The Reality of Low-Cost Final Salary Pension Transfer Cost, Do They Exist?
Historically, if a company offered an Occupational pension scheme, it was nearly always a DB scheme, in which the amount paid to members is directly proportional to the number of years they worked for that workplace and their income. Employees and their financial beneficiaries see DB plans as the “gold standard” because they provide a “guaranteed” income throughout retirement.
A DB pension transfer is the transfer of deferred benefits from a workplace pension plan as well as substituted equivalent benefits under a DB pension scheme to any other form of pension arrangement. As previously stated, one of the “gold-plated” benefits of the DB pension is the fact that it is safeguarded. These are safeguarded from indexation and revaluation, thereby safeguarding you from the future buying power of your money and guaranteeing that it is not reduced by inflation.
This safeguarded benefit is one of the great protections provided by the UK Ceding scheme for both your retirement and your future. With this guaranteed advantage, we are comfortable with the fact that you are extremely fortunate to have all these plans.
However, many individuals want to transfer out of this final salary scheme for several reasons, such as changing jobs, your pension scheme being closed or wound up, you want to transfer to a better pension scheme, you have pensions from multiple employers and want to combine them, or you're moving overseas and want to move your pension to a scheme in that country, and so the list goes on.
Before we discussing in details all of the reality of low-cost Final Salary Pension Transfer, watch an explanation by our CEO and Independent Financial Advisor, Dominic James Murray below. If you haven't subscribe yet, click the button below to go to our YouTube channel for more topics covering UK Pension Transfer.
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At What Point Do I Need a Financial Advisor?
When making a pension decision, the UK Government, specifically the FCA and TPO, emphasize the importance of consulting an independent financial adviser. If you are transferring a Defined Benefit pension worth more than £30,000 you must contact a financial adviser.
The Financial Conduct Authority established this as a safeguard to prevent individuals from making erroneous decisions in a complex and risky industry.
Your pension plan bears all investment, inflation, and annuity risks. The adviser thereby accepts the risk and liability of the pension transfer. Choosing the right pension plan with the advice of a professional can help you save more money in the long run.
Why Is a Final Salary Pension Transfer Advice So Expensive?
Financial advisers face significant charges for regulatory fees, regulatory constraints, financial services compensation fund levies, and insurance costs before even considering their advising time, employee expenditures, and any other company operating costs and overheads. So, we can confidently claim that there are a lot of fees that we as financial advisors must spend to ensure your pension transfer is completed successfully.
In the background, we as financial advisors will encounter more than simply administration complexity. DB pension transfers are highly complex in terms of the actuarial analysis that must be completed, the transfer value comparison that must be performed, and the accurate cash flow modeling that must be created.
Pension Transfer Specialist Qualification Is a Complex and Long-Run Process
What you need to also understand is that no matter how much research you do or how much due diligence you perform, you will never fully understand a Final Salary pension transfer better than your specialist pension financial advisor.
Even becoming a pension transfer specialist is getting more difficult. To become a pension transfer specialist, you must now pass the examination, as have all senior financial advisers at Cameron James have, and have the RDR Level 4 underpinning qualifications.
This is a costly and time-consuming endeavor. You can't merely study the book and pass the exam in one day. To be able to be a PTS in the first place, you must completely immerse yourself in the subject, and that's only a small portion of the effort required.
Pension Transfer Complexity
As previously highlighted, transferring a DB pension is a complex, challenging, and time-consuming process. The transfer takes an average of six to eight weeks to complete, and in certain situations, it might take up to six months.
The reason it can take up to six months is that the UK Ceding scheme is genuinely afraid of completing any transfer that may be shown to be incorrect. As a result, they do extensive research. Some UK Ceding schemes even contact HMRC to ensure that their clients are registered with them. Although the information is available online, the UK Ceding scheme requires legal confirmation from HMRC.
Administration Complexity
So, over three to six months, it's not as if we simply sign the paperwork and the transfer is completed. It would take much longer if we weren’t chasing and following up in the background. Frequently, the financial adviser is pulled in to inform the UK ceding scheme that it has taken four weeks to prepare one piece of paperwork.
So, it's our responsibility, and our administration team's role, to keep pushing in the background while we go through this process. Cameron James has a dedicated chasing team of five employees that contact the UK ceding schemes from 9 a.m. to 5 p.m. every day. It is their responsibility to connect with these UK ceding schemes.
Pension Transfer's Conflict Of Interest
However, if you pay a very minimal advisory fee to a financial adviser, the reality is they cannot work for free, and there is no such thing as a free lunch in financial services. They will be getting paid by someone else, they will be getting paid by the platform on which they place you with the underlying funds' structured notes, or anything else they use that effectively pays a commission from the plan to the financial adviser without your knowledge.
This involves an element of risk because they may do things inside your scheme or your SIPP wherever you store it that you are unaware of, since not everyone is required to reveal those commissions to their clients.
At Cameron James, we make certain our clients are the only ones that hire us. This ensures that none of the information or suggestions we give are biased, as we don’t receive any commissions or payments from anyone other than our clients.
We pretty much tell you that your DB pension asset is most likely one of your most precious assets. Does it really matter whether you pay one percent, one and a half percent, or two percent? What matters is the quality of advice. Click the link below to talk with one of our qualified and experienced IFA for a free initial consultation with us.
