Pension Transfers

Final salary or defined benefit (DB) pension transfers have become more attractive and Wren Sterling is authorised to advise clients on the suitability of a transfer.

The transfer of a DB scheme could be the single biggest financial decision you ever make and it’s vital to make the right decision to support you and your family in retirement. Final salary pensions are designed to provide an income for life and in order to move out of a final salary scheme, your adviser must be able to demonstrate that it is in your best interest.

It is a highly involved process that requires the creation of a specialist report and pension transfers can only be advised upon by specially qualified financial advisers.

The first step is to arrange an appointment to see if a pensions transfer is worth exploring for you. The first appointment is always at no cost to you and all charges will be disclosed to you prior to any work taking place on your behalf.

Your adviser will discuss the pros and cons of transferring your pension with you, but here are just some of the considerations which will influence this decision.

Reasons why a transfer may be suitableReasons why a transfer may not be suitable
Reliance: You will not be reliant on the pension income payable by the DB scheme because your DB scheme pension rights represent only a small percentage of your overall pension rights and/or you have substantial other investmentsReliance: Your DB scheme pension rights represent a significant percentage of your overall pension rights and you don't have substantial other investments to fall back on.
Investment choice: You prefer your pension assets to be invested in line with your agreed risk profile.Investment choice: If you remain a member of the DB scheme no investment decisions need to be made but if you do transfer, your chosen investments will need to be regularly reviewed to manage returns and volatility.
Early retirement: You have an immediate need for income and/or a tax free cash lump sum but the DB scheme won't allow early retirement.Income guarantees: You will give up a guaranteed inflation linked income in retirement.
Tax free cash: The tax free cash lump sum that can be paid at retirement following the transfer to a DC scheme may be higher.Survivor's pension: If you are married or in a civil partnership you could be giving up a potentially valuable survivors pension, especially if your spouse or civil partner will not have sufficient provision of their own.
Income flexibility: You want to take benefits via income drawdown in order 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 other employment or self-employment and could therefore be a useful tool for managing your liability to income tax.
Income flexibility: Whilst if you do enter income drawdown the ability to draw as much of as little income as you want, whenever you want, can be a useful tax planning tool this new 'pensions freedom' brings temptation and your retirement fund could be depleted quickly if you draw too much, too soon.
Higher income: 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 DB scheme.Lower income: If the invested fund performs poorly you could be much worse off in retirement than you would have been had you not transferred.
Death benefits: 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 the pension death benefits to be passed on to the next generation.Death benefits: If the payment of death benefits is important to you, it might make more sense to review your protection policies to see if a life insurance policy could meed this objective without forgoing the security of your DB scheme pension promise.
Value for money: Transfer values are historically high at the moment due to low guilt yields and even if you are single the transfer value offered will still normally include allowance for a spouse's pension. Please note, this table is not exhaustive and there may be other reasons, on both sides, for approving or rejecting a pension transfer request.

IMPORTANT: The value of your investment can go down as well as up and you may not get the back the full amount invested.

Accessing pension benefits early may impact on levels of retirement income and is not suitable for everyone. You should seek advice to understand your options at retirement.

Money Matters Winter 2017

Why are some people cashing in their final salary pension schemes? Find out in this article from our Winter 2017 edition of Money Matters: