Pension Transfers

We all know the importance of regularly reviewing retirement provision as part of your long term financial planning. This should include all the pensions that you have accumulated over the years in different schemes, including old company pension schemes you were a member of in previous employment.

Transferring old pension schemes can provide significant benefits, but to ensure it is in your best interests, a thorough analysis needs to be conducted by a qualified Pension Transfer Specialist Pension transfers can be complex, and whilst one scheme may be suitable for transfer, another may not.

The vast majority of people will be best served by leaving their Pensions where they are as they offer guaranteed benefits

This article outlines some of the key factors you should consider in conjunction with your Pension transfer Specialist before making the decision whether or not to transfer. A useful checklist is provided at the end of this article to help ensure you’ve considered the main factors before making a decision.

What could a Pension transfer mean for you?

There is also the initial cost of transferring from one pension scheme to another pension scheme. For example, sometimes a pension scheme may apply penalties for transferring out which would make the potential gain less worthwhile. In addition, the pension scheme to which you are transferring may have set up costs (our fees for example!) which could impact the overall benefit.

You can leave your benefits preserved in your scheme until normal retirement age.  At retirement, you will usually have the opportunity to take a proportion of your fund as tax free cash and the remainder will provide you with an income for life.

Advantages

  • You are assured of a certain level of Pension at retirement regardless of economic or investment conditions.
  • Your Pension should be protected by the Pension Protection Fund if your former employer becomes insolvent.
  • Your Pension fund is managed for you, you do not have to concern yourself with the investment or administration of your fund.
  • Your benefits between now and retirement will increase in line with inflation to a maximum of 5% per annum.
  • At retirement, you would receive an income for life which may increase in line with inflation each year, again up to a maximum of 5% per annum.
  • There may be discretionary increases in Pensions made by the scheme Trustees so that your Pension in retirement will increase in real terms.
  • If you should die prior to retirement, there may be benefits payable to your partner if you have one or to dependent children.
  • If you die in retirement before your spouse or partner they may well be entitled to receive a Pension equivalent to 50% of the Pension you were receiving at the time of your death, for the rest of their life.
  • You may be entitled to tax free cash at retirement more than the 25% maximum permitted within a Personal Pension environment.

 

Disadvantages

  • You must take your Pension at the time determined by the scheme rules.
  • You have very little flexibility as to how you take your benefits.
  • You will not be permitted to stagger your retirement over a period.
  • There will be no opportunity to take just your tax-free cash and leave your Pension fund invested.
  • You have no choice where your Pension fund is invested.
  • You have no opportunity for self-investment.
  • There is limited opportunity for early retirement and you will be financially penalized if you chose to retire early.
  • Early retirement may only be permitted with the permission of the Scheme Trustees.
  • You have no control over your former employer or their associated Pension scheme.
  • If you wish to retire on grounds of ill health this will be the discretion of the Trustees.
  • Should your spouse predecease you your Pension will die with you there maybe no opportunity to leave anything to your chosen beneficiaries.
  • Your former employer may become insolvent and the Pension scheme is forced to enter the Pension Protection Fund.
  • There may be no opportunity to leave your Pension fund as a lump sum to loved ones.

 

At the current time Pension Transfer Values are high so it is a good time to consider transferring.  Having funds of this size under your control to begin drawing down when you chose and leave your funds to whomever you chose is certainly attractive.  However the price you pay for all this wonderful freedom and flexibility is the giving up of a guaranteed index linked Pension for life which is not to be sniffed at!

Your Pension will continue to be protected against inflation for life  so a very valuablebenefit.  If you feel remotely inclined to taking a secure guaranteed pension from the normal retirement age of the scheme  then you should not consider transferring as there is no benefit in doing so.

Of course everyone would prefer the choice and flexibility and have all our pension funds  under our control to do with as we wish but you need to ask;

  1. When do I plan to ‘retire’ ?
  2. Do I need a flexible income or would I prefer it to be fixed and guaranteed?
  3. Do I want the option  to start drawing down funds before I retire or am I not bothered?
  4. Most importantly what level of income will I need at retirement?
  5. What other assets do I have to live on in retirement?
  6. Will I have enough until my State Pension becomes payable?
  7. Am I happy with the investment risk that I will have to take if I transfer?
  8. Is a lump sum for my beneficiaries important?

Of course there are no guarantees  in the world of investment and transferring could leave you substantially worse off in retirement.    Lots to think about!

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