Like many of those with Final Salary pensions you may have seen coverage in the press regarding Final Salary Pension Transfers. Or you may have spoken to colleagues who have transferred out of their Final Salary Pension scheme.
Record transfer values contributed to a large increase in number of people looking to transfer their defined benefit pension; with some schemes offering 33-40 times what the annual retirement income would have been.
But what does that mean for you? Are you eligible? Should you transfer? And what are the risks and benefits to transferring out of your Final Salary scheme?
Like many of those with Final Salary pensions you may have seen coverage in the press regarding Final Salary Pension Transfers. Or you may have spoken to colleagues who have transferred out of their Final Salary Pension scheme.
Record transfer values have contributed to a large increase in number of people looking to transfer their defined benefit pension; with some schemes offering 33-40 times what the annual retirement income would have been.
But what does that mean for you? Are you eligible? Should you transfer? And what are the risks and benefits to transferring out of your Final Salary scheme?
What are the benefits in transferring out of my Defined Benefit Scheme?
Some of the benefits include:
- High Transfer Values at present: Transfer values have increased markedly due to falling bond yields. In some cases, the values offered are thirty-to-forty times the annual pension the member is entitled to.
- Flexibility in how you can take benefits from your pension: ‘Pension freedoms’ introduced in 2015 have given a lot more flexibility around when and how benefits may be taken from pensions. Gives the ability to take higher income early in retirement; or perhaps the ability to take tax-free cash from the fund while still working to meet other financial aspirations
- Better Legacy/ ‘Death Benefits’: transferring may give greater ability to pass pension funds down to the next generation.
- Tax Efficiency: more income flexibility allows more capacity for tax planning
Why are others transferring?
There are many reasons for the upsurge in transfers out of defined benefit schemes, including the benefits listed above.
Introduction of pension freedoms in 2015 has allowed greater flexibility and control over when and how benefits may be taken (following transfer to a defined contribution alternative). And, to a certain extent, it may grant greater control over income tax in retirement.
For some, a key driver for ultimately deciding to transfer may be the ability to cascade pension assets down to the next generation, carving out the ability to leave a – potentially tax-efficient – legacy.
What is my pension likely to be worth?
As mentioned, some schemes have been offering Transfer Values of 30-40 times what the annual retirement income would have been. And so, for someone that was due £5,000 each year in retirement, their Cash Equivalent Transfer Value could be as much as £165,000 – £200,000. However, transfer values vary widely and many schemes will offer significantly less than 30 tomes the annual retirement income.
Should you transfer?
Simply put, everyone’s circumstances are different. Transferring a pension is certainly not for everyone and the advice can often be to remain within the security of the scheme. Thankfully getting advice is not as difficult or as daunting as you may think.
Many deferred members of Defined Benefit schemes are considering a transfer out of the scheme. Helped by recent high transfer values, there can be a compelling case for transfer. However transferring out of a Defined Benefit/ Final Salary Scheme is not for everyone – which reinforces the need for robust and independent financial advice.
For more information:
-> Pension Advice & Retirement Planning
-> How much is your Pension Worth? – Pension Calculator
-> Final Salary Pension Transfers – are they worth the risk?