Why would anyone consider giving up their ‘Rolls Royce’ Final Salary pension offering guaranteed, inflation-proofed income, which continues to pay to a spouse after your death?
Wasn’t this the source of so many complaints and misselling scandals years ago?
A good starting point would be to continue to assume it’s usually not in your best interests to transfer and often you can see how poor value it may be by contrasting the transfer lump sum with the cost of buying the same income in traditional annuity form. The transfer will be a lot less than you need to buy the same pension.
But there still may be good reasons to transfer from a Final Salary Pension Scheme. Here are 8 of them:
- If you are ill or have medical conditions that are likely to affect your life expectancy
- If you are single or have no need for the pension the scheme pays to a partner after your death
- You might have a same-sex partner to whom the scheme won’t pay a pension
- You have debts with high interest rates
- You have too much secure income and not enough capital
- The company that stands behind the Final Salary scheme is in poor financial health relative to the deficit in the pension scheme
- Flexibility – Final Salary schemes usually require a member to draw tax-free cash and their full pension at the same time, a Personal pension allows tax-free cash to be taken in stages and income to be drawn and adjusted in the most tax efficient manner
- You understand Final Salary pension schemes are not guaranteed
If a company standing behind a Final Salary pension scheme fails your pension is likely to be reduced, most schemes are in deficit, and they need more funding from the company. Investment returns on the scheme assets alone are unlikely to bridge the gap.
The Pension Protection Fund can step in if the company goes bust and it will pay a reduced level of pension if the scheme can’t even afford to pay that.
One option could be to transfer part of your pension, assuming your pension scheme will offer a ‘partial transfer’, leaving enough behind in the Final Salary scheme to finance your essentials. This could appeal if you are ‘income rich’ but ‘capital poor’.
As always, decent advice is critical in this area. You can call us on 01825 76 33 66 to book a free consultation or complete the contact form.