The Pros and Cons of Final Salary Pension Transfer



Posted on: 3rd July 2017

Final Salary Pension Transfer Values are at an all time high. Never before have we seen a situation where individuals can make decisions to remove pensions from Final Salary schemes and get such a large increase in value. There are reports of individuals taking as much as 700% increase.

But, a final salary pension transfer may not be for everyone. Before making the decision, it’s important to weigh up the pros and cons of making a transfer. We’ve looked at some of the benefits, and some of the possible issues you might face.

Five Benefits of Final Salary Pension Transfers

1. Safety from bankrupt company

Companies do not last for ever, and if your former employer goes bust or the pension fund runs into trouble, your current pension could be affected. Transferring out will put you in charge of your investment and not a faceless fund manager, meaning that you can keep a closer eye on your future and move funds where they are needed, when they are needed.

2. Inheritance benefits

The lump sum cash you receive from a final salary pension transfer is yours. It will provide for your retirement income, but you can also can leave some to children or other beneficiaries. With most final salary schemes, the pension dies with you.

3. Flexible investment options

The new pension freedoms available give huge flexibility for how you can arrange your pension income. Wise investment can increase your lump sum, rather than reduce it. Sticking with the final salary pension scheme means you could, potentially, be missing out.

4. All Time High for Pension Transfer Values

Today’s exceptionally high pension transfer values may never be matched again. This means there could never be a better time to cash in your pension and make the transfer.

5. Make the most of your investment while you can

Those in poor health may have a lower life expectancy. As a rule, defined benefit schemes do not adjust for this. The result is that you might end up drawing on your pension plan for fewer years than colleagues in the same scheme. Meaning that they will receive more than you, despite paying in the same amount. Transferring out, when in poor health, could enable you to make better use of your investment for care and medical support, as well greatly increased retirement earnings.

Reasons not to transfer a defined benefit pension

1. Security

In later years, it is natural to seek security. One of the biggest risks of a final salary pension transfer is that it gives up that secure income for life. Moving out of a defined benefit scheme is a permanent decision, meaning that you can’t transfer back into the scheme once you’ve transferred out.

2. Investment risks

All investments involve risk. If you transfer your pension lump sum out of a defined benefit scheme, you will be taking on the investment risk. It will also be up to you to make any investment decisions for your pension fund. Though a reputable financial adviser is well-placed to help you make the right decisions. However, if investments don’t perform as expected, or you overspend, it is possible that you could run out of cash.

Take Advice from experts

The best advice is to take advice. To mitigate the risk above, we suggest that you seek the right advice. Pensions advice is essential for planning the retirement you deserve.

Not everyone’s situation is the same, and a final salary pension transfer may not be the right option for you. But talking to a fully qualified financial advisor will help you to make the right decision for you.

Contact us at Haven for more advice on Final Salary Pension Transfers and all the options at your disposal.