Article on the final salary to drawdown debate

[Lowbankclaret]

This is what I have been told about and a friend of mine has just been charged £16,500 to move from a final salary to a drawdown. His advisor told him his insurance premium was £880,000 per year.
I have just been quoted £8,600 for the same thing.
My worry is if I don’t retire this year, I will have to work till 64/65 to afford to retire on a final salary. Anyway interesting article.

https://www.dailymail.co.uk/money/pensi ... rance.html

[barba]

I stopped giving advice on FS transfers this year predominately due to the cost of PI insurance.

[Lowbankclaret]

I stopped giving advice on FS transfers this year predominately due to the cost of PI insurance.

Please help me understand this more.
Is it the rise in lawyers chasing you guys when people either blow their money or choose bad investment strategies??

[barba]

The rise in personal indemnity (PI) insurance costs is down to providers leaving the market and a rise in complaints to the Financial Ombudsman Service (FOS).

Complaints were ~ 400 between 2011 and 2014 and over 450 between 2015 and 2016. These have increased further when you look at the British Steel debacle.

The Financial Conduct Authority (FCA) have also banned contingent charging, whereby (rogue) advisers only got paid if the transfer went through. You will hardly be surprised that the advice in these circumstances was always to transfer. These will more than likely be referred back to FOS in the future.

You have to start from a position that it is a bad idea and then prove that the transfer is in the clients best interests. The initial and ongoing advice is effectively 'gold plated' as there is a lifetime of liability on the adviser.

The FCA have also tightened the rules around advice not the transfer which now involves going through the advice process, So you still have to charge people to tell them no which obviously goes down great!! They intruduced a "triage" process where you could skirt around the "advice boundary" but that looks likely to go after their next review.

You also can't say "Mr X is single with 2 kids over 23 so wants better death benefits" as the FCA don't see that as a viable reason and would expect them to insure with a traditional policy.

The next regulatory move will look to transfers being forced to be made to other work place pension schemes - auto enrolment for example. Many of these schemes have limited adviser access so there is no control over the future planning of these type of schemes. Yet you have to take all the liability.

In a nutshell its an absolute nightmare to give advice on FS pensions as you are looking at 60-80 hours to determine one way or the other the best course of action. Most clients have already made their mind up for better or worse and perhaps believe the process is simpler than it actually is.

I would expect after the next FCA review that the advice market will die. There are 120 companies in the network i'm a member of and not one now offers pension transfers. There were 70 + advising on this in 2018.

[Lowbankclaret]

The rise in personal indemnity (PI) insurance costs is down to providers leaving the market and a rise in complaints to the Financial Ombudsman Service (FOS).

Complaints were ~ 400 between 2011 and 2014 and over 450 between 2015 and 2016. These have increased further when you look at the British Steel debacle.

The Financial Conduct Authority (FCA) have also banned contingent charging, whereby (rogue) advisers only got paid if the transfer went through. You will hardly be surprised that the advice in these circumstances was always to transfer. These will more than likely be referred back to FOS in the future.

You have to start from a position that it is a bad idea and then prove that the transfer is in the clients best interests. The initial and ongoing advice is effectively 'gold plated' as there is a lifetime of liability on the adviser.

The FCA have also tightened the rules around advice not the transfer which now involves going through the advice process, So you still have to charge people to tell them no which obviously goes down great!! They intruduced a "triage" process where you could skirt around the "advice boundary" but that looks likely to go after their next review.

You also can't say "Mr X is single with 2 kids over 23 so wants better death benefits" as the FCA don't see that as a viable reason and would expect them to insure with a traditional policy.

The next regulatory move will look to transfers being forced to be made to other work place pension schemes - auto enrolment for example. Many of these schemes have limited adviser access so there is no control over the future planning of these type of schemes. Yet you have to take all the liability.

In a nutshell its an absolute nightmare to give advice on FS pensions as you are looking at 60-80 hours to determine one way or the other the best course of action. Most clients have already made their mind up for better or worse and perhaps believe the process is simpler than it actually is.

I would expect after the next FCA review that the advice market will die. There are 120 companies in the network i'm a member of and not one now offers pension transfers. There were 70 + advising on this in 2018.

Thank you for your reply.

I will put my position forward and ask for comments if you would??

I have type two diabetes, hypertension and a heart defect which means one minor heart attack would kill me according the consultant cardiologist who diagnosed me 13 years ago, now I am 55.
I have two final salary pensions.
One would pay me £5000 a year today or around 150-200k . Awaiting quote, be here next week.
The other would pay me £10,000 a year today or around 450-480 depending on bond values when I lock in the transfer value. This would rise to 600-700 if I stayed for another 3 years. The FS payment would then be around £13k a year.

From the drawdown I want £2k a month.

To get to that point on FS I need to work another 7 years, by which time work will probably of killed me anyway.

What do you think??

FDBD3170-ECE4-4F1F-8A25-989ED331AB99.png (234.24 KiB) Viewed 1547 times

[Clarets4me]

Yesterday, I received a Transfer value of £163,321 for my Pensionable Service with a major Bank, my estimated Pension at 60 would be £1,308 pa, and a widow's benefit, assuming I pop off first of £654 pa !

It's a no-brainer for me ! Health isn't great and a family history of heart trouble ...

[Lowbankclaret]

Yesterday, I received a Transfer value of £163,321 for my Pensionable Service with a major Bank, my estimated Pension at 60 would be £1,308 pa, and a widow's benefit, assuming I pop off first of £654 pa !

It's a no-brainer for me ! Health isn't great and a family history of heart trouble ...

Yes but our problem is getting someone to agree to move it.

Currently I have a couple of people who will, however as the article and the poster points out it’s getting more difficult.

By law you have to have an advisor who agrees with you if it’s over £30k.

[barba]

Thank you for your reply.

I will put my position forward and ask for comments if you would??

I have type two diabetes, hypertension and a heart defect which means one minor heart attack would kill me according the consultant cardiologist who diagnosed me 13 years ago, now I am 55.
I have two final salary pensions.
One would pay me £5000 a year today or around 150-200k . Awaiting quote, be here next week.
The other would pay me £10,000 a year today or around 450-480 depending on bond values when I lock in the transfer value. This would rise to 600-700 if I stayed for another 3 years. The FS payment would then be around £13k a year.

From the drawdown I want £2k a month.

To get to that point on FS I need to work another 7 years, by which time work will probably of killed me anyway.

What do you think??

FDBD3170-ECE4-4F1F-8A25-989ED331AB99.png

Health and income "underpin" are significant factors. i.e having more than one FS pension gives greater viability.

Have you looked into the scheme rules about retirement on ill health grounds?

Are you looking at retiring immediately taking the 150k-£200k transfer and leave the other for three years?

Financial dependents are a key and you mentioned "our" so assume you are married.

Risk is a big factor from an advice perspective. We are in a long bull runs at the moment and if markets turn 25-30% could easily be wiped off even a "balanced" investors portfolio.

Also be mindful that Cash Equivalent Transfer Values (CETVs) have a time limit so best to request this when all your ducks are in a row.

re reading your initial post seems that you are put off by price? I would ask if they will do a triage. i.e look at your case without giving advice. In all honesty the price quoted for the work involved and the liability is reasonable.

[Lowbankclaret]

Health and income "underpin" are significant factors. i.e having more than one FS pension gives greater viability.

Have you looked into the scheme rules about retirement on ill health grounds?

Are you looking at retiring immediately taking the 150k-£200k transfer and leave the other for three years?

Financial dependents are a key and you mentioned "our" so assume you are married.

Risk is a big factor from an advice perspective. We are in a long bull runs at the moment and if markets turn 25-30% could easily be wiped off even a "balanced" investors portfolio.

Also be mindful that Cash Equivalent Transfer Values (CETVs) have a time limit so best to request this when all your ducks are in a row.

re reading your initial post seems that you are put off by price? I would ask if they will do a triage. i.e look at your case without giving advice. In all honesty the price quoted for the work involved and the liability is reasonable.

Thank you for replying.

I was on a our Union central negotiation committee for our pension and received a fair amount of training.

I wish I thought I could achieve the ill health criteria, but unfortunately don’t think so.

Not put off by the price, it seems fair in the current climate.

Thoughts are to retire from my current company and move both pensions. Due to the company wanting to downsize hoping I could get a 50k pay off.

Then I think I can get another job on a similar salary for as many years as I need to see when my pot is enough to retire permanently.

I agree it could take a hit as all being going to well for so long.


Thank you for the replies.

[Hipper]

When I got my annuity about six years ago, using the simple calculation of dividing my annual pension into the total pension pot, and remembering I got a quarter as a lump sum, the result was that it would break even when I am about 80 - that's with no ill health considerations.

If I do the same calculation for Lowbankclaret's lowest figures it seems we are talking about living to 90 or 105 (e.g. £5000 into £150,000).

I realise these figures are not accurate for various reasons but as a guide they appear to show the pension industry is anticipating greater increase in longevity then looks reasonable. Is that right?

Is the difficulty that there are so many rogues in the financial advisor sector or is it just the complexity of the products?

[Spike]

Thank you for your reply.

I will put my position forward and ask for comments if you would??

I have type two diabetes, hypertension and a heart defect which means one minor heart attack would kill me according the consultant cardiologist who diagnosed me 13 years ago, now I am 55.
I have two final salary pensions.
One would pay me £5000 a year today or around 150-200k . Awaiting quote, be here next week.
The other would pay me £10,000 a year today or around 450-480 depending on bond values when I lock in the transfer value. This would rise to 600-700 if I stayed for another 3 years. The FS payment would then be around £13k a year.

From the drawdown I want £2k a month.

To get to that point on FS I need to work another 7 years, by which time work will probably of killed me anyway.

What do you think??

FDBD3170-ECE4-4F1F-8A25-989ED331AB99.png

what about some in drawdown and some in Enhanced annuity? Worth getting quotes at least

[Lowbankclaret]

what about some in drawdown and some in Enhanced annuity? Worth getting quotes at least

I am pulling all my information together and will be seeking profession advice for which I have got quotes between £8600 and £16000 for said advice.

Just hope I get a severance offer!!

[barba]

Thoughts are to retire from my current company and move both pensions. Due to the company wanting to downsize hoping I could get a 50k pay off.

Then I think I can get another job on a similar salary for as many years as I need to see when my pot is enough to retire permanently

I can only speak on behalf of my approach largely driven by the (very strict) Network I work under.

They would ultimately ask why?

In terms of why are you moving your pension, shifting all the risk and costs from the employer to yourself for something that you don't need now and may not need for a number of years?

If you do get £50,000 and then a job for say 3-5 years and save / invest your redundancy and some of your income then you are far closer to a risk free retirement.

Its an opinion but ultimately the adviser has to give you the best advice and take all the responsibility.

Part of the advice will depend on the Critical Yield which is how much your pot needs to grow after charges yo match the benefits your scheme would provide. If this is 5% + then you are taking an incredible amount of risk.

I'm trying to display an adviser view and play slightly devil's advocate but arguments like; gilt yields may shift leading to lower transfer values, rules may change in the future would not be deemed sufficient for it.

On paper this would shout potential future complaint and would be surprised if the adviser didn't share the same concerns.

[Lowbankclaret]

I can only speak on behalf of my approach largely driven by the (very strict) Network I work under.

They would ultimately ask why?

In terms of why are you moving your pension, shifting all the risk and costs from the employer to yourself for something that you don't need now and may not need for a number of years?

If you do get £50,000 and then a job for say 3-5 years and save / invest your redundancy and some of your income then you are far closer to a risk free retirement.

Its an opinion but ultimately the adviser has to give you the best advice and take all the responsibility.

Part of the advice will depend on the Critical Yield which is how much your pot needs to grow after charges yo match the benefits your scheme would provide. If this is 5% + then you are taking an incredible amount of risk.

I'm trying to display an adviser view and play slightly devil's advocate but arguments like; gilt yields may shift leading to lower transfer values, rules may change in the future would not be deemed sufficient for it.

On paper this would shout potential future complaint and would be surprised if the adviser didn't share the same concerns.

Thank you.

I think what’s slightly wrong is the person takes no responsibility and the advisors takes it all.

But that’s how it is.

Anyway, I owe you a pint.