Final Salary Pension - Transferring ?

[KennyN]

Presently making moves regarding the above and am wondering if anyone else has done so and as to what the % fees charged for the service and annual maintenance costs , needing some figures so as to know what to expect and if i am been "fleeced".

Bit of background as to my Pension situation without giving away too much personal information.

Moved to my current employer around 28 years ago , brought my previous employers pension with me and combined it into the FS scheme which closed around 12 years ago and we have been on a DC since.

Long story short , there is rather large hole in the companies FS pension pot due the fact that there is still plenty of people taking an income from it but no one apart from the company paying back into the pot , clearly they have not been topping the pot up ,enough , hence the hole.

Reasons for transferring :

If i check out , the wife gets half my pension , if she checks out the money goes back into the pot and kids get nothing.

If it transfer it now the company retain 19% of my pot , this has been increasing steadily over the last few years based on the increasing size of the "hole".

If i dont transfer it out now and wait until i am 65 (in ten years) how much will their actually be in the pot to draw from if there are not considerable payments made by the company to plug the "hole".

My main thought process is that we make "widgets" and the requirements for said "widgets" has decreased by 90% in the last 20 years and is dropping steadily due to it being old tech so profits have taken a hammering meaning less available ££ going into the pot and this is only going to continue. When you consider the declining demand for the "widgets" / energy costs and raw material costs going crazy then it is going to be a bit of a "tight" few years for all concerned within the business.

Being a "bird in the hand" type of person i would rather know my "pot" is safe(ish) and not spend the next decade hoping it is.

No need to use the funds at present so it will be getting transferred as a lump sum and left.

I am aware that there are only certain IFA`s that are allowed to deal with transferring a FS pension , which i am aware will have an impact in the final cost of the transfer.

Cheers - K

 

[IanW]

I transferred a DC pension which carried guarantees, so I was in a vaguely similar situation.
1. If the pension transfer value exceeds £30K, you are required to take advice from a qualified adviser. I was generally quoted 3% of pot, possibly plus VAT to cover the transfer advice. Most advisers were not interested due to the cost of indemnity insurance. Aviva cap their adviser charges at £2,200 but will only advice for a transfer to an Aviva pension. Aviva annual charges are capped at £2,200 for adviser fees, assuming that you opt for a managed portfolio. There are additional fund and platform charges. See Self-Invested Personal Pension (SIPP) then 'Charges'. Other SIPP providers have different charges, but that'll give you a ball park.
2. The default position of advisers is that a transfer is NOT to your benefit. I doubt that any legitimate adviser would advise you to transfer - there is a large increase in risk, as well as the loss of benefits.
3. The pension 'lifeboat' organisation will cover the majority of your pension if anything happens to the pension provider - see www.ppf.co.uk
4. Depending on the value of your pension, any transfer value may fall foul of the 'lifetime allowance' rules (a soft limit of £1,073,100), especially so if you expect to see another 10 years growth in it.
5. Contingent fees ('no transfer, no fee') are no longer allowed. You are very likely to pay an adviser a 3% fee to be told it's not in your interest.

It's a big subject; these 5 points only skim the surface. And pension transfers take time - my DC->SIPP transfer took just under a year in total. The fastest SIPP -> SIPP transfer still took just over 11 weeks.

Ian.

 

[KennyN]

I transferred a DC pension which carried guarantees, so I was in a vaguely similar situation.
1. If the pension transfer value exceeds £30K, you are required to take advice from a qualified adviser. I was generally quoted 3% of pot, possibly plus VAT to cover the transfer advice. Most advisers were not interested due to the cost of indemnity insurance. Aviva cap their adviser charges at £2,200 but will only advice for a transfer to an Aviva pension. Aviva annual charges are capped at £2,200 for adviser fees, assuming that you opt for a managed portfolio. There are additional fund and platform charges. See Self-Invested Personal Pension (SIPP) then 'Charges'. Other SIPP providers have different charges, but that'll give you a ball park.
2. The default position of advisers is that a transfer is NOT to your benefit. I doubt that any legitimate adviser would advise you to transfer - there is a large increase in risk, as well as the loss of benefits.
3. The pension 'lifeboat' organisation will cover the majority of your pension if anything happens to the pension provider - see www.ppf.co.uk
4. Depending on the value of your pension, any transfer value may fall foul of the 'lifetime allowance' rules (a soft limit of £1,073,100), especially so if you expect to see another 10 years growth in it.
5. Contingent fees ('no transfer, no fee') are no longer allowed. You are very likely to pay an adviser a 3% fee to be told it's not in your interest.

It's a big subject; these 5 points only skim the surface. And pension transfers take time - my DC->SIPP transfer took just under a year in total. The fastest SIPP -> SIPP transfer still took just over 11 weeks.

Ian.

Thanks Ian , what you have written seems to mirror what i have picked up through some research or by talking to other employees within the organisation.

1 - It will be more than £30k so an IFA will be required , i am dealing with one who has been able to transfer a few of our guys pots from the companies scheme to another financial institution , the figure of 7% seems to be the average ATM. There is only one employee that he has not been able to help but his circumstance may have been different ??

2 - I understand why this is the case as there have been loads of people caught out with improper / bad advice.

3 - This involves me waiting ten years and hoping all is well when i get to my NRD , i would rather have the money in a safe place ASAP and not have the worry all-be-it at a cost.

4 - Won`t apply in my case.

5 - Only had two conversations with this chap so still in the very early stages, the way it has played out with the others is that he compiles a "case" to move your pot which is then submitted to the company that will be doing the actual process. Once his case is compiled based on my individual circumstances , he will advise if it is worth while going forward to the next stage of the process which is where the fees (his + transfer company) will be calculated and at this point it is up to me if i want to go ahead with the transfer.

I are allowed one "transfer value" per year from the company and that value is only valid for three months , so the process from start to finish has been completed within this timescale for anyone that has already moved theirs.

In an ideal world i would just leave it where it is , however we (the business) are not in an ideal world ATM and more and more employees are trying to get their pension moved elsewhere.

Cheers - K

 

[Big Janner]

Presently making moves regarding the above and am wondering if anyone else has done so and as to what the % fees charged for the service and annual maintenance costs , needing some figures so as to know what to expect and if i am been "fleeced".

Bit of background as to my Pension situation without giving away too much personal information.

Moved to my current employer around 28 years ago , brought my previous employers pension with me and combined it into the FS scheme which closed around 12 years ago and we have been on a DC since.

Long story short , there is rather large hole in the companies FS pension pot due the fact that there is still plenty of people taking an income from it but no one apart from the company paying back into the pot , clearly they have not been topping the pot up ,enough , hence the hole.

Reasons for transferring :

If i check out , the wife gets half my pension , if she checks out the money goes back into the pot and kids get nothing.

If it transfer it now the company retain 19% of my pot , this has been increasing steadily over the last few years based on the increasing size of the "hole".

If i dont transfer it out now and wait until i am 65 (in ten years) how much will their actually be in the pot to draw from if there are not considerable payments made by the company to plug the "hole".

My main thought process is that we make "widgets" and the requirements for said "widgets" has decreased by 90% in the last 20 years and is dropping steadily due to it being old tech so profits have taken a hammering meaning less available ££ going into the pot and this is only going to continue. When you consider the declining demand for the "widgets" / energy costs and raw material costs going crazy then it is going to be a bit of a "tight" few years for all concerned within the business.

Being a "bird in the hand" type of person i would rather know my "pot" is safe(ish) and not spend the next decade hoping it is.

No need to use the funds at present so it will be getting transferred as a lump sum and left.

I am aware that there are only certain IFA`s that are allowed to deal with transferring a FS pension , which i am aware will have an impact in the final cost of the transfer.

Cheers - K

Kenny
Your pension story is almost identical to mine, except for the 'hole'.

I transfered straight out, everything; pension AVC's, the lot in 2014
Took 25% as a lump sum and combined the rest into a simple savings pot with the Pru, who were paying 7% at the time (now 3%)
Got a reliable IFA who still handles all my primary finances.

The plan was; when I fell off the peg, the whole pot would be there for my other half
(With an annuity, she would receive just 50% of my pension)

However, I am now alone, so, the pot is increasing and, when I shuffle off this mortal coil, it goes to the kids, not into the coffers of an insurance company

Don't leave your money with an insurance company annuity, it's lost cash

 

[190]

When I left the company 22 years ago, I transferred out of a blue chip final salary scheme into a SIPP. It was considerably more difficult than it is today. I was strongly advised not to do it but I have no regrets having grown the pot to near £1 million. The only bad news is I will hit the lifetime limit for sure and have to pay tax That was not foreseen but tax rules can change and that's an important lesson to learn.

There were several reasons why I took the money out, one was that my brother lost his pension in the equitable life scandal. For me a major benefit is the difference between pension rights and actually owning the money. Under a final salary scheme you only have pension rights which diminish when you die. With a sipp the money is yours or your estates come what may though it will be subject to tax.
It can be passed on without being liable to inheritance tax if that becomes an issue.

Compulsory advice that you have to pay a percentage for is a real disincentive. I didn't have that but I did need to sign a disclaimer. I would do the same again and get it out into a low cost sipp then take it from there. It's now very easy to change the investment product or move from one sipp provider to another.

 

[Smiley]

I believe that it is now almost impossible to find an IFA to do this work because the collective wisdom is that a FS pension is better than a SIPP. This may be true for the financially illiterate but for some people the benefits of being in control of the funds, being able to pass on the whole pot (free of tax before age 75) to children as well as spouse (vs only spouse at 50%), not having annual inflation increases limited to less than 3% (because of the rules of the FS scheme) are very attractive. It would be better if the financially literate could take a short exam to prove that they understand the risks and how to deal with their finances in order to transfer out - instead of which everything is dumbed down.

 

[KennyN]

I believe that it is now almost impossible to find an IFA to do this work because the collective wisdom is that a FS pension is better than a SIPP.

I contacted a few local IFA`s and none of them were able (or didn`t want) to take me on. The chap i am in talks with ATM has been used by five people i know personally , only one of those was advised at an early stage not to proceed as the transfer wasn`t likely to be authorised, what criteria wasn`t met i dont know as the chap has retired now and he may not have been to keen to divulge and personal info , which is understandable.

K

 

[Smiley]

The IFA will look at a number of factors that may have influenced the no go on one colleague. Examples are 1. what % of total assets does the pension transfer represent - the higher the % the greater the risk to the individual if the investments go wrong, 2. the health of the individual - poor health makes it easier for the IFA to recommend a transfer out.
BTW - do not request a transfer out value (CETV) until you have lined up a IFA because the CETV is only valid for 3 months and the pension administrator is only obliged to provide one CETV pa free of charge. (and it will be reassuringly expensive if you have to pay for it). You will need all of the three months even after you have found the IFA and a suitable receiving scheme / SIPP.

 

[KennyN]

BTW - do not request a transfer out value (CETV) until you have lined up a IFA because the CETV is only valid for 3 months and the pension administrator is only obliged to provide one CETV pa free of charge.

The way it seems to work is , once all the (my) data is compiled then he will advise if it is likely to go ahead at which point i will request my transfer value (or not) and once received it can be passed to the relevant company to process.

The health question was one of the first things asked , not just mine but also the wifes.

K

 

[baxlin]

Apropos nothing, and not particularly helpful in this thread, but I was an IFA principal for nearly 30 years.

I’m really glad I sold my share of the company and retired…

 

[Petrol Pete]

Did mine a few years back for the same reasons , I pop my clogs she gets half , we both die , it simply disappears ...Fruck that , it's my money.

It's quite a big lump by some standards . The whole thing had to go through IFA and was 'underwritten' by a separate company (Grove). There were a LOT of questions , numerous phone interviews and it took six months to complete.

I am happy ( so far) , I guess there are risks but I can log on and see the value of my fund any time I like . I do wish I had not looked when Covid struck as the fund fell like a stone - but not to less than I started with - It recovered well.

I will admit to being a bit dense when it comes to 'money' but the bit about 50% of it disappearing if I die and all of it going if we both die swung it for me.

Recurring charges are as follows.

Fund manager 0.15%
Advice 0.13%
Old mutual wealth (now Quilter) Charges 0.08%

Total of 0.36%

I can't remember the 'one off ' fees , which means they were not high , otherwise I would have remembered !

From what I can gather talking to others wanting to do the same a lot of IFA's are not interested in 'small' pension pots. An acquaintance of mine had real trouble getting someone to handle £67K of his . My IFA hinted that his lower limit was £100K.

Have I done the right thing ? Who knows At the time I did it I was advised to go 'medium' risk and my IFA keeps an eye on it and advises me accordingly. There is a fair bit more in the pot than when I started out so something must be going right .

At this point people who work in finance are screaming at me via their computer screens , telling me what a huge mistake I have made and I should invest in _ _ _ _ _ _ _ _ _ (insert fund name here) . My IFA said 'never try to catch a falling knife' , and If I don't need it , leave it alone . Seems to be working.

Despite Brexit/Covid/Ukraine/Trump etc etc there is still a fair bit more in there than when I took 'control' . It's not for everyone , we all have different circumstances.

Someone once said Astrology was invented to make Financial advisers look like they know what the are doing........

 

[KennyN]

Thanks for the replies , refreshing change to hear of people that have a similar mindset to myself rather than "experts" that advise me to leave it alone as a FS pension is the best thing - ever and i would be mad to move it. Which is something i would agree with in an ideal situation , which mine is not.

Biggest issue for me now , apart from actually being allowed to move it , is do i take the financial "hit" of minus 19% + one off payment + management fees or sit tight and "hope" all is well in a decade , which i doubt.

K

 

[Dryce]

At this point people who work in finance are screaming at me via their computer screens , telling me what a huge mistake I have made and I should invest in _ _ _ _ _ _ _ _ _ (insert fund name here) . My IFA said 'never try to catch a falling knife' , and If I don't need it , leave it alone . Seems to be working.

I believe that it is now almost impossible to find an IFA to do this work because the collective wisdom is that a FS pension is better than a SIPP.

We have had a generation of relatively low inflation which has meant that many who retired on FS schems that were not index linked have done well.

The problem is that if w emove out of that low inflation for any length of tim then in a high inflation environment a non-indexed FS pension can be cut to ribbons.

At the same time we have had a relaxation on the private DC pension pots which no longer ties them to an annuity.

We also probably have more couples with separately accrued pensions.

No easy decisions - and possibly lots of variable circumstances - particularly where you have a couple.

 

[fabes]

Your pension manager should be able to confirm scheme protection.
That shouldn't be your driver here....

FYI, I opted one of my FS to a Personal pension myself a few years ago, but will leave my current FS / CP where it is for lots of reasons.

But do get clarity on your company FS pension protection position asap

 

[MrGreedy]

A good friend of mine did this. He only had 15 years £180k.
Remember, whilst it is law above £30k to take advice (and that advice will be stick with FS because advisors are scared witless about being sued later), it is not law that you have to take that advice.
My friend had lined up all his own SIPP transfer arrangements, and shopped around to take the lowest 'don't move your pension' advice he could find, then moved it anyway and ticked the box that he was ignoring the advice.

It's worth remembering that if you die before the age of 75, and any all of your remaining SIPP pot can be transferred to a family member's pension pot totally tax free. Once you get above age 75, only then relevant taxes apply in the event of your death, but the pot still doesn't disappear like FS and annuity schemes.

I have miniscule hope that the lifetime allowance would be 'restored' in the future back above the £1.6m that it used to be. The government has done a good job lying selling the line that 'anyone with a million quid MUST be rich', whilst failing to point out a 3% annuity on that million quid is only £30 grand a year (I use the annuity here for simplistic comparison purposes). Hardly the sort of money to support being chauffeured round in an S class in between back-to-back international 5 star luxury holidays. Not nothing by any stretch either, but not 'rich'.

 

[Smiley]

Biggest issue for me now , apart from actually being allowed to move it , is do i take the financial "hit" of minus 19% + one off payment + management fees or sit tight and "hope" all is well in a decade , which i doubt.

K

Bear in mind that CETVs have been falling sharply as interest rates are climbing off extreme lows. Taking that into account plus the 19% hit that you would take, assuming 1. that you are in good health (ie no life shortening illness) and 2. the sum involved represents a significant proportion of your total net assets, then I can't see how an IFA (and he would have to find a receiving scheme) is going to be able to advise to transfer in the current climate.
As the cost of providing your future pension is now decreasing (the capital required to fund your future pension is reducing as interest rates rise) then it may be that the "hole" in the FS scheme reduces significantly or even goes away altogether, thus making the scheme safer than you currently think.
You have a valuable asset which is protected by the PPF to a certain extent - pursue the investigation into whether you can transfer it - and if the answer is no then get some financial advice about how best to plan for the future with the FS scheme as a building block. For example (imho) a relatively high risk stocks and shares ISA invested over multiple years would complement a low risk FS salary scheme very well.

 

[Smiley]

I have miniscule hope that the lifetime allowance would be 'restored' in the future back above the £1.6m that it used to be.

It started out at £1.8m. When gilt yields were north of 5%. So about 100k pa income.

 

[KennyN]

Bear in mind that CETVs have been falling sharply as interest rates are climbing off extreme lows. Taking that into account plus the 19% hit that you would take, assuming 1. that you are in good health (ie no life shortening illness) and 2. the sum involved represents a significant proportion of your total net assets, then I can't see how an IFA (and he would have to find a receiving scheme) is going to be able to advise to transfer in the current climate.
As the cost of providing your future pension is now decreasing (the capital required to fund your future pension is reducing as interest rates rise) then it may be that the "hole" in the FS scheme reduces significantly or even goes away altogether, thus making the scheme safer than you currently think.
You have a valuable asset which is protected by the PPF to a certain extent - pursue the investigation into whether you can transfer it - and if the answer is no then get some financial advice about how best to plan for the future with the FS scheme as a building block. For example (imho) a relatively high risk stocks and shares ISA invested over multiple years would complement a low risk FS salary scheme very well.

No life shortening illnesses , AFAIK , however the wife was diagnosed with the big `C` last year but now on the mend after surgery + follow up treatment.

The sum involved , with the 19% reduction, is around 40% of our net assets.

I would have no issues leaving it were it is if things were different regarding the future of the "widget" business and my dependents benefitted fully from the funds if i was no longer there but unfortunately they are not , hence the reason for considering moving it , should i be allowed.

As mentioned previously , the financial `hit` will be tough to swallow initially but for my own piece of mind maybe worth it.

Cheers - K

 

[KennyN]

As the cost of providing your future pension is now decreasing (the capital required to fund your future pension is reducing as interest rates rise) then it may be that the "hole" in the FS scheme reduces significantly or even goes away altogether, thus making the scheme safer than you currently think.

Its a big hole , around £400,000,000 according to some of the literature i have been reading recently, bearing in mind there are still a good few retires drawing from it on a monthly basis its going to take a lot of interest rate rises to plug that void any time soon especially with profits taking a hammering due to massively increased costs in raw materials and utilities plus the drop in product demand any meaningful contributions from the company are going to be at an absolute minimum compounding the deficit problem.

K

 

[Smiley]

I'd be looking at the transfer out option as well for all the reasons you have given, good luck.