Why You Might Consider Transferring Your Final Salary Pension



Posted on: 4th November 2015

Widely considered to be pretty much the gold standard when it comes to company pensions, those ‘lucky’ enough to be part of a “final-salary” pensions scheme are the envy of many. Of course exactly how much your own pension will be worth will vary wildly in accordance with where you work, how much you earn and how long you’ve been there for, but in any and all cases, it’s apparent generosity that’s rare to say the least.

Nevertheless, at this very moment there are hundreds of thousands of workers up and down the United Kingdom with these kinds of pensions in operation, who are actively giving thought to accessing a lump sum cash payout as a tradeoff for their future guaranteed income. According to recent estimates, there are approximately 3.7 million Brits with final-salary pension schemes up and running who’ve yet to begin taking any money from their plans. Of these, analysts suggest that around 10% – or 370,000 – have already made the decision to cash in their benefits, generous as they may be, in order to get their hands on a lump-sum cash payment instead.

Once something of a relatively readily available type of pension for workers, final-salary pension schemes have been thinning in numbers quite significantly over recent years. Rather than being guaranteed a certain annual income in accordance with how much the worker was earning at the time of their retirement, workers these days are more readily being offered “defined contribution” pensions as an alternative. This is where money is contributed at a specific and predetermined rate by the employer, with the total value of the pension being determined by various factors including investment returns. Or in other words, there’s no guarantee of things going one way or the other.

In terms of what it is that’s motivating so many to consider transferring out of their final-salary pensions, it all comes down to the way in which the reforms rolled out as of April this year introduced an extraordinary number of new freedoms. But as these freedoms only applied to those with the less generous DC plans, anyone with a final-salary and the desire to make use of these freedoms would have no choice but to transfer out. Transferring out of final-salary schemes walls until recently was considered to be a bad idea in general. Nevertheless, depending on who you are, your personal circumstances and what it is you intend to get out of your pension, we’re now looking at a situation where transferring out could in some instances be advisable.

After all, access the funds in the form of a lump-sum, use this cash to hedge your bets wisely with any number of other investment options and there’s technically no limit to how big the gains could be.

Of course, there’s no such thing as a 100% safe investment and nor do one-size- fits-all solutions exist when it comes to pension schemes, options, transfers and so on. It’s therefore crucial important to speak to a reputable independent financial adviser before going ahead with such a life-affecting move that will always bring along an equal balance of pros and cons.