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Why You Should NOT Transfer Your Final Salary Pension!
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- เผยแพร่เมื่อ 31 ก.ค. 2024
- Are you considering transferring your final salary or defined benefit pension plan? As expert financial advisers, we're often asked about the reasons why you should not transfer your final salary pension. However, the reality is that the majority of people are actually better off staying within their defined benefit final salary scheme.
In this video, Dominic James Murray, CEO & founder of Cameron James dives deep into the topic of pension transfers and why, in most cases, it's best to stick to your defined benefit plan.
🔥 Don't miss out on the ultimate guide to protecting your pension! Discover the truth behind pension transfers and gain valuable insights that could save you from making costly mistakes.
💡 Hidden risks of transferring your pension to a self-invested personal pension (SIPP) and sheds light on the benefits of staying within your defined benefit scheme.
💡Explores the role of the Pension Protection Fund and how it can provide a safety net for those with defined benefit plans. And also provides guidance on how to check the funding level of your scheme and ensure its stability.
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Video Timestamp:
00:00 - Intro
00:46 - The Reason Why You Should Not Transfer Your Final Salary Pension
02:33 - Aside from the Pension Transfer, You Have Other Options
03:13 - Considering Life Insurance
03:34 - Why You Should Not Take Your PCLS 25%
04:49 - Why You Should Consider Your Risk Profile
06:19 - Considering Time And Efforts
07:35 - Retain Client
08:28 - Outro
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References and Helpful Links:
www.cjfinance.co.uk/services/...
Learn more about the DB Pension Transfer:
www.cjfinance.co.uk/services/...
Learn more about our cost:
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Key Points In This Video:
Why you should not transfer your final salary pension
❌No Investment Risk
❌Guarantee Pension Pot Growing (RPI,CPI)
❌No Investment Decision for The Rest of Your Life
Things you should consider when transferring your final salary pension
✅Life Insurance
✅Risk Profile
✅PCLS
✅Time and Efforts
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Well said 👏🏼
Thank you!
Very informative. Thank you for doing the video from somebody who has an Electricity Supply Industry Final Salary DB pension. 👍🏼👍🏼👍🏼
You are most very welcome, would you say that the video and points resonate with you? Are you considering to maintain your final salary scheme?
Given uncertainty I’m more than likely going to keep my DB scheme 👍🏼
How have things progressed for you since we last spoke? With gilt rates, not changing much o er the course of the past one year, I am assuming your opinion remains around the same place?
Just to caveat, I do not mean to imply that gilt rates are the only factor that clients consider, but in my experience it is 90% of what clients talk about haha.
Exactly!
Thanks for your feedback! Guessing you considered transferring your final salary scheme before, and came to the conclusion that it was not the best option for you?
What advice or tips would you give to other people doing their research ?
Hi. I have been watching your channel for sometime now. As I was very interested in transferring my db pension into one account. However I have changed my mind somewhat due to the reasons you outlined.plus…
1. Cetv values have been destroyed by government incompetence and world event. Negating any advantage a Transfer may have had pre 2022.
2. The draw down funds are generally poor performers, due to the advisers putting client on low risk portfolios over laden with bond allocation. ( I think personally that this is the next big scandal in the industry waiting to break.)
3. The fees taken out say 2% render the modest gains or losses even less attractive.
I am sticking with DB pension, and would recommend anyone else do the same under current circumstances.
Thx
Hi Stu
Thank you very much for your comments.
Yes, CETV's have fallen heavily due to rising interest rates, triggered by inflation. I would counter slightly that government incompetence and world events also caused the GFC and subsequent stagnant economies which led to record low interest rates, and thus record high CETV's, so to blame the government just for low CETV's whilst not also stating that they helped cause high ones, is a tad unfair. Interest rates have been ridiculously low for over a decade, and rates now are still lower than long term average, so CETV's are essentially back to where they have been on average long term.
By drawdown funds, I presume you mean the portfolio within a SIPP/other DC pension. Again, markets are typically rising, and those advised to transfer are usually at least a balanced investor, but normally much higher, so should have been 65 and 100% of their portfolio invested in equities. Even if utilising expensive and underperforming active funds, you would still expect the average long term returns to be at least 6%, if not higher. But yes, advisers, due to pressure from a misinformed regulator which conflates volatility with risk, typically don't push their clients into higher equity allocations as much as they should, but at Cameron James we do, and help educate clients on how the best way to build long term sustainable growth is to invest in as much equity as you can stomach.
Yes, fees have a big impact, which is why utilising "proper" financial advisers/planners like Cameron James, who do lifestyle financial planning, focussing on planning out all your goals and aspirations, and building cash flow models to help formulate and bring that plan to life, is so important. Most advisers are glorified investment managers, and all you are doing is paying them for a once a year catch-up to talk about markets and the privilege of an expensive, over actively invested, portfolio, which doesn't justify the fees charged, as far as we are concerned. On the other hand, use a real financial adviser who does proper lifestyle cash flow planning with you, and the ongoing fees, as our clients will attest, look like an absolute bargain.
But yes, with CETV's where they are, unless you have an express need to transfer i.e. ill health or financial difficulty, then transferring with current valuations is unlikely to be the suitable option, and if you do have good reasons to transfer, than waiting for something in the economy to "break" and yields to fall is likely a sensible strategy, and something we encourage. As ultimately, if you don't need to do it now, why do it, especially when the valuation is the lowest in over a decade?
Some great advice but a managed ISA or Pension at Vanguard only charges 0.3% management fee, capped at £380 ... it's a lot cheaper!
Hello
Thank you for your comment.
Yes, self invest SIPPS can be cheaper than advised SIPPS, but DB Transfers to self invest SIPPS all but never happen these days, so that is why we reference advised SIPPS when discussing DB's.
Also have to take into account that should a client want to transfer, against the advice, there are zero self invest pensions, like Vanguard, that would accept them.
So you are completely right, but we just want to tailor anything we put out there to the specific realities of the advice process at that point in time.
Clearly you didn’t understand the message
@@neilcook1652 or maybe you didn't understand my point.
Hi. I have a pension from the USS which is a defined benefit scheme. I have accumulated a total of £12,000 in my pension pot, which will provide me with an annual income of £1,030 when I retire. I left the USS after switching jobs. I am unsure if I should keep my USS pension, transfer it to my current pension provider L&G, or move it to a SIPP with Vanguard. Can you advise me on what would be the best option?
Thanks for your message.
Without completing a thorough analysis, we cannot provide any advice :)
You can drop me and email directly on dominic.murray@cjfiance.co.uk with your situation and details, and happy to have a look over for you.
An additional question is: who has a ‘live’ DB pension these days? Most of them have been closed down some years ago with the scheme moving to DC. If you have one of those DB ‘hen’s teeth’ still active in the private sector then there’s probably no way it’d be worth transferring. However if not……..might be more likely to consider…?
That’s a very good question! We see fewer and fewer active defined benefit members. Active is the definitive term for someone inside an existing DB scheme, and deferred is the opposite.
One of the funny things of DB pension transfer advice, is that a client (member) typically cannot obtain pension transfer advice on an active DB scheme. As with an active scheme, they will only be able to obtain a nonguaranteed cash equivalent transfer value. Basically, an estimation of what the scheme would pay them as a CETV.
As such, the member must first opt out of their DB scheme, before they can be provided with a guaranteed CETV. As without a guaranteed CETV, a pension transfer specialist, cannot complete their full analysis of whether it is in the clients best interest to maintain or transfer their DB assets.
You would be surprised, the number of clients to come through to us, (rightly or wrongly) and say I have just opted out of my defined benefit scheme, and I would like to have authorised and regulated pension transfer advice through the pension transfer specialist that we will introduce them to.
One example, again not necessarily correct or incorrect, is clients who simply say, I am currently 55 or 60, I wish to live the next 10 years with a higher quality retirement, taking more annual holidays, retiring early, and spending more time with my family, children, grandchildren while I still have life and energy in me. As many of them, have worked ‘like a slave’ for the past 25-30 years and no longer value work over their family.
As such, they wish to consider, giving up their defined benefit asset, in order to be able to have flexible access income from age 55 inside an SIPP. As unfortunately, or fortunately, for some clients, the majority of their wealth is maintained inside their defined benefit scheme. So while they may be long term ‘rich’ on paperwork, they are actually unable to meet their short-term needs goals and retirement objectives.
What is your current situation? Are you currently inside a defined benefit scheme?
@@cameronjamespensiontransfer That’s very interesting……..yet another ‘information barrier’ it seems! Personally, I’m all transferred - done. Circumstances were right for me. I still watch your channel Dominic because I find it all very interesting and you do a great job in explaining how it all works (or doesn’t work!)…..
@@steveaxham most welcome and appreciate the feedback. How are you settling in within your SIPP? Are you a balanced investor c.60-65% equity weighting? Or taking on less or more risk?
Very good advice,it’s not for everyone and with the drop in values and performance of many DC schemes since covid,better returns can be gained from bank savings accounts. I deposited £10K in April gained tax relief of 2,500 fund has dropped £2K
DB schemes added to state pension for many give a comfy starting position that any DC contribution can be the cherry on top
Absolutely. For many there is simply no need to take the risk of moving their DB scheme. That guaranteed income, along with their state pension (which is currently tripled locked) mean that many people have a very secure financial future without needing to take risk!
What would you say where are your top three reasons for maintaining your scheme?
@@cameronjamespensiontransfer guaranteed income with a degree of increase V inflation each year plus the lump sum. DC schemes have seen falls in value the last 18 months taking my DB as a CETV would have been all My eggs in one basket as we say
@@guyr7351 yeah it’s correct. It is a huge and unnecessary risk for many people to take. Many people to contact us, complaining about the level of legislation in place, but I genuinely believe it protects thousands of people per week for making a very big mistake.
Over the long term, equity markets, and thus a SIPP with low costs and 60% plus equity weighting, has good potential to outperform a defined benefit pension over the medium to long-term, but there are absolutely no guarantees!
@@cameronjamespensiontransfer exactly, and as I am 63 there is little time for any investment to grow, in the current climate I could have moved money into. DC scheme and see it drop a good bit in value just at the wrong time. Also my multiple for the CETV was low only 15-17 times the annual DB pension.
I am 55 in 4 months and still considering it, despite the reasons you so clearly explain in the video. I had a CETV two years ago that was 27x the annual pension and would, even at modest rates of growth, allow my wife and i enough money to help our kids a little with house deposits etc and still be OK in terms of our expenditure. i am currently trying to understand the mechanism of growth ( RPI, CPI etc) for the pension before I start drawing on it. If the pot is currently growing at 10% pa it would be insane to transfer it now., particularly with the likely reduction in CETV multiplier. One question I have: if pension funds are having to fund these 10% inflation increases, would that not mean they would be more keen to get rid of the pension and offer a reasonable CETV? Hope that make sense? Thanks
Hi John
Thank you for your comment and your questions. Correct, if your CETV was c.27x two years ago, it is very likely closer to 20x now, if not less, reflecting the impact of long term gilts going from c.1% to over 4.5%! One thing you should request from your Scheme is a retirement quote/projection, and ask for a breakdown of the different tranches making up that payment, and how they will grow in retirement (some will likely be fixed, whilst others are tied to CPI/RPI, likely with some form of cap, usually 3 or 5%). If you are 55, it is very likely that at 55 you will be 5 or 10 years before the Normal retirement age of the scheme (NRA), so your income will be reduced to account for those extra years of payment expected.
Just to give some reference, but there is no "pot." Your pension is purely prescribed based on your salary and accrual rate. The growth of your Schemes assets will have zero impact on your DB income. It is this income that is growing, although uncapped inflation growth is very unlikely, unless you have some form of government pension, like the LGPS.
In regard to CETV's, the anticipated levels of future inflation are all modelled and taken account of when they generate that CETV figure. And whilst inflation is double digits now, even if it's rather persistent, it's very likely to fall down to 5-6% by the end of the year, and be lower than that going forward, even if it does take a long time to get back down to the 2% target. Of course, if a big recession comes in the next 18 months, then those inflation figures will likely fall much faster. So, if inflation is high, and they expect it to be elevated, then the CETV values will be higher than if inflation is lower, all else remaining the same.
It really goes to show just how impactful interest rates are on CETV's, that despite the top line i.e. the amount of money they expect to have to pay you, increasing by so much, CETV's have still fallen c.40-50%. If inflation was at "normal" levels, those drops probably would have been 5-10% worse!
Even if it is very unlikely a transfer makes little sense anytime soon, if ever, it is still certainly worth having a chat with one of our advisers (you can book in on our website), and they can answer any questions you may have, and hopefully remove some of the fog that sounds DB Schemes and the information provided by Schemes to their members.
@@cameronjamespensiontransfer fog is probably a perfect description of DB schemes. My experience is that you either get a load of info saying in various ways what the cost of the scheme is, how much it’s underfunded and effectively don’t be worried as the company has a plan in place over x number of years to cover it.
The illustration is always pretty clear, number of qualifying years, salary when exited company, value if pension is taken at 100%, 25% tax free sum and reduced pension. And a line that tax free can be lower than 25% and the pension will be different.
It may be buried in there about how money is invested to try and cover the scheme but they might as well say “don’t worry about it, we’ll sort it out you will still get what we say”
The one thing I will be doing is taking the 25% tax free, that will be invested and used as and when.
@@cameronjamespensiontransfer thanks, appreciate the comments. I have contacted the Pension provider today and have a ( slightly) better understanding of the mechanisms for growth ( CPI, 5% ca0, 2,5% cap). The word fog is a perfect description. It seems to me the whole process is unnecessarily complicated with the specific purpose to ensure the average punter is not fully up to speed with it. I guess this is where you guys come in! I am no clearer about what I want to do, probably be in touch in a few months. Cheers!
@@guyr7351 Yes, and it's good that many schemes do that but, again, it's almost information overload, and doesn't really focus on what you, as a member, really care about, which is how much will they pay you when you start taking it, and how much will it likely increase each year. All the other scheme information ultimately has little use for a scheme member, and is only really useful for looking at a transfer, which most people won't/shouldn't do anyway.
@@johnherold830 It's one of those. The Scheme has to supply certain information by law, but there is lots of useful information which members only really care about that they don't supply, whilst they supply lots of information that is of little use to the vast majority of members. The whole process is indeed complicated, but that is because they are complicated schemes, and the decision to transfer is an incredibly consequential one, for which most people shouldn't make.
The thing i have always thought is that if the Regulator thinks DB Pensions are so called “Gold Plated” and makes it virtually impossible to transfer out (even after paying nearly £20k) then why did they allow companies to freeze them and close them down? Mine is a so called “Final salary scheme” but yet was frozen in 2014. My salary has increased markedly in the last 10 years and yet i am expected now to live on a pension that is 25% of my actual final salary!
When you say paying nearly £20K, I am assuming the outcome of your report was ‘negative’ and so you were not allowed to transfer by the IFA?
Did you not ask your IFA in advance if they would be able to proceed with your transfer if the outcome was negative?
Did they not allow you to proceed with the £20K advice and complete a transfer as an insistent client?
Did they even mention what an insistent client is and what you options with them were or weren’t?
Hi, thanks for replying.
I haven’t got that far as four different IFAs have said they cannot help after paying some the initial fees to build a plan. None of them would entertain an insistent client. They were willing to go to a PTS but £20k is a lot of money to be rejected. I started looking at transfers about five years ago but was advised to wait till i was 55, which is now. The last CETV was down 50% over that period!
@JB33-ji3uu You are most welcome. I understand your concern.
Each IFA firm is different. The majority of IFA firms do not have the relevant insurance for you to proceed as an insistent client. At Cameron James we are one of the few IFA firms that can assist a client in completing a DB pension transfer, if the advice from the authorised and regulated PTS is to retain the DB asset. This is one a case by case basis though.
Being an insistent client is part of the FCA framework. You can quickly Google it.
Happy to have a chat with you by email and you can share any more information or ask any questions that you might not prefer to share here: dominic.murray@cjfinance.co.uk
Let me know any questions!
Toyed with the idea 6 years ago…….i didnt and im glad i didnt. Having the cushion of a DB pension, SIPP & current work pension plus SP is a good mix of pensions.
Yeah it’s certainly not for everyone!
Did you talk to IFA during this process? Or you did all of your research independently?
The biggest question (a good) pension transfer specialist will ask you, is why now? What can’t you achieve in your life by not completing this transfer?
The answers given by most clients are simply not enough for them to be considered suitable for a defined benefit pension transfer!
The FCA is rules and legislation are getting stripped it, and I think it is a good thing for the industry 🔒
@@cameronjamespensiontransfer I did a lot of research (particularly on UK pension forums). I had a stakeholder pension from a previous employer that would take the transfer, so although the CETV was high it still didnt correlate as good value. The CETV now is about 60% of its peak. To get anywhere near the DB pension of circa 20k pa would need high risk exposure imho. Im happy with the mix of pension assets DB DC Sipp and SP i have.
@@paulmussett94 As the old adage goes, if
it’s not broken, then don’t fix it.
Ofcourse, some clients do have retirement goals that they physically cannot achieve if they maintain their DB. But in the majority of instances, clients will be advised to maintain their safeguarded assets. And that number is only increasing each year.
I wonder for how long DB transfers will be around for with current PI insurance and regulations.
@@cameronjamespensiontransfer not only regulatory decisions etc but a lot of DB schemes were closed to new members way back in late 90’s so a lot of people with DB schemes will be close to retirement age anyway and given the drop in CETV values less Likely for people To move away from a DB scheme
Apologies for the late response here, not sure how I missed this one. I’m on my bike machine getting through previous comments haha!
Indeed, the security and protection offered by final salary, schemes, is very difficult to be in the open market.
It is almost now reached the point in the industry, where, unless an individual has serious ill health, or some other extenuating circumstances, the advice is nearly always going to be to maintain that defined benefit as overtime.
Of course, there are still many clients who understand the risks, but would prefer to have more control over their pension pot, and effectively go against the advice of the pension transfer specialist, but this is certainly not an appropriate route for everyone!