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Transfer DB to DC pension
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- Lemon Half
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Transfer DB to DC pension
I'm not sure if I've already asked this (sorry if I have)
Is it possible to transfer a DB pension to a DC pension please. My good lady has worked for the local authority for 37 years and we have recently obtained some projections of her income at differing dates of retirement.
Thank you
AiY
Is it possible to transfer a DB pension to a DC pension please. My good lady has worked for the local authority for 37 years and we have recently obtained some projections of her income at differing dates of retirement.
Thank you
AiY
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- Lemon Half
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Re: Transfer DB to DC pension
AsleepInYorkshire wrote:Is it possible to transfer a DB pension to a DC pension please. My good lady has worked for the local authority for 37 years and we have recently obtained some projections of her income at differing dates of retirement.
Maybe. The general answer is "yes", although it usually involves paying large £ amounts to an IFA. E.g. Fidelity charges 1% min £4K max £10K.
However, there are some kinds of "unfunded" public sector pensions where you can't transfer out.
Have a read through the following, it'll give you a good overall summary, and in the meanwhile she needs to ask her pension scheme about what restrictions, if any, they have in regards to transferring out. While she's at it, assuming their reply isn't no way, she should also ask what their rules are about obtaining a cash equivalent transfer value (CETV); most schemes allow you to get one a year for free but charge for any subsequent ones; £200-300 is typical.
https://www.moneyhelper.org.uk/en/pensions-and-retirement/building-your-retirement-pot/transferring-your-defined-benefit-pension
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- Lemon Half
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Re: Transfer DB to DC pension
mc2fool wrote:AsleepInYorkshire wrote:Is it possible to transfer a DB pension to a DC pension please. My good lady has worked for the local authority for 37 years and we have recently obtained some projections of her income at differing dates of retirement.
Maybe. The general answer is "yes", although it usually involves paying large £ amounts to an IFA. E.g. Fidelity charges 1% min £4K max £10K.
However, there are some kinds of "unfunded" public sector pensions where you can't transfer out.
The OP mentions working for the local authority which suggests the DB pension is probably the LGPS which is a funded scheme. Hence if the DB pension is the LGPS she should be able to transfer it out.
The problems though are that if the transfer value is more than £30,000 she will need to get advice. The LGPS is a pretty good scheme so it is quite likely that the advice will be not to transfer - getting that advice will still cost her the same even if the advice is not to transfer.
If the advice is not to transfer then she can ignore this and still go ahead with the transfer after receiving this advice. She would then be regarded as what is known as an insistent client. The next problem which would then arise is that the number of pension providers who are prepared to take on insistent clients has fallen dramatically in recent years. If she already knows who she wants to transfer the pension to then it would be worth checking whether they are prepared to deal with insistent clients before paying money to an adviser. I believe A J Bell are still willing to take insistent clients if she is considering moving the pension to a SIPP.
( This probably won't apply but also bear in mind that for DB pensions the LTA is calculated as 20 x annual pension + any lump sum. The transfer value for a DB pension could well be more than 20 times the annual pension and hence the DC pension would use up more of the LTA limit. In the extreme the transfer value may exceed the LTA limit which could lead to a future LTA charge of 55% on the excess. )
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- Lemon Half
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Re: Transfer DB to DC pension
ursaminortaur wrote:The OP mentions working for the local authority which suggests the DB pension is probably the LGPS which is a funded scheme. Hence if the DB pension is the LGPS she should be able to transfer it out.
The problems though are that if the transfer value is more than £30,000 she will need to get advice. The LGPS is a pretty good scheme so it is quite likely that the advice will be not to transfer - getting that advice will still cost her the same even if the advice is not to transfer.
If the advice is not to transfer then she can ignore this and still go ahead with the transfer after receiving this advice. She would then be regarded as what is known as an insistent client. The next problem which would then arise is that the number of pension providers who are prepared to take on insistent clients has fallen dramatically in recent years. If she already knows who she wants to transfer the pension to then it would be worth checking whether they are prepared to deal with insistent clients before paying money to an adviser. I believe A J Bell are still willing to take insistent clients if she is considering moving the pension to a SIPP.
( This probably won't apply but also bear in mind that for DB pensions the LTA is calculated as 20 x annual pension + any lump sum. The transfer value for a DB pension could well be more than 20 times the annual pension and hence the DC pension would use up more of the LTA limit. In the extreme the transfer value may exceed the LTA limit which could lead to a future LTA charge of 55% on the excess. )
Thank you for the time you have spent on this. Greatly appreciated.
AiY
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- Lemon Quarter
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Re: Transfer DB to DC pension
I understand AJBell have recently reviewed their position WRT insistent client transfers and no longer routinely accept them.
I suspect that the OP may have missed the boat here. It may be that despite having a legal right to transfer DB to DC pension, it could prove impossible these days to find a qualified financial advisor who will take the job on. Or at least take the job on at a reasonable price.
I suspect that the OP may have missed the boat here. It may be that despite having a legal right to transfer DB to DC pension, it could prove impossible these days to find a qualified financial advisor who will take the job on. Or at least take the job on at a reasonable price.
Re: Transfer DB to DC pension
The AJBell position does indeed seem to have changed. their website currently states (my bold)
"Do you accept final salary pension transfers?
Yes, we do. As final salary or 'defined benefit' pensions pay a guaranteed income, you may want to seek financial advice first to check whether transferring it is right for you.
To transfer a final salary pension scheme, or a scheme that includes safeguarded benefits (see below) worth at least £30,000, a suitably qualified financial adviser must recommend that the transfer is in your interests."
"Do you accept final salary pension transfers?
Yes, we do. As final salary or 'defined benefit' pensions pay a guaranteed income, you may want to seek financial advice first to check whether transferring it is right for you.
To transfer a final salary pension scheme, or a scheme that includes safeguarded benefits (see below) worth at least £30,000, a suitably qualified financial adviser must recommend that the transfer is in your interests."
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- Lemon Quarter
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Re: Transfer DB to DC pension
PhaseThree wrote:The AJBell position does indeed seem to have changed. their website currently states (my bold)
"Do you accept final salary pension transfers?
Yes, we do. As final salary or 'defined benefit' pensions pay a guaranteed income, you may want to seek financial advice first to check whether transferring it is right for you.
To transfer a final salary pension scheme, or a scheme that includes safeguarded benefits (see below) worth at least £30,000, a suitably qualified financial adviser must recommend that the transfer is in your interests."
Indeed. As the last of the major retail platforms taking on insistent client transfers, I guess they were taking in a lot of that business. The risk of being tied up in future mis-selling claims got too high, I imagine. I think it's almost inevitable that the next big financial scandal will be related to DB > DC pension transfers.
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- Lemon Half
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Re: Transfer DB to DC pension
BullDog wrote:[I think it's almost inevitable that the next big financial scandal will be related to DB > DC pension transfers.
We'already had that one, back in the 1990s. It was fueled by the DB schemes being mean with their transfer values and DC illiustrations being allowed or even mandated which bore little resemblence to reality. It cost organisations with large sales teams a lot of money in compensation.
A possible scandal, indeed it's already here in a small way, is the lack pf restrictions, compared to ISAs, to where pension money can be invested.
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- Lemon Slice
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Re: Transfer DB to DC pension
Why would you, or your wife, want to transfer her final-salary pension entitlement, with 37 years of contributions, to a DC arrangement? Is there something about a tax-free lump sum, and a guaranteed income, with inflation proofed annual increases, that you don't like?
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- Lemon Half
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Re: Transfer DB to DC pension
Avantegarde wrote:Why would you, or your wife, want to transfer her final-salary pension entitlement, with 37 years of contributions, to a DC arrangement? Is there something about a tax-free lump sum, and a guaranteed income, with inflation proofed annual increases, that you don't like?
AiY can speak for their own circumstances, but don't need it and prefer wealth to income and/or poor health and short life expectancy and/or leaving it to your beneficiaries are the most common reasons, and the ones most likely to solicit a thumbs up from an IFA. You are right though that it's not something to consider lightly.
P.S. You get the tax free lump sum from a DC scheme too; you don't lose that by transferring DB->DC.
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- Lemon Half
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Re: Transfer DB to DC pension
Avantegarde wrote:Why would you, or your wife, want to transfer her final-salary pension entitlement, with 37 years of contributions, to a DC arrangement? Is there something about a tax-free lump sum, and a guaranteed income, with inflation proofed annual increases, that you don't like?
It depends on the size of the lump sum and the guaranteed income, compared to the transfer value and what it could be put to use to deliver.
If you had a £100k lump sum and £20k income DC would you swap it for £250k transfer value? What about an offer of £2,500,000?
I can easily see how those two offers would be considered differently. So whilst a "tax-free lump sum, and a guaranteed income, with inflation proofed annual increases" has lots to like, there are scenarios where you might like an alternative even more.
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