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?

There is no longer a single company that will accept a transfer against advice not to.
The only option is to set up your own Stakeholder pension apparently.

@BorgQueen thanks I'll look into that. Is a stakeholder pension different to a SIPP?

@Express0 Are you sure the value will go up? If I put in a retirement date of say 2032 the values stay the same as they are now.

I know I should be grateful but I just don't need the money and I'd rather invest the lump sum for the long term and pass it down to the DCs in inheritance.

The next best thing would be to gift it to DCs as excess income.

There was a thread on Moneysaving expert pension forum about someone supposedly going to set one up to transfer a DB pension but there was never a conclusion.
I don’t know anything about Stakeholders.

Your pension value will stay the same as we don’t know what next years pension increase rate will be.
The CETV factor for your next birthday will result in a higher CETV.

@Express0 thank you. I looked on the local government pension website which said the value will never go down which is a good thing in general.

The lump sum will be useful but not the annual income.

It shows that DB pensions do have their disadvantages. The pension will never beat inflation which a DC pot can if Invested in equities, you can't stop the payments if you don't need the money but also can't increase withdrawals if you do need more income and you can't pass it down to DCs as there is no actual pot.

How did you see the calculation of your transfer value? I've got 3 deferred LGPS pensions but only get sent an annual statement showing what pension is building up. No transfer values shown.

LGPS have a commutation rate of 12x , which is pretty crap.
So a pension of £1000 a year has a cetv of £12k.
If they are worth more than £30k, there is slim to no chance of transferring into a personal pension/ Sipp, it would cost around £5k for advice, which would be Not to transfer in 90% of cases then no companies will accept it.
I transferred mine last year as it was only £10k, Lgps were dog-slow and it took over 6 months to see the cash arrive in my Sipp.

Please ignore this post it is so incorrect!
The 1:12 relates to the commutation of pension to a tax free lump sum. Not a CETV!

@whatisthemime I could download it from the pension portal. Very easy.

Yes it's definitely incorrect. But the maximum tax free lump sum is £6000 which is also not great as the CETV is £30k so lump sum should be higher if it's 25%. Should be around £7500.

It’s 25% of the capital value of the pension. This is a separate calculation and completely different to the CETV calculation.

Try pensionhelp I seem to think that they have an insistent client process now for DB work

Funny how I got exactly 12x my yearly pension amount then from Staffordshire LGPS last year.
In the last 18 months, no company has been willing to transfer against advice.
There are several IFAs on the MSE pensions forum - if anyone should know, it’s them. There is also a Woman who used to work for LGPS, she’s the one who told me how much my transfer value would be before Staffs LGPS did 😉

NHS and government schemes are "unfunded" the are to provide an annuity not a transfer value. I think you are looking at the GAD value for LTA than the transfer value.

A fund of that size wouldn't pass through any reputable firm now and frees would probably set at £7-8k whether you transfer or not

It may have been pure coincidence that it worked out at 12x your pension. I have attached the current GAD factors for calculating a CETV for a woman who has post 2014 benefits with a Normal Pension Age of 67, as you can see the factor is never always 12.
Also the woman you are referring to on MSE ceased administrating the scheme before the regulations changed in 2014 and doesn’t always get things right. Whereas I am currently an administrator of the scheme so I would like to think my knowledge is correct 😉

Fair enough, I was 56 when I transferred.

It’s a moot point anyway, transfers over £30k are pretty much impossible unless you have high guaranteed income elsewhere or are chronically/ terminally ill and want to leave the money to your spouse/children rather than them getting a much smaller dependent’s pension.
There was talk on MSE of setting up your own personal Stakeholder pension as apparently they are the only scheme obliged to take a transfer regardless, nobody has managed it on there so far and it’s one of the most asked questions.

It's worth keeping an eye on potential changes in this area - it's recognised in the industry as a problem for people with pensions around this size, so the requirements might change in future. One example of quite recent coverage is here: www.lcp.com/media-centre/2023/06/david-fairs-calls-for-rethink-of-sticking-plaster-rules-to-allow-more-members-of-db-pension-schemes-to-benefit-from-freedom-and-choice/#:~:text=David%20Fairs%20said%3A%20“The%20current,plasters%20on%20an%20ineffective%20process.

@BorgQueen transfers over £30k are possible as I know people who've done it, one person with a £100,000 pot. He was classed as an insistent client.

In my case an income of £1000pa which will actually be £800pa after tax is pointless. I have more than sufficient income from other sources to cover my expenses and I just don't need the money. It's less than £80 per month!

I'm speaking to an IFA tomorrow. If I can find someone to sign off a transfer for around £1000 to £1500 I'll do it. I know that if I invest £29k in equities it will grow at an average of 6-7%pa and I can leave it to grow until my DCs inherit my SIPP.

@piscesangel thanks for this. I will keep an eye out. I won't access it until 2030 at the earliest so fingers crossed something changes by then.

I know people who've done it

In the past.

It was possible, but has been getting steadily more difficult. Now as an insistent client acting against advice, there are no companies that will take the transfer. A year or so ago there were a couple, but not any more.

And you won't get the advice at that low a price.

I transferred 4 DB schemes and it was about £6k for the advice. They were approved for reasoning similar to yours OP. I would have excess income for my needs and would be paying tax on income I didn't require. Much bigger pot overall than yours though.

One of the things they look at is any other schemes you could transfer to to see if that would be a better option.

The TV will fluctuate. I had one that went beyond the guarantee date as the company were incompetent and they had to revalue when calculating redress. The value had dropped significantly so they had to honour the original plus interest as that was the higher figure.

Some schemes only allow valuations every 3 months or whatever so you may have to wait but it may be worth getting them when you are able to see if the value goes below 30k.

Please read the full thread. I have explained how the CETV is calculated.

@BinturongsSmellOfPopcorn there are companies now that will accept an insistent client, I found some by googling.

I'm confident I won't be advised against transferring as I can easily prove I'll have a reliable income that covers my expenses without needing the £800pa from the DB.

OP, the main factor mentioned in my financial analysis was the excess income, other factors to mention if they apply to you, were the flexibility to retire early or semi retire and being able to pass unused funds on at death (I don't come from a family with longevity).

I used PensionHelp on referral from my own FA and found them very good. You can pay a smaller fee for them to conduct an initial analysis and they will tell you if they feel there is any merit in engaging them to conduct a full analysis. Most people are found unsuitable regardless of whether they choose to proceed or not.

There are NO companies now that will accept an insistent client, not for the last 18 months or so.

The IFAs on MSE would know if there were.

You may well get a yes from an IFA but that’s a gamble with £5k or however much the advice costs you.