Is A Pension Transfer Right For You?

Financial advisers, City watchdogs and FTSE companies are all in a dither on whether workers should move their pensions out of a final salary pensions.

Some say never, some say maybe and big companies are offering eye-watering golden goodbyes of up to 50 times pension values to tempt workers to move on.

So, should you move your pension from a gold standard index-linked pension with payment and benefit guarantees to one linked to the vagaries of the stock market?

The problem is no one can give a definite answer – and if they say they can, they are probably daft.

The question arises because so many doubts surround the fortunes of gold-plated pensions offered by companies.

Many have huge black holes. By this, the money men mean the scheme does not have enough money invested to pay the future pensions promised to staff already in the scheme.

Lifeboat may have some holes

And the FTSE companies underwriting the pensions do not have the cash to fill the hole.

Sooner or later they will face a cash flow crisis – and the hundreds that already have go into a government ‘lifeboat’ that protects benefits for members but pays at a rate of up to 10% less than the retiree believed they would get.

Workers with the biggest pots also face caps determined by age on the amount they receive.

The companies are offering huge cash buy-outs worth up to £1 million if staff take the money and run to another pension.

The problem is leaving a scheme means giving up a guaranteed lifetime payment of around two-thirds final salary with inflation linked rises every year. These pensions also come with payments to widows and sometimes guaranteed annuity rates that are a lot more than those available on the open market.

The alternative is a stock market invested pension that pays according to the value of the fund, has no inflation link and no extra benefits for spouses.

Upside for some risks

Another attraction for leaving a FTSE final salary scheme is the age when a pension is available.

If the scheme rules say no money can be drawn before the member is aged 60 or 65 years old, this should be weighed against taking money at 55 years old after a transfer.

Fees are another factor. Because of the risks involved in the transfers, advice firms charge high fees that can eat into smaller pots – and advice is compulsory if the pension is worth more than £30,000.

Despite the downsides, transferring from a final salary pension may be beneficial for some retirement savers.

A golden handshake plus the option to start taking money from the fund at 55 is tempting for many.

Whether it is right for every retirement saver should be decided by their personal financial circumstances – which is why professional advice from an IFA is essential.

Below is a list of some related articles, guides and insights that you may find of interest.

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