Pensions
Pensions: On the face of it, pensions may sound like they only apply to the over 65’s and something to dismiss until then. However, retirement planning is very important regardless of age – especially when you consider that more and more of us are living longer! It may be worth asking yourself ‘have I got sufficient plans in place for when I retire?’. There is a vast selection of pension products out there and getting sound financial advice throughout the different stages of retirement will help identify which products can help you achieve the income you need.
In addition to the above, we now offer specialist advice for individuals who are in receipt of a final salary pension, otherwise known as a defined benefit pension.
What is a final salary pension transfer?
A final salary pension transfer means transferring out of a defined benefits (salary related/occupational) pension scheme. By transferring, you give up a guaranteed income for life and any other benefits you would have been entitled to under the scheme.
This cash lump sum is known as the scheme’s cash equivalent transfer value (CETV). The CETV represents the expected cost of providing the member’s benefits within the scheme and therefore requires certain assumptions to be made about the future of the member and their benefits.
Assumptions considered when your scheme puts together a CETV will include:
The investment returns on the fund
Your retirement date
The rate of inflation
Interest rates
Mortality rates
Long-term bond yields
Costs and charges
If you agree to a final salary pension transfer then you take on board the risk that what happens with the above and any other factors do not match the assumptions made. That can work against you in that you find the cost of securing an income is higher than expected or the fund performs poorly, meaning you aren’t able to match the benefits the final salary scheme would have provided.
Of course, this could work for you in that the cost of securing an income is lower than assumed and/or the value of the fund are higher than expected, potentially leaving you better off than you would have been in the scheme.
Should I Transfer My Final Salary Pension?
If you are, or have the option to be, an active member of a final salary pension scheme it will only be in exceptional circumstances (or if you have lifetime allowance protection) that you should consider leaving (or not joining) the scheme.
Factors that may determine whether or not you receive a positive transfer recommendation include:
Your needs and objectives
Your assets and other pensions
Your cash equivalent transfer value
Your attitude to risk
Your investment experience
Your health and life expectancy
The value of pensions and the income they produce can go down as well as up and you may not get back as much as you put in.
Transferring out of a Final Salary scheme is unlikely to be in the best interests of most people.
Feel free to contact us should you have any further questions regarding your pension needs: contact form below