The transferring of final salary (defined benefit) pensions is a hot topic, with unusually high transfer values on offer to pension holders. These ‘gold plated’ schemes are increasingly rare and highly sought after, but some holders have been tempted to transfer their final salary scheme into a DC scheme instead, allowing them to benefit from greater flexibility.
What are final salary pensions?
A final salary pension is a workplace pension that pays you a guaranteed annual income for life. This is in contrast with an ordinary workplace pension where your returns will be the amount saved, plus any returns minus charges. It is now possible to transfer a final salary into a pension pot creating a lump sum of money known as the ‘transfer value’. Transferring the pension means that after the age of 55 it can be invested or withdrawn as desired. These transfer values are normally many times that of the annual pension given up
Are all final salary schemes the same?
No, while most defined benefit schemes provide an excellent way of saving for retirement, there are things you should check before making any final decision on what to do with it.
- Does your pension increase in line with inflation and if so for how long?
- Is your spouse or partner included in your scheme?
- Are your children included in your scheme?
The legal position
If the pension transfer value is over £30,000 then the law requires you to seek independent financial advice before the transfer can be made. However it can be worth getting advice even on smaller transfer values as the decision will have a big impact on your retirement plans. Research from Royal London in 2017 found a big increase in transfers out of final salary pensions with the most common transfer value lying in the £250,000 to £500,000 range.
Get advice from an adviser
Considering all of your options before making a decision is vital to achieve the retirement you deserve. Contract us for a free initial review of your final salary pension.