Posted on: 14th Feb 2017
Make no mistake about it – making the decision to cash in your final salary pension (FSP) is something not to be approached lightly. Whether it makes the right decision for you personally will depend on a number of considerations, including your current circumstances and future goals. In the right instances however, cashing in a final salary at the right time can indeed prove to be a profitable decision.
Millions of FSP holders across the UK will always find the prospect of transferring savings into an alternative scheme tempting. After all, anything that appears to be able to offer enhanced returns can only be a good thing. Defined benefitlike these are great in that they pay a fixed and guaranteed income for life, but don’t necessarily offer the same kind of flexibility as alternative pension types.
For example, if you were to enter into a define contribution plan, this would enable you to take multiple lump sums as and when required, while at the same time pass on savings not used during In the case of a final salary pension, it is usually the case that unused savings are not passed on following the death of the policy-holder’s spouse.to beneficiaries without paying inheritance tax.
When you transfer a final salary pension to a defined contribution plan, you will effectively sway a guaranteed annual income for life for a lump sum. More often than not, this lump sum is offered to the tune of 20X the annual pension amount you’d have been paid. But as far as many experts are concerned, the deals being offered right now for those looking to sell their final salary pensions may be just about as good as they are going to get. Over the months and years to come, a variety of economic factors and contributors are expected to adversely affect the prices buyers are willing to pay for these pension plans.
Expectations of higher inflation and the upcoming presidency of Donald Trump have all sparked concern among investors at a variety of levels, which could have a knock-on effect on pensions and savings. In some instances, offers are being made right now for more than 30 times the annual value of final salary pensions, with huge sums of money on offer for those willing to transfer.
Nevertheless, experts insist that transferring out is most certainly not a universally appropriate decision for all and that expert financial advice should be sought before making any important decisions.
“Regulations quite properly stress the many advantages of a final salary pension, and for many people leaving their pension rights untouched is the right thing to do,” said Steve Webb of Royal London.
“But for some, transferring out some or all of their pension into cash is worth seriously considering,”
“In particular, an option for workers to ‘slice and dice’ their company pension, leaving some as a regular income and taking some as a cash lump sum, would be valuable,”
“It is vital that workers are aware of the value of the pension rights they have and that they can get impartial, expert advice on whether a transfer might be right for them.”