Pension Savers Ignore Direct Benefit Warnings And Switch For Cash

The arguments rumble on over if transferring out of a final salary pension is good for a retirement savers wealth – but hundreds are opting to move their money.

Some companies are offering between 25 and 40 times the expected pension cash value on retirement.

Although final salary pensions guarantee a n index-linked retirement income for life and sometimes offer other benefits  such as annuity rate guarantees and widow pensions, economic uncertainty is causing many to think about their pension options.

Savers in the British Steel Pension Scheme reacted in horror last year when Tata, which owns the scheme, agreed to move the liability off its books with The Pension Regulator.

The agreement keeps the scheme alive but offers reduced benefits for many members.

British Steel pension transfers up 300%

British Steel trustees have revealed that prior to the deal, 482 people transferred out of the scheme – almost a 300% increase on the 170 transfers  a year earlier.

The leavers included several senior managers, said the trustees.

Elsewhere, financial advisers around Norwich are reporting a surge in business as insurance giant Aviva is offering 20 times retirement cash values to members of the firms closed direct benefit scheme.

Aviva is one of the UK’s largest pension providers and is thinking about setting up an advice team to discuss direct benefit pension transfers with customers. The Prudential has already moved into the market.

Nevertheless, City watchdog the Financial Conduct Authority is probing if moving a direct benefit\final salary pension is a good idea.

More than 50 advisers are barred from offering pension transfer advice and more are thought to be in the firing line.

Beating the lifetime allowance with a QROPS

Transfers out go to direct contribution pensions – typically a SIPP for someone living in the UK or a QROPS for a permanent expat.

These pensions offer no guarantees and pay a pension based on the investment performance of the fund.

For expat retirement savers with large transfer values, QROPS funds are not limited by size to the lifetime allowance like a SIPP.

Providing the fund is less than the lifetime allowance on transfer into a QROPS, the pot can grow to any size without penalty.

The 2017-18 lifetime allowance is £1 million – due to increase in line with the Consumer Price Index  from 2018-19 and each subsequent year.

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