The Lemon Fool

Alaric wrote:

CautiousPaul wrote: I'm looking to transfer one of my defined contribution pension pots into a SIPP. As it will be over 30K am I obliged to get an IFA involved ?

It is likely to depend whether the defined contribution scheme had any bells and whistles attached. If it was an off the shelf SIPP or Personal Pension, then not. If it was something concocted by a former employer then possibly. Features that can have a hidden value that you would be required to take advice on would be any guarantees such as rates for conversion of funds to annuity, minimum growth rates for accumulation, or benefits not less than some previous scheme.

Thanks, Alaric. The existing pension is with a former employer and I'm pretty sure there are no extra benefits. I'll double check with the pension company, in any case.

My experience:

I was offered a transfer value of £80 300 for member contributions of just £1320 during the mid 1990s. The DB pension is projected to give £3115 in ten years' time.

I searched high and low for authorised pension transfer advisors. Most were only interested in a bigger 'pot', or insisted in taking it under their wing, and providing on going advice. Grove Pension Solutions, of Orpington, were the cheapest I could find, who would simply provide the mandatory advice, and sign off on the transfer. Their costs are 3% for the first £250k, then 2% for the next £750k, and 1% for any balance, all subject to a minimum of £2950.

I had to disclose income/expenditure and assets/liabilities, and finally had an 'interview'. Their report concluded that I give up my DB pension. Their calculations hinge on two numbers:

Transfer Value Comparator - what the transfer value would need to be, for a personal pension to match the existing scheme benefits, if I did not take any investment risk before retirement date. £97 800.

Critical Yield - annual investment return needed between now and retirement, for a personal pension to match the existing scheme benefits, ie annual return needed to be able to buy an annuity. 4.7%

Do I feel able to achieve 4.7% ? Well based on my performance over the last few decades, yes I do. And even so, the pleasure in getting that pot into my SIPP and outside of my estate is very welcome. The transfer completed last week.

rhys wrote:My experience:

I was offered a transfer value of £80 300 for member contributions of just £1320 during the mid 1990s. The DB pension is projected to give £3115 in ten years' time.

...

Transfer Value Comparator - what the transfer value would need to be, for a personal pension to match the existing scheme benefits, if I did not take any investment risk before retirement date. £97 800.

Critical Yield - annual investment return needed between now and retirement, for a personal pension to match the existing scheme benefits, ie annual return needed to be able to buy an annuity. 4.7%

In my view the whole transfer value disclosure process is inefficient, leading to high charges to those wishing to use a SIPP for various personal reasons. Both the amounts for "Transfer Value Comparator" and "Critical Yield" could have been calculated and disclosed as part of the original transfer value offer. Something they may not have disclosed is what assumptions they made about how annuities would be priced in ten years time. Irrelevant perhaps if there's no intention of buying an annuity, but a necessary part of an assessment of the fairness or generosity of the transfer value.

rhys wrote:My experience ... I searched high and low ... Grove Pension Solutions, of Orpington, were the cheapest I could find, who would simply provide the mandatory advice, and sign off on the transfer ... The transfer completed last week.

Hi rhys, can you remember how long the whole process took? I'm looking to transfer a DB pension of a similar amount into my SIPP.

Thanks.

Fyi I spoke to someone at the govt-linked MoneyHelper (formerly Pensions Advisory Service) about transferring my DB pension into my SIPP who was very, very helpful and provided some much-needed clarity into my particular situation - and I didn't have to wait 45 mins for someone to pick up the phone! Highly recommended.