Defined benefit / Final Salary transfer schemes were very popular with established companies, and still are today. Unless you are the ‘one-life-one-company’ sort of person, you will have a frozen defined benefit pension with one (or more) previous employers, and you may be currently saving into a more modern defined contribution pension too.
Defined benefit pensions provide a guaranteed lifetime income in retirement, which usually increases with inflation. They are extremely valuable. A transfer value is the cash equivalent of that guaranteed income being given up. This can look like a large amount in comparison to the annual pension income and to some, moving the money into a personal pension looks attractive.
- There are a number of issues to consider when making a transfer – no matter how exciting the lump sum surrender value is, these include:
- Your current financial circumstances and goals
- Your priorities and spending plans in retirement
- Whether you have other pensions, assets, and debts
- If you have enough guaranteed income from other sources to meet your essential retirement needs
- Your health and your family’s health
- The death benefits payable if you do or do not transfer How you would cope giving up a guaranteed income and taking on the risk that your pension pot may fall over time or that you might run out of money in retirement.
Once surrendered, there’s no turning back. Therefore, the Government and City watchdog, the Financial Conduct Authority, insist anyone considering transferring more than £30,000 must seek professional financial advice. This is non-negotiable.
Regulators firmly believe most people would be better off remaining with their defined benefit pension. Advisers must also start with that assumption and can only recommend transferring if it is clearly in your interest, after a full analysis of your personal circumstances, aims and needs.
If this is something you are considering now, please do get in touch. We have a wealth of experience in this area, and our advisors will work hard to ensure you make the best choice for the best financial future possible.