DB Pension Transfer

Ok. It is padded cell so I thought could be worth a shot. Has anybody done a Defined Benefit Pension Transfer in the UK. I worked for Midland Bank in the Eighties and very surprised to find a nice cash transfer available. Much more than the Pension. However these days it is apparently massively difficult to find an IFA to take on the case because the onus of burden lies with them so most have ducked out. The handful that still do have to take indemnity insurance and hence want to charge you the client massive sums to take it on. Interested to hear if anyone else has been through this and can recommend one

Are you thinking of transferring it out of a bank pension scheme?

May I ask why?

I’m only being nosey as I’m researching pension options at the moment myself.

Because the transfer value is huge. Frankly they want people out of their schemes so offer much higher values than you get if you take their Pension. Which for me is quite small. I also have my own DC pension so makes much more sense to combine in a SIPP which can grow

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I used a firm called Coast2Coast (Andrew Dawson) in Truro back in 2016. He handled my cashing in of a very small DB from my time at Fords back in late 70s. Had to jump through hoops, took best part of 4 months and cost me £2k in fees, but ended up with £25k after tax in exchange for a flat £35 pw pension (non indexed linked, payable from age 65). Despite this representing a very small fraction of my net pension income, it was like pulling teeth - the whole structure is designed to deter you from giving up a DB pension.

Well worth doing, as the transfer value of a pot worth £100 in 1980 was amazing! I would have needed to live beyond the age of 85 to profit by drawing the pension, and that’s without factoring in effect of 25 years of inflation. It was a total no brainer for me, but I was playing with what was essentially free money.

2k in fees!. First company I spoke to want 12.5k to start with and then lock me into ongoing Financial Support whether you want it or not of course at a percentage cost of the overall pot so high cost every Year for life so they can make their profit. Problem is I don’t this this is unusual now

When I was advising on pension transfers, my employers would not accept them, as there was no guarantee the resulting pension would in anyway be higher.

A very conservative approach and one I bought into .

A defined contribution into defined contribution is fairly easy - *unless there are guaranteed annuity rates ** in which case we also advised not to transfer.

In general, you are worse off if you transfer from a DB scheme. Transfers out are liable to tax and you lose an index linked pension for life. There is a lot on line to read so you can ensure this really is what you want to do. Be very cautious.

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I have done just that June 2020. Fees were 3% of the transfer value capped at £15k. Even though it cost me £15k, I’ve made 4 times that in growth since June so it has been great for me. I expect things will get better whilst we recover from Covid too. Of course I have given up the guaranteed income, but I am more then comfortable with my decision.

You are right that the IFA has a big burden to carry and needs insurance which is why the fees are so high.

That’s a bit of a generalisation and whilst you do lose an index linked income for life it is not always a bad idea. In my case if I achieve pension growth of inflation plus a small %age the growth will equal the annual pension I would have received and I’ll never need to touch the capital. The OP may be in a similar position, although the IFA will advise on that.

I’m not sure what you mean about tax liabilities. You can still take 25% tax free either as a lump sum or income; there are no other tax liabilities that I am aware of that don’t apply to a DB pension.

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Yes. Same boat as you @WeekendWarrior. I know the default position is not to come out of DB but depends on individual circumstances. I don’t have a spouse so the benefit loss is not too big a deal but the combined pot in my own SIPP offers good returns. It seems very unfair that the FCA put the burden onto the IFA they have to cover themselves in case they get sued. It should lie with the client. After all they give you advice it is up to to make the final decision. If you chose to run your pension pot out tough luck

If course the responsibility should lie with the IFA. Most people are in no position to make sound judgements on these things and the lure of hundreds of thousands now can easily sway minds. Without these controls many IFAs may well not act entirely in the clients’ own interests. It has been known.

I have 2 DB Pensions.

I thought long and hard about what to do. Our IFA told us there are very few scenarios where you should transfer out. Be wary,… be very wary.

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If the DB pension is only small compared to your other pension why worry about it.
Plus, why put all your eggs in one basket.

I spent a few evenings about 6 months ago, trying to determine my best options with regards to my pensions. Three or four spreadsheets later I came to the conclusion that my best option financially is to not cash in any of my pension funds and be worth quite few bob when I die. :crazy_face:

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As with most things financial, it comes down to age, plans, risks and benefits. What do you wish to achieve?

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Why would you be locked in to having financial support? Advice on the transfer should be separate from ongoing arrangements.

Of course, if you don’t want to make ongoing financial decisions then someone will need to be rewarded for advice.

I wish to achieve an NDX-2 and Titan 606😂

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No reason why you can’t seek out a combined DC pot with one provider, just don’t move any DB or DC with guaranteed annuity rates. One key thing is fund charges , with the Supermarket Sweep approach of many providers , charges is a simple identifiable aspect of the pot.

The best bit of advice I ever gave ( and I expected to get " rebuked " for it was, “You have a really obscure set of annuity options and they substantially favour married beneficiaries you may well be better off getting married” This was to someone about ten years older than myself who had a seriously long term relationship

I referred it up the line to be told “spot on”

The official FCA line is that most people are better off keeping their DB pensions. That also has to be the starting point for the IFA. Whether this is the FCA being over cautious is a whole different discussion.

There then has to be some very good reasons why the IFA could and would recommend a transfer, i.e. if what you need and your objectives can only be reasonably met by the transfer. A very large TV to DB income multiple coupled with the very keen desire to retire earlier than the nrd of the DB scheme, on a significantly higher income and covering any substantial costs at retirement, ideally too with only modest levels of drawdown may be a good starting point.

That said, there is a huge amount of work involved in DB tfr advice to cover all aspects carefully and suitably and it’s no surprise if you feel the fees may appear steep. Further, the IFA is obliged to charge you, no matter the outcome of their advice, i.e. to stick or twist.

Most IFA’s will not be interested in a one hit transaction, they will be very keen to assist you on an ongoing basis, as that way they can keep you ‘on the straight and narrow’, as it were, at the same time protecting their own interests (as you say DB advice carries risks for the IFA) and thereby prevent any best laid plans veering of course. Most will decline to take you on if you insist only on taking advice in respect of the DB pension too.

I strongly advise you to take them up on their offer of ongoing service, at least to begin with. You can always opt out later if you wish, however I believe they will generally prove their worth, particularly during drawdown years. Plus, if you don’t get on, you can always move to another IFA.

They do need to demonstrate they are giving you holistic advice, that is as far as practicable advising you to consider all your financial needs. That is not the IFA being salesy, that is the IFA working in your interests and to FCA standards.

In noting the HSBC scheme, I have seen a growing number of TV’s with significant income multiples over the last few years, particularly from the banks and I would not be surprised if yours is 40 or 50x. Before legislated pension flexibility was brought in from 2015, a DB transfer was a very bad idea 99.9% of the time imo. Since then, well it’s absolutely the right thing for some and can be a life changing event for the better.

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I just remember getting pretty pissed off with being lectured to by sanctimonious self-professed financial ‘experts’. It really does only take moderate levels of intelligence and experience of life to be able to do the research make a balanced judgement. I wanted to liquidate an asset, release some cash to splurge. I knew exactly what I was giving up, and that I could easily afford that loss, with not one iota of effect on my future standard of living. I really resented having to justify my wishes and persuade an IFA (the breed of which I have very little time for - bloody parasites, most of them) that I knew what I was doing! Nanny State at its worst.

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I agree. My DB pension has such a small transfer value it is not worth moving however.