I assume you know what a Final Salary or Defined Benefit pension is. Perhaps you are reading this because you have been given a transfer amount and you would like to know what this means to you.
A big pot of money under your own control may seem a lot more appealing than a known pension amount every year, whether that be big or small.
Why are figures so high?
Clients are currently seeing transfer values that are perhaps 30 or 40 times the equivalent pension on retirement and at first glance this may seem appealing to take.
Firstly lets briefly look at why the transfer values are so high, well the biggest reason is that interest rates are so low, which means gilt yields are very low and therefore annuity rates are low, this means the pension requires more money to pay the equivalent pension income in retirement. Interest rates go up and the transfer value will start to decrease.
I want to transfer, my mind is made up.
Here is where advice comes in, defined benefit transfers are complicated beasts, personally it took me 6 yrs of experience and 17 exams to be able to qualify to advise on defined benefit pension transfers. The exams are at a Chartership level, it was VERY hard…
The FCA, although they are consulting on this as I write, say that the starting point for any advice is not to transfer. Of the many that come through the door at Arthur Browns, there are many that are advised not to do it. Now the business model in financial advice is to get paid once you do the work, so if we are turning people away then we are losing business and not getting paid.
Its not just the ones that dont complete, we then have Public Indemnity Insurance, often the excess is around £15,000 and as soon as the PI insurer hears about Final salary transfers they up the premiums, significantly… I have to say in all the years I have had PI insurance I have never had to claim but thats another story….. We need it, its the law.. The British Steel debacle at the moment has led the FCA to ask all advisers with permissions to advise on transfers to report to them about how they are conducting their business and one of the big issues is where the money from a transfer is going, is that new pension or investment appropriate?
Then there is the reports, these are very extensive and labour intensive but they are part and parcel of a transfer and believe me if I didnt have to do them I wouldnt a few days every week report writing is not my idea of fun but they are integral to the advice and can determine once and for all whether a transfer is appropriate and they help clients understand what benefits they are giving up. There are many clients who come to me determined to transfer but once they see my analysis they take a step back and will often decide perhaps to stay put.
This may go someway in to helping you understand the costs that are involved in actually doing the work itself. Its not cheap. Many advisors charge from £3,000 and above as a minimum. I like to say we are flexible and every case is assessed on its merits, so get in touch and we can have an initial chat.
In order to assess each situation then we will need to discuss some of the following things;
• Future Plans
• Personal/Family situation
• Any dependants
• Debts and assets
• Future income requirements
As each situation is so different its impossible to pigeon hole people/clients in to certain groups. That being said there is often a client who knows they want to transfer doesn’t have a huge amount in the pot but it’s over £30k and is reluctant to pay for the advice as they don’t feel they need it. I understand the frustrations here and all I can say is lets chat and we can always come up with a suitable solution.