Why is it so difficult to transfer a DB pension?
Discussion
I am thinking about transferring out of a DB scheme. Why are the FCA making it so difficult?
I have to go to an IFA, and they will obviously want fees and I have had some bad experience of IFAs in the past, why can't I just sign to say this is what I want to do with my money? then do it?
I can show I have other assets and other pensions, so why won't they let me just transfer it?
It would be transferred into a pension with a major provider, nothing out of the ordinary.
I have to go to an IFA, and they will obviously want fees and I have had some bad experience of IFAs in the past, why can't I just sign to say this is what I want to do with my money? then do it?
I can show I have other assets and other pensions, so why won't they let me just transfer it?
It would be transferred into a pension with a major provider, nothing out of the ordinary.
Several schools of thought.
- It's your money you should be able to do what you like with it.
- Some people are greedy and will blame whoever allowed them to invest it themselves because they did something stupid with it.
- Some people are not financially astute and are easy pickings for people out to make a buck i.e. British Steel: we served sausages, not chicken says introducer
GrizzlyBear said:
Why are the FCA making it so difficult?
Because so many people,- Don't understand the value of their DB promise,
- Fail to appreciate the impact of inflation,
- Get over-excited when they see a number with some zeroes after it,
- Come back looking for someone to blame when it all goes pear-shaped.
GrizzlyBear said:
I am thinking about transferring out of a DB scheme. Why are the FCA making it so difficult?
Too many people (are misled to) believe that a Defined Benefit Pension arrangement is "just" a pot of money.it is not.
It is a lifetime promise to a member, often followed up with a lifetime promise to that member's spouse or dependents.
People suffer from Present Bias and other behavioural issues (for example, underestimating their own life expectancy, their future income needs and have some misplaced but "noble" thought of passing on a legacy - when this is for YOUR retirement no one else)
A DB scheme is your "wages in retirement" - someone else has sleepless nights over it, not you.
When you come to put a present value on a future promise you might get a "big" number, but you are NOT getting what the promise would cost you. So from day 1 after a transfer you are, believe it or not, poorer in many many scenarios even though you have a "big" pot of money.
If you understand transfer risk, investment risk, sequencing risk, and can predict the future...... there is a high chance that the only *loss* you will suffer is all the fees you will be paying for custodians, managers, advisers and third-party risk takers - all of whom get more certain returns from your money than you do.
Sure you have choices. But the government has decided that the FCA should be some form of safety net to make sure there are no nasty surprises - a bit like someone sitting you down and explaining how Russian roulette works.
Anyone who portrays a DB transfer as something plain and simple (especially if they are trying to claim some sort of stake in the outcome) is not working in your best interest.
Pay for someone to advise you - as the government wants - or accept the wages in retirement that you have already worked hard for. The greedy thing to do is to take that promise, live a long and peaceful life without worrying about money and spend your wages in retirement on all the things you want to and not the financial services industry.
rockin said:
GrizzlyBear said:
Why are the FCA making it so difficult?
Because so many people,- Don't understand the value of their DB promise,
- Fail to appreciate the impact of inflation,
- Get over-excited when they see a number with some zeroes after it,
- Come back looking for someone to blame when it all goes pear-shaped.
We live in a culture where everyone wants a bit of compensation when their decisions go wrong. They want to give you a choice, but also make sure you understand what you are signing up to and giving up.
Edited by 98elise on Friday 17th July 13:09
GrizzlyBear said:
Cheers, hopefully some will lend their knowledge.
I used to work in the pensions industry a few years ago, so I am used to doing this. I can't see why I can't sign a letter that would simply say I am doing this with my money, and it is my call, if I mess it up it is my problem.
Because a lot of people will think they understand/know etc, when they don't. The system is designed to protect the majority, rather than the (relatively limited) number of people who will understand it properly. I used to work in the pensions industry a few years ago, so I am used to doing this. I can't see why I can't sign a letter that would simply say I am doing this with my money, and it is my call, if I mess it up it is my problem.
GrizzlyBear said:
I am thinking about transferring out of a DB scheme. Why are the FCA making it so difficult?
I have to go to an IFA, and they will obviously want fees and I have had some bad experience of IFAs in the past, why can't I just sign to say this is what I want to do with my money? then do it?
I can show I have other assets and other pensions, so why won't they let me just transfer it?
It would be transferred into a pension with a major provider, nothing out of the ordinary.
As others have said it's possibly the largest asset many people have. Most people will have zero experience or knowledge in handling an asset of this nature. Basically the majority need protecting from themselves. .I have to go to an IFA, and they will obviously want fees and I have had some bad experience of IFAs in the past, why can't I just sign to say this is what I want to do with my money? then do it?
I can show I have other assets and other pensions, so why won't they let me just transfer it?
It would be transferred into a pension with a major provider, nothing out of the ordinary.
Some very good answers here and I'll add my bit.
Most people will be better off not transferring from a DB pension. They are guaranteed, have no risk to you and usually pay and index linked income in retirement and a 50% widows pension.
However, for some people the decision to transfer out can be the right one, where the CETV is a very high multiple, they want financial control and to be able to provide a 100% income to their partner upon death and an eventual IHT free inheritance to their children
The government decide to require you seek (and therefore pay for) financial advice was well meant and based upon the concept that the FCA was doing a good job in regulating financial advisers.
Unfortunately, this proved not to be the case, as highlight by the British Steel link above.
The sad fact is that, by definition of you having to use an IFA, every single case of DB pension scams were conducted by IFAs.
Most of these crooks have shut up shop and taken their ill gotten proceeds with them and this means the good IFAs have been priced out (huge hikes in PI cover due to the ongoing risk) of the DB transfer market and the entire industry is left picking up the bill through increased levies for the FSCS.
No one in power seems to have learned from this though and the requirement is still in place although there are very few financial advisers who will now work in the area.
My opinion, for what it is worth, is that the government should learn from this history and instruct the FCA do draw up a list of mainstream pension providers who are allowed to take DB transfers directly (no adviser required) providing they issue standard communication explaining the risks and each potential client signs a frightening enough declaration taking on full responsibility for their own actions should they decide to proceed.
There could even be a requirement that to be eligible you must have x years' worth of investment experience (such as with your ISAs) to filter out the terminally stupid from self harming themselves.
I doubt this will ever happen though, as it is far too obvious and sensible.
Most people will be better off not transferring from a DB pension. They are guaranteed, have no risk to you and usually pay and index linked income in retirement and a 50% widows pension.
However, for some people the decision to transfer out can be the right one, where the CETV is a very high multiple, they want financial control and to be able to provide a 100% income to their partner upon death and an eventual IHT free inheritance to their children
The government decide to require you seek (and therefore pay for) financial advice was well meant and based upon the concept that the FCA was doing a good job in regulating financial advisers.
Unfortunately, this proved not to be the case, as highlight by the British Steel link above.
The sad fact is that, by definition of you having to use an IFA, every single case of DB pension scams were conducted by IFAs.
Most of these crooks have shut up shop and taken their ill gotten proceeds with them and this means the good IFAs have been priced out (huge hikes in PI cover due to the ongoing risk) of the DB transfer market and the entire industry is left picking up the bill through increased levies for the FSCS.
No one in power seems to have learned from this though and the requirement is still in place although there are very few financial advisers who will now work in the area.
My opinion, for what it is worth, is that the government should learn from this history and instruct the FCA do draw up a list of mainstream pension providers who are allowed to take DB transfers directly (no adviser required) providing they issue standard communication explaining the risks and each potential client signs a frightening enough declaration taking on full responsibility for their own actions should they decide to proceed.
There could even be a requirement that to be eligible you must have x years' worth of investment experience (such as with your ISAs) to filter out the terminally stupid from self harming themselves.
I doubt this will ever happen though, as it is far too obvious and sensible.
GT03ROB said:
There are some potentially very attractive transfer values currently on offer at the moment..
No there aren't.Of all the crass statements that are made about the subject, this is amongst the worst misinformation. It implies you might get a value which is....well... "attractive". It might be "fair" but it is pandering to emotional behaviour to ever describe it as "attractive".
When you receive advice about a transfer you will be provided with a specific piece of information. It will look something like this.
Finding a situation where the left hand bar exceeds the right hand bar - i.e. what you get is demonstrably "attractive" in comparison with what the benefits would cost you is almost impossible and the gap being something which would be easily bridgeable is also rare.
(and before anyone points it out - if all you wanted to do was achieve the same thing then yes, you wouldn't consider a transfer)
So is there somewhere I can go that spits out that illustration as a "rough guide" or is there a rule of thumb calculation?
I have a DB from a previous employer that I never gave much thought to but using their modelling calculator I think it should be worth £8-9K by retirement age.
I did wonder whether it's worth exploring transfer options but the more I read the more a guaranteed cast iron £8-9K a year sounds like it's like rocking horse s
t to get these days unless you're public sector?
Incidentally (and this is a random thought) if you decided at 50 to go take a job in the public sector even on a lower salary what sort of DB pot could you build in that limited time?
More curiosity than any desire to go be a civil servant for 5 years
I have a DB from a previous employer that I never gave much thought to but using their modelling calculator I think it should be worth £8-9K by retirement age.
I did wonder whether it's worth exploring transfer options but the more I read the more a guaranteed cast iron £8-9K a year sounds like it's like rocking horse s
t to get these days unless you're public sector?Incidentally (and this is a random thought) if you decided at 50 to go take a job in the public sector even on a lower salary what sort of DB pot could you build in that limited time?
More curiosity than any desire to go be a civil servant for 5 years
bhstewie said:
hstewie said: So is there somewhere I can go that spits out that illustration as a "rough guide" or is there a rule of thumb calculation?
I have a DB from a previous employer that I never gave much thought to but using their modelling calculator I think it should be worth £8-9K by retirement age.
I did wonder whether it's worth exploring transfer options but the more I read the more a guaranteed cast iron £8-9K a year sounds like it's like rocking horse st to get these days unless you're public sector?
I'd be clinging to a DB with that value for dear life, in your shoes. Unless there's a huge incentive to transfer because they're trying to reduce their future obligations (or god forbid, can't actually meet them).I have a DB from a previous employer that I never gave much thought to but using their modelling calculator I think it should be worth £8-9K by retirement age.
I did wonder whether it's worth exploring transfer options but the more I read the more a guaranteed cast iron £8-9K a year sounds like it's like rocking horse s
t to get these days unless you're public sector?JulianPH said:
Mazinbrum said:
There is also the new added risk of the government helping themselves to a percentage of your SIPP. Might be a load of rubbish but there are rumours of them planning 10% on SIPPs over 100k.
Morning Maris, don't worry, that is never going to happen!Widely held red lines are red lines until suddenly, one day, they aren't. "We're all in this together"/"We need this money to fight Covid"/etc. Where is there a *massive* pile of money "unfairly" "gifted" by the state (tax relief) to the recipient? Why not take some of that back?*
*I'm fully aware of why not, and I don't think they should. The possibility however seems to be beyond comprehension for so many. In a populist government - who cares about the problems of tomorrow (people not saving for pensions) when you can "solve" today's problems (by raiding pensions). Inequality (pensions or otherwise) is only going one way - and that pile of pension money is going to look ever more attractive, to an increasing number of people, as time goes on. The primary benefit of pensions is at the behest of the chancellor's pen - what the current chancellor giveth, a future chancellor can taketh away.
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