DB pension transfer cost

[Amboseli]

I've got a very small local government DB pension worth just over £1kpa with a lump sum of £6k.

The transfer value is just over £30k. I'd like to transfer it to my DC pot.

It seems you have to have expensive regulated financial advice in order to transfer a DB pot over £30k. Mine is £30,800. Could I opt out of advice and transfer either to my workplace L&G scheme or vanguard SIPP?

No, advice is a legal requirement. And they will usually say no. In theory you can still transfer after a no, but there are very few companies that will accept an against-advice transfer.

Why transfer it?

Nothing you can do in DC will get near it for a return. The financial services industry has paid billions in compensation to people inveigled into taking money out of DB schemes. Latest victims are redundant steelworkers.

It's precisely because, for most people, moving money out of a DB scheme is not good that the system requires you to have had clear advice.

I can understand wanting to consolidate your pensions, but in your case I don't think it makes sense. The LGPS is a good scheme and fully index-linked for one thing. But in any case the cost of advice would be too great in relation to the size of your pot, IMO.

@Bromptotoo I want to transfer it as £100pm will not make the slightest difference to my retirement and I have other sources of income which cover all my spending needs. So I would just be paying tax on income I don't need.

I'd rather transfer it to my DC pot where it can grow and I have control over whether and how much I withdraw from it.

@ClematisBlue49 yes that might be the spanner in the works, the cost which is annoying as it's only slightly over £30k.

@BinturongsSmellOfPopcorn I know someone who transferred a £100k pot and he said his reason was he had other investments and didn't need the money and the advisor agreed.

The transfer value figure will likely fluctuate from month to month so worth asking for an updated figure in future as it might dip below £30k, particularly if interest rates increase again.

Alternatively, ask the administrators if you can take a trivial commutation lump sum - you might not be eligible for this if you have larger pension benefits elsewhere.

No it won’t. It will only change on the OPs next birthday or next April, whichever is first.

I know someone who transferred a £100k pot

I did say 'usually'. Of course there are exceptions - and it used to be much more common to get a yes. But the fee is very high whatever they say and it's a huge amount of money to risk on a very slim chance of getting the answer you want.

@Express0 are you saying that because of specific knowledge about LGPS, because transfer value assumptions are usually market related. It would be very unusual to have the same assumptions underlying the calculation and only update the calculation for a change in age. Unless there is some key feature of the LGPS that I don't understand.

Try this: https://www.charles-stanley.co.uk/services/financial-coaching

A free 15 minute call with a financial planner where you can ask the question. They’ll be able to tell you what your options are and whether you need (paid for) advice to move it.

Op, sorry one further thought on my suggestion about trivial commutation - it's possible the scheme uses the same assumptions to calculate trivial commutation lump sums as they do transfer values - so the number will come out the same and my suggestion won't help.

But sometimes (historically much more so) schemes use a simplified approach for calculating trivial commutation lump sums and this might produce a different number.

In answer to your barrow question, if you're looking to transfer and the transfer value is over £30k you will need financial advice.

The money advice service is also a good place to go to for more information.

Sorry just remembered it was rebranded money helper. It's a government run service.

www.moneyhelper.org.uk/en

@Amboseli As a DB licensed adviser I can tell you that opting out of the advice isn't possible where the transfer value is over £30k. The cost of the advice will seem disproportionately high on such a low transfer value.... likely to be at least £3,000 due to the complexity of work involved and time it takes, regardless of the size of the transfer value.

I understand your reasons for seeking to transfer out and there are valid reasons why it may well be in your best interests to do so (I am obliged to point out that for most people it is better to stay in the DB scheme).

In practical terms, keep an eye on the transfer value and as soon as it dips below £30k then consider seizing your chance. Or else bite the bullet and pay for advice now but accept that fees will reduce the value significantly.

Yes I am experienced in the LGPS. It’s a deferred pension so the pension won’t increase until April. The transfer value is based on the pension and the age related transfer factors. So the calculation will not change until either April or if the member goes past a birthday when the factor will change.

@Express0 are the factors not updated for market conditions?

@Sunseed thank you for that tip, I thought the transfer value was fixed and could only go up. Will definitely keep an eye on it.

@Express0 do you know what factors might make the transfer value go down? My birthday is in June so I'll have to wait until April to see if there's a new transfer value?

I can check it online and put in different retirement dates but the figures always come out the same, both the annual amount and the lump sum. So I thought it was just fixed at this level and will rise with inflation.

@Amboseli have you tried checking the figures in a different month? ie logging on in July to check, and again in august?

They were recently updated due to the change in the SCAPE discount rate. The last time the factors were amended was 2019

For anyone sufficiently interested the actuarial guidance and factors for LGPS transfers are all in the public domain here: https://www.lgpsregs.org/schemeregs/actguidance.php

Scroll down to the Transfers section. However it’s all aimed at LGPS administrators so not easy to understand for anyone without a pensions background.

And yes @Express0 is right, unless the factors are updated again by government (very unlikely) the transfer value won’t change until April/birthday.

The older someone is the higher the CETV will be. The pensions increase percentage won’t be as high next April compared to this years 10.1% but it will still be high which will increase your pension and lump sum even more.

@hopeornot I've checked it over a couple of months and it's the same whenever I try.

@ChessieFL do you know what might make the transfer value go down? Is it connected to interest rates?

I'm probably the only person here wanting their pension value to go down!

You could go through a divorce and get a pension sharing order applied but that’s a bit drastic 😂

@Express0 I've heard that suggested where one person is approaching lifetime allowance and the other has a lower amount. Split the bigger one to avoid breaching the allowance. No need now as lifetime allowance scrapped but once labour get in might have to be considered again!

Could I transfer £30k only? ie leave the extra in the pot?

@Amboseli no it’s all or nothing. Can’t leave anything behind.

@Amboseli as it’s a public sector scheme the factors are all based on the SCAPE rate which is reviewed every three years - more info here: https://www.gov.uk/government/publications/public-service-pension-schemes-scape-discount-rate-methodology-a-gad-technical-bulletin/public-service-pension-schemes-scape-discount-rate-methodology-a-gad-technical-bulletin

I don’t really understand the science behind it though so don’t know what would need to happen to make the transfer factors reduce.

Just realised that I said it’s reviewed every three years - that should say every few years.