Final Salary Transfer
A Final Salary Transfer is transferring a Defined Benefit Pension Scheme to a Defined Contribution Pension Scheme.
A Defined Benefit pension is valuable and shouldn’t be given up lightly.
What is a Defined Benefit Pension?
A Defined Benefit Pension is a type of workplace pension. Some employers provide a Defined Benefit Pension. It guarantees the employee a pension income for life. This typically pays out a tax free lump sum upon your retirement. It is considered a dependable pension provision. This is because it provides a guaranteed income. Also, it is not subject to market fluctuations.
The main benefit is that the scheme provides an income to you for life. When you pass away, that income usually transfers to your spouse, civil partner or sometimes children for a set period of time.
The amount you receive is dependent on several factors. Such as your age, your length of service at the company, your average or final salary at the company and the accrual rate. Therefore, it is best to check your schemes terms and conditions for more information.
What is a Defined Contribution Pension?
A Defined Contribution pension is the type of pension that is most widely used to accumulate pension benefits. Examples of these are; Personal Pensions, a Self-Invested Personal Pensions, Stakeholders and Auto-Enrolment Schemes.
Either an individual or an Employer can make contributions into a Defined Contribution pension. You can invest the contributions. In addition, the accumulated fund is used to provide an income for the individual in retirement.
Whilst you will know what contributions are being made into the scheme and the value of the accumulated fund. The income this will generate in retirement, is not guaranteed.
Defined Contribution schemes can allow an individual to pick the funds where their money is invested. This gives them control over the investment strategy and risk. It may also be possible to vary the level of contributions being paid. This includes stopping and restarting the contributions at a later date.
You can access the benefits up to 10 years before an Individual’s State Pension Age. First, the date has to be achieved. Then, you can be flexible with when and how the retirement benefits are drawn. In the event of death before retirement, the value of the accrued fund can be paid to a nominated beneficiary.
“We will only transfer the schemes if it is absolutely the right solution for our clients. Some will benefit from keeping the Defined Benefit Pension, whereas others will benefit from moving it to the Defined Contribution Pension.” – John Quaif, Director
Considering to Transfer
More people are considering whether they should transfer their Defined Benefit Pension to an alternative arrangement. This is because of three things combined.
These are:
- Pension Freedom: The new rules have given many people far greater flexibility than before in how they take money from their pension. They don’t though apply to Defined Benefit schemes. Therefore, if you want to take advantage of them, a transfer is necessary.
- Higher transfer values: Over recent months the transfer values offered to people to move their Defined Benefit Pension have risen significantly. In many cases making a transfer more attractive.
- Confidence: In the wake of high profile cases, such as BHS, the public’s confidence in Defined Benefit Pensions has taken a knock.
Reasons to Stay
These are the reasons some people give to leave their benefits where they are:
- “This pension will be my sole or primary source of income in retirement. The fact that it is guaranteed and has built in indexation is reassuring to me.”
- “I believe that I have a normal life expectancy. Therefore, the fact that the pension will pay out until I die, whenever that might be, is important to me.”
- “As this is my sole or primary source of income in retirement, I am reassured that it will not be reduced if stock markets fall.”
- “I have a partner who will also be dependent on this pension income. I am pleased that it will continue to support them if I die before they do.”
- “Although this pension is a reduction in income from the level I earn in employment, I am happy that it is enough to meet my financial needs in retirement.”
Reasons to Move
These are the reasons some people give to transfer their benefits into a flexible pension:
- “My retirement is likely to be a gradual affair. I expect to have varying income needs from year to year. Therefore, it is important for me to be able to vary the income I receive from my pension accordingly.”
- “Unfortunately, I am not in good health and as a result my life expectancy is likely to be below average. I understand that a flexible pension gives greater options for my heirs and dependants.”
- “The plan is to take early retirement – at least partially – and I value the flexibility that a flexible pension can give me in this regard.”
- “I have a range of financial assets at my disposal to support my retirement. Therefore, this particular pension will not be my sole source of income. The guarantees within this particular pension are therefore not important to me. Flexible pensions give me more options.”
- “I fully expect to manage my various pension and non-pension assets myself. Together with my adviser, we can decide where to take income from as appropriate.”
Do you think a Final Salary Transfer is right for you?
Our advisers can help you make the decision.
Are you close to retirement or at a point where you have decided to stop work? If you have a Defined Benefit Pension, investigating the options is a sensible move.
There are many benefits to transferring your Defined Benefit Pension. Likewise, there are numerous drawbacks. Furthermore, once you have transferred your Defined Benefit Pension you can never go back. It’s therefore crucial you make the right decision.
Our advisers are qualified, knowledgeable and highly experienced in dealing with Defined Benefit (Final Salary) pensions. They will take time to understand your retirement objectives and investigate your scheme. They will then recommend the best course of action for your circumstances.