What is a final salary pension?

A final salary pension is sometimes called a defined benefit scheme or a salary related scheme. It is a pension scheme that pays you a retirement income that is linked in some way to your salary rather than the value of your pension fund. For the purposes of this document, we will refer to these pensions as Final Salary Pensions.

Should I transfer my final salary pension?

Maybe, maybe not. The final salary pension is determined by scheme rules, there is usually a little flexibility in the rules such as the ability to take a lump sum, but the benefits are largely set by the scheme. Typical final salary pensions will pay an index linked income that will fall by 50% in the event of your death (if you have no qualifying partner the pension will cease). Most schemes will pay a pension for a minimum period of five years though. This structure will suit some people, but if your retirement plans fit this structure, then this is purely by chance. Taking a final salary pension transfer is an irreversible decision and it may not be suitable for you. We would urge all final salary scheme members to review their plans to ensure that they are suitable for their retirement.

Can everybody transfer a final salary pension scheme?

If you are a deferred member of a final salary scheme of a private company or in a funded final salary scheme, you have a legal right of transfer. You can apply for a Cash Equivalent Transfer Value (CETV) which is a cash alternative to the pension offered by the scheme. Please note that schemes do not have to provide a transfer value in the year before the normal retirement age of the scheme.

What can I do with this transfer value?

You have the right to transfer this amount into a Personal Pension. Under new rules you could then take this as a lump sum. In our experience taking the entire pension as a lump sum will not be suitable for most people, nor is it tax efficient. Whilst this route is making headlines, we believe that pension funds will generally still be best used to provide a retirement income.

I want a guaranteed income. Should I still review my options?

Yes, you don’t have to take investment risk with your transfer value. You can purchase a guaranteed retirement income. The difference is that you can structure your pension options. You may prefer a higher income at outset that doesn’t increase, or you may be single and would not benefit from the spouse’s pension offered by the scheme. You could also receive an enhanced income if you are ill or if you smoke. Even if you want a guaranteed income, you should review what the scheme is offering against what you could achieve on the open market.

I have heard that final salary pensions are ‘the best’ why should I review my scheme?

Final salary pensions can provide an excellent pension throughout retirement, but they are not for everyone. If you take a final salary pension, the decision is irreversible, even if your circumstances change dramatically, such as if you fall ill shortly after taking a scheme pension.  At Pensionhelp, we believe that the majority of final salary scheme members would be best advised to remain within the pension scheme. We do however recognise that the transfer option may be suitable for certain types of scheme members.

We would suggest that you review your final salary pension to ensure which option is the most suitable for you.

I want to review my final salary pension. How do I proceed?

In the first instance, you might find it useful to call us or send an email with a brief idea of what you are looking to achieve and we can direct you from there. It is always worth making an initial call to see if your circumstances would be acceptable for Pensionhelp to review your benefits.

From that point we will send our review pack to you, where we will gather detailed information about your circumstances and priorities. We will need to speak with you to complete our review. We may need to write to your pension schemes for further information. Once we have everything that we need, we will issue a formal report to you with advice. We will then discuss the report with you and help you proceed in line with our recommendation.

How much will your advice cost?

There is no charge for our initial consultation and discussions, during this initial conversation and fact finding process, it may be apparent that Pensionhelp would not be able to take on your case..

If you complete and return our review documents, and we prepare a report, there will be a report writing charge of £3,000. If you transfer, there will be a transaction fee. This charge can be taken directly from your pension, so you do not have to pay us anything directly. The transaction fee varies depending on the size of your transfer value. If a transaction fee is levied, the report charge is waived.

What are my options?

If you are a member of a final salary (or defined benefit) pension scheme you have alternative options to the scheme pension.

The scheme pension is set by the scheme rules. These may or may not be suitable for your needs. You may wish to look at your options

If you are under age 55

  • You can remain in the scheme and take no action
  • You can request a transfer value from the scheme
  • You can transfer to a private pension plan

If you are over 55

  • You can remain in the scheme and take no action
  • You may be able to take benefits directly from the pension scheme
  • You can request a transfer value from the scheme
  • You can use the transfer value to purchase an annuity type product
  • You can use the transfer value to transfer to a private plan
  • You can use the transfer value to transfer and take benefits from the fund
  • You can use the transfer value to take the entire fund as a lump sum

What is a transfer value?

Your final salary pension is based on a pension (or pension plus lump sum) at retirement. As a deferred member of a final salary scheme, you generally have a legal right to a Cash Equivalent Transfer Value (CETV). This is the lump sum or cash value put on your benefits. The formula used to calculate the cash equivalent is determined by the scheme trustees and aims to provide you with a fair exchange for the benefits that you are potentially giving up.

You can apply for a Cash Equivalent Transfer Value at no cost to yourself, but the scheme can charge if you request more than one in any 12 month period.

You lose the legal right to a transfer value the year before the scheme normal retirement age, although many schemes will continue to provide these.

I don’t fully understand the above information. What should I do?

Just give us a call, we will be happy to discuss your queries.

Can I take my pension now?

If you are over age 55, you have reached pensionable age. This generally means that you can take your pension benefits, although some schemes may not allow this or there may be penalties for taking benefits early

What is a cash equivalent transfer value (CETV)?

A cash equivalent transfer value (CETV) is the cash value placed on your pension benefits. This is the amount that is available to transfer to an alternative plan in exchange for giving up your rights under the scheme. It is necessary to apply for your CETV statement if you wish to consider transfer from the scheme.

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