Ask the IFA: What are the advantages of a final salary pension transfer?
Wren Sterling is authorised to advise on a defined benefit or final salary pension transfer. We are often asked about the advantages of a transfer, especially as transfer values are historically high at the moment.
Here are eight advantages of a final salary pension transfer – but it’s important to stress that there may be other reasons, for and against approving a pension transfer request:
You will not be reliant on the pension income payable by the final salary pension scheme because it represent only a small percentage of your overall pension rights and/or you have substantial other investments.
You prefer your pension assets to be invested in line with your agreed risk profile. This might be suitable for someone with a bigger appetite for risk than the existing pension fund allocation.
You have an immediate need for income and/or a tax-free cash sum but the final salary pension scheme won’t allow early retirement.
Tax free cash
The tax-free cash sum paid at retirement following a transfer to a defined contribution scheme may be higher.
You want to take benefits via income drawdown to benefit from maximum flexibility in terms of how often, and how much, income you can withdraw.
The amount of income you withdraw can be made in sync with any fluctuating income you may have from other investments and / or employment or self- employment and could therefore be a useful tool for managing your liability to income tax.
In some circumstances, for example if you suffer from ill-health or are single, you may be able to get a higher income by buying an annuity with your transfer value
than you can get by taking an income from your final salary pension scheme.
Unlike pension death benefits paid from a defined contribution (DC) arrangement which can be paid to any nominated beneficiary, DB scheme pension death benefits can only be paid to a dependant (such as a surviving spouse or civil partner) and following their death there is no option for pension death benefits to be passed on to the next generation.
Value for money
Transfer values are historically high at the moment due to low gilt yields and even if you are single the transfer value offered will still normally include allowance for a spouse’s pension.
Please note, this list is not exhaustive and there may be other reasons, on both sides, for approving or rejecting a pension transfer request.
The value of your investment and income from it can go down as well as up and you may not get back the full amount invested. Accessing pension benefits early may impact on the levels of retirement income and is not suitable for everyone. You should seek advice to understand your options at retirement.