probably best to leave it alone and treat it as a bit of portfolio diversification. Barclays do not quote the current (inc increases) on the CETV statement, only the pension at the date of leaving. This means that you need to refer to the supplementary guide to check the rate on increase that applies to your particular benefit within the scheme (I assume its the UKRF 1964 scheme?)
Once this has been calculated, you will find the quoted CETV is likely correct (probably 30x to 50x deferred benefit).
From the ones I've dealt with, they have all been pretty strong transfer values in comparison to other DB schemes.
You main challenge will be finding someone to advise on it due to the size of fund. Expect to pay between £2.5-£4k.
.
A key area of transfer suitability revolves around ‘core and secure income’. Core and secure income typically includes state pension, DB benefits, annuities, guaranteed third way products and good quality rental income. In broad terms clients have three types of income/expenditure:
Fixed outgoings (food, utilities, council tax etc)
Discretionary spending (eating out, holidays etc)
Excess income/savings
There is some latitude with food (ie, you can always shop in Aldi instead of Waitrose) and you can always turn off burning wasteful lightbulbs and unplug the telly at the wall, but, generally, the fixed outgoings are pretty constant. If you keep it where it is, your wife's DB scheme might provide sufficient core secure income - though possibly not your discretionary spending as well. So although she/you both might not be in the best ever situation, by staying where she is, she might be bolstering her chances of security. Look on the DB income stream - not as a wasted and missed opportunity to grow a pot - as the means to put tea and coffee, and bread and jam on the table, and the additional DC income as helping out with the Prosecco and Gin, nibbles and occasional take out.
Good financial planning is about helping client achieve peace of mind, given their stated and agreed objectives. Not always maximising the chances of making them the biggest pile of money as possible, for the sake of it, and to the complete exclusion of all other considerations. I have had a DB pension in payment for the past 14 years or so. It's a war disability pension and because of that niche category, I wasn't able to commute it. At the time, that really annoyed me - because I wanted the cash - and although the thinking was probably a little too paternalistic, I can see now why it was the case. Now, I am all too glad that I wasn't able to commute it. Try and think not as the Troika of 2018, but as the Troika of 2048. Of course, everyone's circumstances are different.
Fixed outgoings (food, utilities, council tax etc)
Discretionary spending (eating out, holidays etc)
Excess income/savings
There is some latitude with food (ie, you can always shop in Aldi instead of Waitrose) and you can always turn off burning wasteful lightbulbs and unplug the telly at the wall, but, generally, the fixed outgoings are pretty constant. If you keep it where it is, your wife's DB scheme might provide sufficient core secure income - though possibly not your discretionary spending as well. So although she/you both might not be in the best ever situation, by staying where she is, she might be bolstering her chances of security. Look on the DB income stream - not as a wasted and missed opportunity to grow a pot - as the means to put tea and coffee, and bread and jam on the table, and the additional DC income as helping out with the Prosecco and Gin, nibbles and occasional take out.
Good financial planning is about helping client achieve peace of mind, given their stated and agreed objectives. Not always maximising the chances of making them the biggest pile of money as possible, for the sake of it, and to the complete exclusion of all other considerations. I have had a DB pension in payment for the past 14 years or so. It's a war disability pension and because of that niche category, I wasn't able to commute it. At the time, that really annoyed me - because I wanted the cash - and although the thinking was probably a little too paternalistic, I can see now why it was the case. Now, I am all too glad that I wasn't able to commute it. Try and think not as the Troika of 2018, but as the Troika of 2048. Of course, everyone's circumstances are different.
Ginge R said:
I don’t consider TV size to be a good reason to transfer in most cases. Transfer values are high mainly due to market conditions – low yield on gilts and corporate bonds, a low overall inflation and good investment return environment.
Little to criticise in the vast majority of what you’ve written, apart from the words highlighted above.At a simple level, the TV is an assessment of the amount of assets needed to be held now, to provide the required future benefits with an appropriate degree of certainty.
As the investment return environment is poor I.e. risk-free yields are low, this means that transfer value are high.
Or were you referring to the previous favourable investment environment which saw good gains on bonds (as yields fell) and equities?
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