Should I transfer out of a final salary pension scheme?
Whether or not to transfer out of a final salary pension scheme is one of the biggest financial decisions of your life.
If you are a member of a company’s ‘defined benefits’ pension scheme, also known as a ‘final salary’ scheme, then you will have no doubt seen just how much press attention the option to “transfer out” of these schemes is receiving.
The answer to the question of whether you should stay with your scheme or take a lump sum transfer out of it requires detailed and expert analysis of your unique circumstances.
The four questions below are a good way to start thinking about this critical decision before, if necessary, contacting a financial adviser who should have a specialised qualification which allows them to offer advice in this area:
1. Are you still an active member of the scheme? (i.e. are you, and your company, still contributing to the scheme?)
a. Yes – It is unusual to recommend leaving a scheme where you are still accruing benefits but exceptional circumstances have been known, for example:
i. if the scheme is under-funded with no prospect of recovery.
ii. if you are terminally ill or have serious health issues where the death benefits are more important to you.
b. No – If you are what’s classed as a “deferred member” then it might be worth exploring further what your entitlements are and how these fit in with your goals and objectives.
2. Are you aged 55 or over?
a. Yes – You are at, or getting close to, retirement and as such you should consider what your entitlements are and how these fit in with your goals and objectives.
b. No – You still have a longer time horizon to taking benefits but that shouldn’t stop your overall retirement goals and objectives being considered further.
3. Do you need a lump sum from your pension and are you over 55?
a. Yes – Your scheme may be able to pay this for you but it may also be possible to get a higher lump sum on transfer away. This should be explored further
b. No – Your scheme should allow you to choose not to take a lump sum, but your options should be explored further at this point
4. Do you need a varying level of income from your pension?
a. Yes – Your scheme may not allow this and the suitability of taking a fixed income should be reviewed
b. No – Your scheme will pay you a known and guaranteed income for life and as such may continue to be the most suitable source of income for you in retirement.
Because of the complexity involved, only advisers with the right qualifications are able to do the detailed analysis required and recommend whether or not you should transfer out of a final salary pension scheme.
Jessica McGowan is one of our Riverfall qualified ‘pension transfer specialists’ as she holds the AF3 (the more up to date version of G60) and R08 (the top-up to AF3) qualifications, which keep her up to date with new legislation. To find out more about Jessica, please see her profile and you can also read more about the pension transfer work that she has done for our clients.
If you are considering whether to transfer out of your final salary pension scheme and need specialist advice, please contact us today to arrange an appointment with Jessica at our expense, to discuss your specific circumstances.
The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.