Retirement: Is now the right time to transfer your Final Salary pension?


TransferOver the past few weeks we’ve seen several stories in the personal finance press imploring you to transfer your Final Salary pension.

Frankly, this worries us.

So, we thought we’d look at some of the issues in more detail.

Firstly though, we should point out that this article equally applies for Final Salary and Defined Benefit pensions. But for ease, we’ll just use the Final Salary term from now on.

To stoke the fires, this weekend saw Royal London, a pension provider, report that Cash Equivalent Transfer Values (CETVs), the technical term for the pot of money you can transfer from a final salary pension, rise steeply.

That should pique the interest of the six million people who have Final Salary pensions. Although we should point out that this money can only be transferred to a Stakeholder Pension, Personal Pension or a Self-Invested Personal Pension (SIPP); you can’t have it all in cash!

Royal London report, that it is not uncommon for members of Final Salary pensions to be offered 30 times the income they are entitled to in a transfer value. It is these high values, relative to the income the pension will generate in retirement, which are causing excitement amongst some personal finance journalists.

Why have transfer values risen so sharply?

The reason is primarily down to low interest rates and falling gilt yields. As these drop, the level of gilts, and similar assets, that the scheme needs to hold to provide your guaranteed income rises; this, in turn, pushes up transfer values.

Imagine a set of scales, as yields fall, transfer values rise. The reverse is also true, if yields were to rise, transfer values would drop.

Many trustees of Final Salary pensions are also raising transfer values as a way of incentivising members to move away, which in turn reduces the long-term liabilities of the scheme.

Should you transfer your Final Salary pension?

That entirely depends on your own personal circumstances.

For some people, a transfer into a Personal Pension or a SIPP can work well, especially if your need is for greater flexibility, or you want to pass a lump sum on to your loved ones when you die.

However, for others the guarantees offered by Final Salary pensions, which will continue to pay an income until your death, and even afterwards to your spouse, are hugely important.

Anyone with a CETV over £30,000 must take financial advice before they can transfer their Final Salary pension. We believe this is a good thing, as it will stop many people from making decisions which are not in their best interests.

Naturally, we’d recommend listening to that advice too. If an Independent Financial Adviser (IFA), having considered your objectives, recommends that you don’t transfer your Final Salary pension, there will be a good reason for this; it’s not the right thing to do.

But, it all starts with that initial conversation.

Find an adviser with the necessary qualifications and experience in advising on Final Salary pensions and start a conversation. Their advice could be the difference between a financially happy retirement and one which is more challenging.

Beware scammers

The increase in transfer values will cause pension scammers to crawl from the rocks under which they have been hiding, with the sole intent on parting you from your pension.

There are many reasons why transferring your Final Salary pension might be the right thing to do. But, moving the money into schemes offered by scammers, which usually promise large, guaranteed returns, but rarely deliver either, is not one of them.

Pension scams are on the increase and whilst we are pleased the government is acting, you still need to be on your guard to avoid being scammed.

So, back to the original question: Is now the right time to transfer your Final Salary pension?

It might be, then again, it might not.

Frankly, it’s an impossible question to answer in an article such as this.

To provide you with the right advice takes time and a detailed analysis of your existing pension and financial objectives. Only then can we tell you for certain, whether transferring your Final Salary pension is the right thing to do.

Both Sarah and Bev are experienced retirement and pension advisers. They have advised many clients over the past few months who have seen an increase in their transfer values. If you would like to talk through your options, they are here to help.

Call Bev or Sarah on 0115 9338433.