Our guide to final salary pension transfers, will help you understand the pros and cons of transferring your final salary pension. The world of pensions has changed a great deal recently, making final salary transfers a practical option for an increasing number of people.
You have greater flexibility over your final salary pension
New pension freedom rules, introduced in April 2015, mean we all have far greater flexibility over what we do with our pension pots. You don’t have to be content with playing the longevity gamble, as the new rules relax previous constraints around your ability to draw down on your fixed pensions, sometimes to great advantage.
The technical term for the amount you can transfer away from your final salary pension is called the Cash Equivalent Transfer Value (CETV), and the value of these has risen dramatically in the past year or so.
A report from Royal London found that it was increasingly common for these offers to be in the region of 30 times the annual pension value, and we’ve had experience of even higher multiples than this.
Take control of your pension
Considering a final salary pension transfer could ensure your money is in your control, and that you potentially get to benefit from it sooner rather than later.
Our free Final Salary Pension guide will tell you how.
Why you should be considering your transfer options
In the past, coming out of your final salary pension scheme early has been viewed as a bad decision. Those who did often lost out, or ended up with less than they might have. Changes to the economic climate and new pension freedoms have shifted the goalposts, making a transfer at least worthy of your consideration. Here’s why:
Gain complete control: By transferring, you gain absolute control over your pension pot, with the ability to draw on your capital when you choose to. As you age, and your needs change, you have access to the cash you need, when you need it.
Save on inheritance tax: Your final salary benefit can be a substantial asset. By transferring now, you gain control of the asset and have the ability to distribute it within your family as you see fit, without the burden of inheritance tax.
Be more tax efficient in other areas too: In many cases, there is the opportunity to save on taxation when a transfer is picked over the final salary pension benefits. Following the transfer, your tax-free cash sum is higher, you have the flexibility to keep your pension income within specific tax bands, and you could minimise the impact of penalty charges relating to your lifetime tax allowance (LTA).
Take the cash early: Transfers can allow you to access your cash as early as age 55. This could mean you can pay off your mortgage early, invest in ISAs or even help the next generation get a foot on the property ladder.
Remove the ‘life expectancy gamble’: With any type of lifetime income, you’re gambling your longevity against the value of your benefit. By transferring, you release the value of your investment now, regardless of your health either now or further down the line.
Right now, the risk is lower than in previous years: The values of transfers at this present time are so high that in some cases the return required from your own personal pension could be reasonably expected to provide at least the same pension benefit as a final salary pension.
Reinvesting the capital, even at a rate as low as two per cent, could potentially generate the same pension benefit plus a little bit extra to pass on to your family.
As with any major financial decision, you should take the time to consider all your options thoroughly, and should seek specialist professional advice to ensure you are doing the right thing. Integral Financial Planning are here to help you make the best decision for your future on what could be the largest value transaction of your life.