Transferring out of a final salary pension is unlikely to be in the best interests of most people.
The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.
Tax treatment varies according to individual circumstances and is subject to change.
A personal pension can sometimes be the better option for clients requiring more flexibility and access to their funds.
Pension legislation is constantly changing and this has meant that the right pension advice is always evolving. Some of the most recent changes have meant that if you have one, it is worth reviewing your existing Defined Benefit pension scheme. The Financial Conduct Authority (FCA) currently believe that it is unlikely to be in the best interest for most individuals to transfer out of a Defined Benefit Scheme however everyone’s situation is different and it is important to assess on an individual bespoke basis.
Below are some of the common pro’s and con’s associated to transferring out a Defined Benefit Pension Scheme:
- Typically more favourable death benefits
- Ability to take what income to the level and frequency you desire from age 55 onwards
- Benefit from any potential investment growth
- Access the benefits penalty free prior to the current normal retirement date associated with the existing Defined Benefit Scheme
- Withdrawals can typically be taken more tax efficiently as you can dictate the levels taken out to fit your circumstances at the time as opposed to having the income levels dictated to you
- Currently people are being offered transfer values that are high by historical terms
- If wise to do so at the time you can purchase guaranteed income for life in the future tailored to your circumstances via annuity purchase.
- Taking on investment risk
- Losing guaranteed income for life on the terms offered by the Defined Benefit Scheme eg increasing with inflation every year
- You can run out of money if you transfer out and either withdraw too much and/or the investment does not perform well
- Cost of financial advice
- Ongoing management time and costs
- Transferring out is an irreversible decision.
Some or all of the above advantages and disadvantages could be met via alternative methods to transferring out eg obtaining life insurance to improve death benefits.