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?

The decision whether or not to transfer out of your Final Salary Pension depends on many different factors, including what type of pensions you have, how much they are worth, and whether they have any special guarantees and most importantly, what are your needs and objectives.

This is an extensive task, that takes much consideration. However, this is where we can help. At Pensionhelp, we have experienced advisers that can help you to build a clear picture of your pension arrangements.

We will then be in a position to say whether pension transfer or staying in your current pension is best for you and provide expert, independent advice that suits your retirement plan.

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?

Before giving any advice, Pensionhelp offer a pre-advice ‘triage’ service. This is a process where we will give you information about the pros and cons of a defined benefit pension and consider the type of people who would generally transfer away from this type of scheme. There is no charge for this service. The triage area also details the charges that we will make if we provide advice to you. At the end of this process you can decide if you wish to take advice from us.

In the first instance, if you contact us by telephone or using the ‘contact us’ form, we will take some details from you and provide you with a log in to our dedicated ‘triage website’

How much will your advice cost?

Pensionhelp offer a pre advice ‘triage’ service. This is an educational service for you to use to see if our service is of use to you. This service is provided at Pensionhelp’s expense.

If you take full advice on a defined benefit pension a fee is chargeable based on the value of your pension. Full details can be found in our Services and Fees Document.

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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