Considering transferring out of your Defined Benefit (Final Salary) Pension Scheme?
There are numerous reasons why someone may wish to transfer benefits out of a defined benefit occupational pension scheme. Typically, these may include:
- No spouse or dependants, meaning that these aspects of the scheme are of no value to the member. They would prefer to have the maximum benefits to themselves.
- Being in poor health and having limited life expectancy. Transferring out may provide better death benefits, the option to buy an enhanced pension greater than the scheme can provide or the option to “spend the money” whilst you are still able to.
- Limited or no need for the pension in question. Some people have secure pension or non-pension income elsewhere and have no need for the pension in question. They can therefore just spend the money accordingly or leave it to other people.
- Generational Planning. Some people would rather leave their pension fund value to their spouses, children, grandchildren or other beneficiaries.
- To take benefits in a flexible manner. Some people may need higher levels of income in the early years (say before State pension kicks in), may wish to take tax free cash and defer income or simply draw an income as and when needed. Others may wish to “mix and match” pensions in various ways to suit their needs.
- To clear debts. The ability to access pension benefits prior to normal pension age and outside of the main scheme rules may be important if you have substantial and expensive debts that must be repaid or if you need to clear a mortgage prior to retirement.
- Lump sum death benefits – Lump sum death benefits are often higher under a transfer arrangement than the main scheme will provide.
- Tax Planning. Pensions are very efficient tax planning vehicles. Transferring benefits will allow generational tax planning, as well as individual income tax planning on an ongoing basis. It is also possible to rotate taxable pension income into other tax efficient investment arrangements either on a regular or lump sum basis.
- Sponsoring employer in financial difficulty (e.g. BHS, British Steel, Allied Steel & Wire). Avoiding the benefits going into the Pension Protection Fund and keeping them under your control is often a high priority.
- Higher tax free cash sum than the scheme rules allow. Where there is a need for a higher tax free cash figure this can sometimes be provided by transferring out (with a resulting reduction in the overall fund value of course).
- Self Invest. Some people may want to self-invest their pension benefits either into commercial property, stocks and shares or collective investments. They require complete control of their invested assets.
Considering your options
Because of the important financial and longer-term implications of any Pension Transfer, it is important to take Independent Financial Advice before making any such move, as a transfer may not be in your best interest. For example, there may be exit penalties or you may lose valuable bonuses and benefits. If you proceed with a transfer, all benefits and guarantees under the original scheme will be lost
Independent financial advice, specialising in pensions is our strength here at Independent Pension Specialists Ltd (IPSL). Indeed, we are so widely recognised as Pension Transfer Specialists that much of our work comes to us not only from our many individual customers but also from other financial advisers who seek our expertise.