Tartiflette Fan

My understanding of this is that it is UK law that has allowed this and company pension policy can only influence it by offering incentives. IE your company cannot stop you from drawing your pension at 55 or above.

https://www.which.co.uk/money/pensio...n-a7ch15b2sgly

OnceaRAFer

Absolutely, me neither. I've learned a lot in the last three years and still learning.

CETVs i have seen are in excess of 30% higher than fund value.

You are correct, you cannot draw down a DB pension scheme but you can transfer it out and draw it down.

Transferring out can be quite simple. Get a letter from a financial advisor (preferably independent) that states you have taken advice and then its up to you to take your chance on the markets. Whether or not transfering out is a good idea depends on your personal outlook. Die soon after retiring and the DB scheme passes into the pension coffers, transfer out and die soon then the CETV cash becomes part of your estate and passes to your loved ones and ambulance chasers.
There is also the option to transfer out a portion (EG 50/50) of your CETV to get the best of both worlds.

I could be wrong on much of the above as I too am not a professional advisor, just someone trying to understand the rules and regs.

Talk to the professionals and take good advice .

Broadly correct as explained by my IFA. Current CETV between 35 and 40 times the value, YMMV.
As of today, 1/10/20, the legislation WRT to charges has changed. Any transfer will be charged up front by the IFA/transferring agency prior to the transfer and will be chargeable whether or not the transfer is taken. (This change has been well publicised if you have been looking lately...).
Any transfer process initiated prior to today would be charged only in the event of transfer completion, and then from the pot itself, a process more tax advantageous.

On a typical pot this could now be 15-30k up front and non refundable in all cases, versus previously possibly only 0-1k if transfer not completed (cold feet etc)

With the industry in the current mess it’s an interesting call...

Theoretically simple, but not in practice - in my case anyway.

I received a CETV of £ 103 000 from one previous employer and decided to transfer. It hadn't been mentioned until I received the formal offer that the CETV had a validity date of 3 months. On reflection this is completely reasonable but I hadn't previously considered it , and hadn't made any contacts with any company qualified to transfer as I was awaiting the exact sum available.

I contacted 45 companies before I found one that was able and willing to take me on at a price that I was willing to pay. I had been quoted between £ 3K and £ 8K for a transfer. Another problem that I hadn't considered was that many qualified companies had so much work that they couldn't guarantee to complete a transfer with the 12 week dead-line. If my transfer exceeded that, I would have had to pay for a new CETV ( that scheme only allowed one free valuation per year ) The work-load problem will certainly have worsened since my transfer - 2017 - as the rules have tightened and at least one national company that specialised in this ( Tideway ) recently announced that it is withdrawing from this area.

Whilst working through the various documents, it became clear to me in hard numbers, just how excellent pensions really can be. I had only worked for that company for four years, paid in £ 5 500 personal contributions and was being offered £ 103 000 to buy me out. Superb ! For comparative purposes, I was giving up an index-linked pension of £ 3 200/year, so I only had to be able to get a little over 3% per year ROCE to be able to equal that, plus the money was now mine and would be available to any heirs.

Turin, when you write "just get a letter ", I think it is a world away from that simplicity. In order to write that letter/document; my transfer IFA had me fill out a 18-page questionnaire listing investments, investment strategy and goals, assets, outgoings, debts, family circumstances, reasons why I wished to transfer out of that scheme, how I proposed to use that money to provide for my future etc. He then had to examine this and then agree - with his reputation and certification at stake - that leaving the scheme was likely to be to my benefit. This document is , in fact, what I paid the £ 3K for, so I can't see any qualified person doing that without being paid for the transfer. If I have mis-interpreted your comment, then apologies.

From memory, nearly all the companies I contacted, quoted fixed fees, and if any spoke of percentages, 3% is the figure I recall.

777Aviator

Are those multiples of 35 to 40, actual quotations or just numbers being bandied around ? I ask because when I did my transfer, multiples of around 30 were normal for "normal" companies and giants like BP/Shell were offering around 40 ( per newspaper reports ). I would have expected values to have slid back since those heady days.

P.S. I had forgotten that another reason for rejecting many companies contacted was that they insisted that they had to become your IFA to advise on reasonable investment after transfer. They attempted to insinuate that this was part of the due diligence procedure but I am certain it was just increasing the customer base/fee-income. I have been managing my own investments for 20 years and insisted on self-management which reduced the available pool very significantly.

I cannot imagine any DB pension scheme would try and prevent anyone aged over 55 from taking a pension. The last thing any principle employer of a DB wants is uncertainty as to future liabilities, by taking an early pension these liabilities can be crystallised and funded. Almost certainly the Scheme rules will treat anyone taking an early pension as being 'Scheme neutral' for the finances of the Scheme, in other words you can go early and get a smaller pension for more years, or go later and get a larger pension for fewer years - but the amount paid out by the scheme* will be the same - hence the term 'Scheme neutral'. I would be truly very surprised if the BA Scheme(s) did not include this as its fairly common practice in 'big' schemes.

* taking predicted inflation and pension increases into account, the Scheme only 'loses' if you like if you live longer than the expected likely mortality rate for your particular cohort.

You'll forgive me if I haven't read your post in great depth, but from what I have deduced your experience of obtaining and acting upon a CETV is fairly typical of many schemes. Let me assure you schemes love, absolutely LOVE, to have members transfer out. As per my previous post the sponsors of DB schemes hate unknown quantities and risks and future pension liabilities is high up on their list especially so if their scheme is underfunded by any measure. All the acts we have seen in recent years (scheme closure to future accrual, members transferring out - in many cases bumping up their CETV by a fair wad to get them to go) have all been designed to crystallise future funding liabilities.

It is not unusual at all for sponsoring employers to increase a CETV amount to act as a carrot to persuade members to further consider transferring their money out.

But what is transferred out? Assuming we lived in 'ordinary times', if you asked for a CETV the scheme will provide you with a figure and it will be a precise mathematical figure calculated strictly in line with the rules of the scheme. But, and this is important, most schemes will have a proviso in their rules that this figure can be reduced by the equivalent amount as the unfunding of the scheme. So, if say the scheme is underfunded on an on-going basis by say 10% then the CETV figure will be reduced by the same amount. So if your 'raw' CETV figure was £200k it would be reduced to £180k in my scenario.You will see that it has to be like that to protect the financial interests of the members who remain in the scheme. You cannot have the situation where members get 'cold feet' about the viability of their scheme and so ask for a CETV figure, get quoted a nice big number, and let them transfer it all out - this could be financially devastating for the members of the scheme who stay put.

What can happen is that the employer may agree to top up the quoted CETV figure to it's original amount and, importantly, the employer will have to transfer that amount directly into the coffers of the pension scheme. It’s not unusual for Employers to cease doing this as it generally forms an agreement between the scheme and the employer which does not form part of the rules of the scheme and it can be rescinded at a moments notice.

Is BA (or IAG, I don't know the company structures) going to top up CETV's under the current financial situation? A question for others.

As I understand it Transferring out is not simple and I would be interested to hear of anyone who has recently managed it.

Getting a transfer out quote is easy. You then have to find an IFA who will give you advice and recommend that you do it. As per above, this costs money upfront and involves lots of form filling.

The main problem is, DB pensions are so attractive that you cannot possibly buy the same pension on the open market with the transfer out price. Therefore, no IFA is going to recommend that you do (unless you have some really good reason (ie going to die soon). You cannot insist the IFA recommends you transfer out because they know that if they recommend you transfer out, and it goes wrong, then you can sue them and they will get massive penalties/fines. Previously the IFA's insurance would probably have paid but the premiums have shot up massively hence why most IFA have pulled out of the business of offering transfer advice as the indemnity insurance costs make it uneconomic.

As per my message, if the IFA says no (very likely) they you can appeal to the Ombudsman and this makes you an "Insistent Client". However, under current regulations the Ombudsman is likely to ignore your request (even though it's your money, your pension) on the grounds that you can't possibly know more than them or the IFA and therefore can't make a proper judgement. This is outrageous as you could argue that going into a gambling den is reckless but it's your money and if you want to do it then so be it.

Therefore, I'd be really interested to hear if anyone has recently (in the last 6 months to a year) who is normally fit and healthy managed to get any IFA to agree that transferring a DB pension out is a good idea and they will put it in writing ?

CETV s can also be impacted by the beancounters advice to the Co., which is, of course, a different legal entity from the Pension plan. The story is beyond my typing skills, but both the Co and the DB Pension plan wanted folk off their books!
I will never understand why they coughed up so much for me to go.

That’s easy, by getting rid of you they got rid of a future financial risk. Sorry to appear a bit blunt. I believe it was Albert Einstein who said the most powerful force in the universe was compound interest.

No IFA can stop you transferring out....you just sign a disclaimer. The remit of IFA is very narrow...certainly doesn't consider the present crisis etc so most will advise 'remain"....it's a personal decision depending on many factors.

That doesn't accord with what I believe to be the case. If the IFA doesn't agree that there is a benefit to a transfer, then it doesn't happen.

Let's see this disclaimer then? "The remit of the IFA is very narrow", well, you got that right. The going rate for tranferring out is 1% of pot, a scandalous amount, but the slimy little "pretty boys" have to make a living don't they?......

This is not correct. If the advisor says no then you go to the Ombudsman who will also likely say no. As I mentioned, if the Advisor says yes and it proves to be incorrect advice then they are basically out of business (and as there are very few reasons for you to move from DB to personal pension then no is 99% likely). You may have thought it was your money......

I've just been through transferring out of a DB scheme and it's alot of paperwork and cost.
Background: Transfer values are based on what it costs your DB scheme to buy investments that cover your costs during drawdown. These have to be made up of low risk securities such as government bonds, cash holdings etc. At the moment government bonds although secure, don't pay out much interest (often negative interest just now) therefore your pension fund needs to buy more of them to get the returns needed to give you your guarantee DB pension, hence the transfer values are high at the moment, as its still cheaper to get you out than risk having to buy millions in worthless bonds etc. That's the main driver of transfer values, it's calculated exactly and fluctuates month to month, the company has no control over this and is nothing to do with the share price etc. Every company follows the same rules to calculate transfer values.
The FCA say that the expectation is that for most people thinking of transferring out, it is categorically not a good idea, and that's what the IFA will begin with. It's very difficult to prove its in your interest to transfer out, actually it's weighted so heavily towards not doing so that it's almost impossible to get a recommendation. Makes sense as the government would rather see you have a little guaranteed pot, than blow or lose it all on the open markets and then it costs them more!
Everything in my IFA report pointed towards transferring out being the better but they still recommended not to transfer. I got a 58 page report and it cost £2.4k for the pleasure. But I am still transferring out, against the recommendation.
So to transfer out you need to have taken advice from an IFA if your value is over £30k sterling. You don't have to follow the advice if they say its not in your interest to transfer out nor do you need to go through the ombudsman, you are free to decide whatever the report says. The problem you have is trying to find an IFA that will do a report, most won't touch it as the base line is to not transfer out, therefore its a waste of money to do an expensive report that will say not to. IFAs will always err on the cautious side to avoid future litigation incase they advise you to transfer out and your funds plummet. So your going to most likely pay a lot of money for a report that says don't do it. But you need this report to show you have at least taken advice, regardless of what it recommends. Now the second problem you have is trying to find an investment platform that will take your money with a recommendation to remain in the DB scheme. Again most platforms won't touch you for fear of litigation.
However it can be done and you can transfer out regardless of what the advice says and you are known as an insistent investor.
So what will likely give you a recommendation to transfer out : well if you had a terminal illness, other guaranteed incomes that are far in excess of your DB pot, if the company was likely to collapse and your DB fund defaults to the PPF. Things like that. The rules are so tight against transferring out, that anyone under 50 will likely get a no recommendation.
If Anyone wants to pm me feel free. I can put you in touch with the right people that I used but it does cost money and you most likely will get a not to transfer recommendation but that shouldn't stop you if your comfortable with making your cash work and can take the losses alongside the gains.

OnceaRAFer

In correct based on my experience....I transferred out of my scheme recently....advice was to remain...cost £2000......as I said previously you just have to sign a disclaimer.

All LGW engineering staff being offered VR again. Hangar to shut, line operation only in the future.

Are all the BA pilots who were striking last year for a bigger share of the profits giving money back to the company now they are making huge losses?

MichaelOLearyGenius

ha ha what a great troll! all the pilots who went on strike last year did not ever get a "bigger share of the profits", our profit share was £0.00 before and has remained so ever since.

still, said pilots have handed wads of cash back to the airline, pay cuts to the tune of 2 months wages between April - December 2020.

and these are the lucky ones who avoided compulsory redundancy.

MichaelOLearyGenius

In short, Yes. Happy now ?