The Advantages & Disadvantages
Research has shown that only two thirds of final salary pension members are even aware of the higher transfer values available to them and therefore are potentially missing out on the opportunity to take advantage of the benefits.
The advantages of transferring out include:
- Complete access to the transferred value of the fund
- Potential for greater tax-free cash
- Opportunity to pass on as inheritance
- Option to choose how benefits are taken
- Opportunity to buy an annuity with the proceeds
- Benefits can be taken from any age after 55
- Transfer values can be high due to low gilt yields
So, what are the dangers of final salary pensions transfers? A final salary pensions scheme mitigates many of the risks of retirement for you and puts those risks with the scheme, the former employer and also the Pension Protection Fund. If you decide to transfer out of a final salary scheme, then the risks become yours!
Other disadvantages of transferring out include:
- Lose guarantees attached to the scheme
- Lose any benefits under the Pension Protection Fund
- Final salary schemes provide inflation protection and inflation proofing
It is possible to transfer out of most final salary pensions schemes, although it is not possible to transfer out of a final salary scheme if it is being paid. It is also not possible to transfer out unfunded government schemes. However, local authority pensions can be transferred.
Pensions of the following can not transfer out:
- Armed Forces
- Civil Forces
The starting point for any transfer out of a final salary pensions scheme is that it should not be transferred unless there are some very sound reasons to do so…
So what should you bear in mind if you are considering transferring out of a final salary scheme:
- Be sure you understand what you are giving up including your guaranteed income
- Be aware of scam schemes
- Ensure you understand the risks you are taking on with a new scheme
- Consider all your options
And finally, take transfer advice from an appropriately qualified firm of Financial Advisers that specialise in cash flow modelling software. We believe this to be an essential part of the transfer advice.