IFA cost to authorise defined benefit pension transfer

[Dissimilitude]

I'm about to transfer a pension from a small defined benefit pension (approx £1100 a year, from age 60), into my current pot.

The cash transfer value is about £70k, so I legally need to take advice from an IFA.

Can anyone give me a ball park cost for this? I was hoping it would be a quick 15-min chat, a £150 for an hour of their time, and a signature. But now having looked around, I am seeing quotes based on the value of the pot being transferred.

This seems...excessive.

Any IFAs around that could clarify or help, here? Thanks!

This is one of the highest risk areas of advice at the moment. The adviser has to be appropriately qualified with a specific permission from the regulator to to provide this advice. They also need to have adequate Professional Indemnity insurance to cover this advice, which has become phenomenally expensive as insurers have either pulled out of the market or refused to renew terms. All of these overhead factors have driven up the cost of fees to the client.

To satisfy the regulator, there is an extraordinary amount of detail and analysis that an adviser is required to record and consider when reaching their decision about whether or not a transfer is in the best interests of the client. This all has to be replayed in a comprehensive Suitability Report. It has to be watertight as it will be a key document that will be relied upon by both client and adviser in the event that a complaint is ever raised. The last one I did ran to about 50 pages.

The FCA has also prescribed that the fees for DB Transfer advice have to be in line with a firm's standard fees for investments. And VAT would probably be applicable if the outcome of the advice was Do Not Transfer.

So no, it's not just a 15 minute chat and providing a signature. It's a lot of to-ing and fro-ing to gather all the required information from the DB scheme, several in-depth conversations with you about your retirement plans, needs, objectives, hopes and aspirations, attitude to risk, health, worries, understanding of finance and investments, etc. And many more hours of research, analysis and report writing. We are not order takers. We provide carefully considered advice, which the client can either accept or choose to ignore but they have at least had the benefit of all the risks being pointed out to them, which is what the regulator demands.

Some firms will do this at a fixed fee rate. Many will do as a percentage of the transfer value. I think you'd be doing well to find anywhere charging less than £2000.

Thank you for the reply, much appreciated.

Let’s say I understand the trade offs here and am comfortable with them.

Given my employer will do the actual transfer, does this effectively mean there is no way for me to transfer out of this small DB scheme without the gate keeping of an IFA and these fees?

Some schemes will make paid-for advice available to their members, especially if they are trying to encourage them to leave the scheme. Have you asked them about this?

The ceding scheme paperwork will include a page that is a declaration to confirm that regulated advice has been given (regardless of the outcome of that advice). The scheme will not effect the transfer without this. The receiving scheme will most probably also want a confirmation that advice has been received. Some will also not accept the transfer-in unless the advice resulted in a positive recommendation to transfer.

The FCA hates that many people now have the option of a transfer out and they are of the opinion that it is unsuitable for most people. We have to demonstrate, with evidence, why an individual's special circumstances mean that a transfer out is in fact a more suitable outcome than staying put and taking scheme benefits of a guaranteed income for the rest of their life.

Excuse my ignorance but are your figures correct?

How can something worth £1000 a year for, what 40 years max, give you a cash value of £30k more than it has to pay out?

@Sunseed thank you, I've looked over my transfer forms, and it confirms what you're saying. I need the signature and FCA registration number of the IFA I consult etc.

@titchy Figures are correct, it's from the transfer quote of the ceding scheme. It's an index-linked £1100, so it'll be more when I reach retirement age (i.e. it'll be whatever is equivalent to £1100 in today's money). £1000 in 1990 was worth equivalent of £2k now, for example.

The DB pension fund pays a premium to get rid of the open ended liability (i.e. the off chance I live way longer than expected).

I do understand the risk-aversion bias the regulator puts on this, though I still think, in my circumstances, I'm fine to move it. Sticking £71k in a passive diversified fund with negligible fees for the next 25 years is something I'm pretty comfortable with, risk-wise, and there are more options with how to use the money at retirement, obviously.

DB to DC transfers are complex. Not all IFA’s are qualified to provide it, or willing to risk it.

I’ve used and recommended Grove Pension Solutions based in Sevenoaks, as one such company. Expect to pay 3% of the pot size.

In terms of what’s involved.....
Triage meetings (via phone) free. They will assess your situation to see whether or not it’s likely to be appropriate for you.
Proper IFA assessment (chargeable irrespective of whether it’s advised or not) where they will discuss your details in more detail and give you a recommendation.

One thing to bear in mind is that the FCA default position is that it’s not suitable for you. It’s actually made difficult to stop you from doing it. I disagree myself and being a numbers geek, i know when it’s right for me, but i’ve had to pay many thousands to do what i wanted with my wealth. Annoying dot com.

The recommendation will be based on your personal corcumstances...
DB schemes offer benefits other than the monthly amount - death benefits basically.

if you have no kids and no spouse, that will actually help.

Yield, the amount per annum x a multiplier to give you a total transfer value. if it’s less than 30, it’s probably not worth it, some schemes offer up to 45 to get rid of you and to cover the fees involved lol.

I’ve been through the process a few times, if you have any other questions please feel free to ask.

@titchy they sometimes want rid of the liability. Some banks have paid double what it’s likely to be worth. You also have to factor in gilts valuations and how much they have to make with current funds to cover expected liabilities. Some schemes give increased amounts to to cover the fees they know is involved. I’ve seen some schemes offer £20k for a £3k annual entitlement. No IFa would recommend that lol. Stupid.

I think A J Bell do this.

The Pensions talk forum on Money Saving Expert has lots of people asking this question.

I was hoping it would be a quick 15-min chat, a £150 for an hour of their time, and a signature. But now having looked around, I am seeing quotes based on the value of the pot being transferred

You couldn't be further from reality I'm afraid. The liability with transfers remains with the adviser forever - we take it to the grave.

The FCA is incredibly anti transfer and is going after FA's to stop it.

Your bad decision ('oh I didn't realise the money would run out') is our problem and so we have to make sure it's actually sensible. That takes a lot of work and to be honest is often not possible.

Frankly for a £70k transfer I wouldn't bother taking the job. The work involved and liability, the PI increase means it's not worth doing it. It's business poison.

You need to write to your MP. They legislation has put Financial Advisers as the gatekeepers to this activity and now the FCA is trying to bully us to stop. As an adult you are not legally allowed to make this decision, You need us to sign the form, but we are so pressured to not do so that we don't want to do it. The whole system is flawed.

Unfortunately the good guys (of which I would count myself amongst) are so concerned about the consequences of even 'good' transfers that we will no longer do them. Instead of protecting clients, it's throwing them to the sharks.

All that said, for most people transferring is actually a bad idea!

To give you context. If you're worth a couple of million, have a full pension (£1M), a good job, and were my existing client, I'd do it. If you were a walk in I'd tell you £5k min to put you off.

It's a crap situation all round

AJ Bell will take insistent clients too.

As others have said, FCA has loaded the dice in favour of DC schemes. I actually think there’s something underlying this, they are concerned DB schemes will collapse due to exodus if too many people do it.

I’m contemplating launching a campaign against the FCA, as it’s mainly run by financial services and treasury experts. I can’t see where the consumer is represented anywhere. Their rules have cost me almost £20k in fees in the past two years, ‘for my protection’. Mad.

There are pension transfer specialists out there who solely focus on this for you, don’t go via an IFA as they will want a slice, as well as the transfer specialist. I can see some IFA’s are commenting.... Sorry guys, not impressed with your industry, fees or performance.

@Bard6817

AJ Bell will take insistent clients too.

As others have said, FCA has loaded the dice in favour of DC schemes. I actually think there’s something underlying this, they are concerned DB schemes will collapse due to exodus if too many people do it.

I’m contemplating launching a campaign against the FCA, as it’s mainly run by financial services and treasury experts. I can’t see where the consumer is represented anywhere. Their rules have cost me almost £20k in fees in the past two years, ‘for my protection’. Mad.

There are pension transfer specialists out there who solely focus on this for you, don’t go via an IFA as they will want a slice, as well as the transfer specialist. I can see some IFA’s are commenting.... Sorry guys, not impressed with your industry, fees or performance.

S/b Loaded the dice in favour of DB schemes.

Appreciate all the comments here, fully understand IFAs hands are somewhat tied. Frustrating situation and, given that legal adults can get themselves into all sorts of financial mess with barely an effort, it is somewhat odd that I’m to be “protected” against my will at all costs in this particular instance. Such is life!

Thanks again though. Insightful stuff.

@Bard6817 We don't like this any more than you do!

If you wanted to open a gambling account and blow your money, you could. You can't however transfer your pension as it 'might not be good for you'! Madness

Don't worry @Bard6817 I'm not impressed with our industry either. I always feel it's me and my clients against the system. It's a dirty business financial services.

Oh and I think the FCA are trying to ensure only the 'big boys' are left in the market: SJP, Aviva, AJ Bell. That way when the ambulance chasers come, there's money there for them.

The FCA is a law unto itself and feels out of control to me.

... you can tell I feel very frustrated too OP

I am reading this Zombie thread with interest. I'm in a DB scheme that I'm keen to escape from. I totally understand everything said above.... and would flag that I'm a chartered accountant as is my husband.

Surely there comes a time when the CETV (cash equivalent transfer value) is so attractive that it really can't be economic to stay in the scheme unless you envisage living to the ripe old age of 120 years old?

For reference in my case the CETV/current annual entitlement is 57.7x. I'm 54 with a GMP age of 60. The annual entitlement is indexed linked.

It has to be a no brainer right at 57.7x?!

@MidLifeCrisis007 well you’d think so wouldn’t you? The FCA tell us that the value of the transfer is irrelevant. If it’s right, you can do it, but the multiple is not a consideration!

As ‘fair’ or ‘good value’ is part of every transaction on earth, it just sums up the madness.

That said I’ve recently completed a transfer as it made total sense for that individual. That’s rare (as it should be IMO), but it means it can happen.

Also the only good thing about being an accountant in this situation is that I would feel confident you understand the numbers… how that would play with the FCA? I doubt they would note it in an assessment of suitability.

Since this thread was started Aviva has remained in the market (wouldn’t use their in-house investments myself), but Fidelity exited - or had when I last checked. Don’t touch SJP with a shitty stick, they’d rob your Grandma.

FWIW your CETV may be comparing apples and pears or might be near the highest I’ve seen (60 x’s is the most)

Excuse my ignorance but is it possible to do a transfer even if the advice is not to?

Are there any reputable institutions that would take on my SIPP in those circumstances. If so what are the likely fees?

@MidLifeCrisis007

Excuse my ignorance but is it possible to do a transfer even if the advice is not to?

Are there any reputable institutions that would take on my SIPP in those circumstances. If so what are the likely fees?

No = Any transfer value above £30k will require advice.

In the current climate, unless you have significant alternative assets / guaranteed income most IFA's will not authorise the transfer.

There is a witch hunt for previous DB transfers in light of the Steel Workers transfers, so providers, insurers and advisers are all running scared.

@MidLifeCrisis007

Excuse my ignorance but is it possible to do a transfer even if the advice is not to?

Are there any reputable institutions that would take on my SIPP in those circumstances. If so what are the likely fees?

Well in theory I could sign to say you've taken advice, but not that I agree with the transfer and you're then an insistent client. However, why would I sign something that I disagree with? I wouldn't, and the FCA use that exact stance too.

This is why this legislation is flawed. You need us to do the work, but we don't want it.

Try Aviva as noted above. They will do them.

And yet the government think it's ok for us to blow our retirement savings on Lamborghinis should we wish to. So why should the FCA take a different stance?

www.bbc.co.uk/news/uk-politics-26649162

And good luck getting a sensible recommendation if you have a DC per soon with an underpin (GMP or RST). Just a warning to anyone else trying to do this, PAS (Pension Advisory Services) aren’t equipped to properly understand underpins

@Revengeofthepangolins

And good luck getting a sensible recommendation if you have a DC per soon with an underpin (GMP or RST). Just a warning to anyone else trying to do this, PAS (Pension Advisory Services) aren’t equipped to properly understand underpins

GMP's and GAR's are much easier to look for alternative recomendatioons, however, if one does have GMP or GAR's. the questions, is why are they looking to move? A similar level of due dilligence is required when recomending these transfers too

A defined Benefit Scheme is very different scenario

[quote MidLifeCrisis007]And yet the government think it's ok for us to blow our retirement savings on Lamborghinis should we wish to. So why should the FCA take a different stance?

www.bbc.co.uk/news/uk-politics-26649162[/quote]
Because they do. They look at suitability and apparently that gives them the power to dictate how adults spend their own money.