There are many good reasons to transfer your pension fund and equally good reasons for not doing so – the secret is understanding which is the best way for YOU and your own personal circumstances.
5 Good Reasons NOT to Transfer your Pension fund
- You will have all the cost, risk and responsibility for investment to make sure your fund performs well enough to meet your retirement income needs
- You no longer have the certainty of a guaranteed income for life
- If you spend a lot of your capital in your early years you could end up impoverished in retirement
- There is no guarantee that your fund will generate the level of returns needed to sustain you in the later years of retirement when your appetite for investment risk will almost certainly reduce
- Worst case scenario is that you will have no money left in your pension fund when you need it most due to overspending, poor investment returns and costs.
5 Good Reasons to Transfer your Pension fund
- A Defined Benefit can be a significant financial asset. For many people it will be the single biggest capital sum they ever have. A transfer capitalises it and gives you control.
- A Transfer gives you complete flexibility over when and how you draw down your Pension; You are in control of your capital – not your former employer
- You can plan so as to minimise the amount of Income Tax you pay on your Pension and increase/decrease your income to meet your changing personal requirements as you progress through retirement.
- Your tax free cash is available from age 55 to clear debts, invest in ISAs or help children on to the property ladder.
- You or your family will benefit from your Pension fund, what you don’t spend will be left to whomever you chose.
Your Three Retirement options
- You can leave your Pension benefits in your previous employer’s Pension Scheme and for majority of people this will be the most sensible course of action as you will preserve that certainty of income and not risk running out of money in retirement. If you do elect to transfer your two fundamental choices are entering into Income Drawdown in some form, purchasing an Annuity or a combination of the two.
- Like your Pension Scheme an Annuity can provide you with a guaranteed income for life and if one of your key retirement planning objectives is a certainty of income I would recommend that you do not transfer as the is no benefit in transferring to purchase an Annuity at retirement.
- Income Drawdown can provide you with unlimited freedom and choice as to what you do with your pension capital, but it does of course come with risk.