By Julie Wilson, Chartered Financial Planner at Pen Life Associates
The world of pensions changed dramatically. You don’t have to look hard to see the words ‘Final Salary’ and ‘Pension Transfer’ in the same sentence. The floodgates have opened. Countless previously untouchable pension schemes can now be transferred into personal pension schemes at people’s will. According to the Financial Times, the value of transfers out of Final Salary (aka Defined Benefit or DB) schemes into Defined Contribution (aka Personal Pensions or DC) schemes jumped from £7.9bn in 2016 to £20.8bn in 2017.
Let’s rewind. For decades, a whole host of employers (like Aviva, British Steel, The Post Office, Nestlé and most of the big banks) offered their employees ‘Final Salary’ pension schemes. The benefits were calculated as a percentage of salary. So retirees could go into retirement with a guaranteed, inflation-proofed pension for life.
Fast-forward to 2015 to the Pensions Freedom. You can now take as much as you like out of a personal pension without restriction. Whereas most benefits from final salary schemes can only be taken as an annual income. And, where most final salary schemes die when you/your spouse dies, personal pensions can be passed down to future generations – Inheritance Tax free! Plus, the current values of a lot of these final salary schemes are eye-wateringly high. And all this means is that transferring out of a final salary scheme for some people is a big no brainer.
But making such a decision certainly isn’t black and white. And it definitely isn’t easy. Every individual has their own set of unique circumstances. What’s right for one isn’t right for the other. It so evenly split that we actually advise as many people not to transfer as we advise to transfer – and once you’ve chosen what you want to do that’s it. You can’t go back. It’s permanent.
Read on to find out how you can sign up to attend our free presentation. You won’t regret investing some time into your future.