My wife is 64 and has a final salary scheme that will provide just under £5,000 per year. The transfer value is £140,000.

We have other assets so transferring the money to a SIPP rather than taking the employer pension seems sensible, especially when considering inheritance tax.

As it is obligatory to take financial advice for pots over £30,000, what is a reasonable amount to pay an adviser to do this exercise to satisfy the final salary sponsor’s actuary?

Stephen

Tom Selby, AJ Bell Senior Analyst says:

Anyone with a defined benefit (DB) or final salary pension worth £30,000 or more is required by law to take regulated financial advice before transferring their pension to a defined contribution plan such as a SIPP.

This requirement also exists for old-style pension policies with guaranteed annuity rates.

Advising on DB pension transfers is a highly specialist area with stringent qualification requirements over and above those needed for other areas of financial advice.

These are deemed necessary by the FCA, a regulator, because of the complexity involved in making a recommendation about whether or not to give up valuable guaranteed pensions.

As a result of the extra complexity involved, alongside the professional indemnity insurance costs advisers must bear when carrying out DB transfer business (more information here), advice in this area won’t come cheap.

Advice charges vary based on things including an adviser’s experience, services offered and cost base.

The FCA suggests the average charge levied on a contingent basis – that is where you only pay if the adviser recommends you transfer – is 2% to 3% of the transfer value. So in your wife’s case, this would equate to a fee of between £2,800 and £4,200.

Unbiased, the independent advice search organisation, says on average DB transfer advice costs £3,800.

It’s worth noting the regulator has proposed banning contingent charging from next year, meaning you will have to pay for advice regardless of the adviser’s recommendation.

Advisers will often only carry out a DB transfer if you agree to allow them to continue to manage your money afterwards.

The FCA has made it clear advisers need to consider not just the merits of the transfer itself, but where the funds are subsequently invested. As a result, many feel they need to provide ongoing advice to manage their own business risks.

Finally, while having other assets might make you more comfortable about your wife giving up her guaranteed pension, there are many other things to consider.

A good adviser will assess your entire financial situation – including consideration of your incomings and outgoings, and areas like inheritance tax – before making a decision on whether or not to recommend a transfer.

Given you will likely be paying thousands of pounds for this service, make sure you engage and consider what they say very carefully.

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Please note, we only provide guidance and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.

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