Final Salary Transfer
If you’re a member of a final salary pension scheme you may be interested in the possibility of a transfer out of it into a more flexible personal pension or another type of scheme. However, the decision to transfer your final salary pension isn’t one that should be taken lightly.
We know lots of people are considering a final salary pension scheme transfer and we would always recommend that you speak with an expert pensions advisor. They can answer any questions and help ensure you make the best decision for your specific situation.
But, we also recognise you may want to do some of your own research before speaking with an expert and that’s why we’ve written this short guide article. In it we’ll discuss:
Can I transfer out of my final salary pension scheme?
In many cases, the answer is yes, you can transfer out of your final salary pension scheme. However, new rules from the Financial Conduct Authority, (FCA) state that where your final salary pension scheme holds £30,000 or more, you must seek advice from a qualified pension expert about a transfer.
You are then only permitted to transfer out of your final salary pension scheme if your advisor agrees it is the right decision. Make an enquiry and we’ll introduce you to an advisor.
What is a final salary pension scheme cash equivalent transfer value?
A final salary pension scheme cash equivalent transfer value (CETV), is the cash amount your final salary pension provider is willing to give you to transfer into a different pension.
How do you calculate your final salary pension CETV?
A number of assumptions will be made by your pension provider to calculate your final salary pension CETV.
- Interest rates
- The rate of inflation
- The investment returns on your pension fund
- Long-term bond yields
- Your retirement date
- Mortality rates
- Additional costs and charges
Once the CETV has been calculated and you agree that’s fine for your transfer plans, that is the amount you will be given to transfer into your newly chosen personal pension scheme.
Why are more people transferring final salary pensions?
Since the pensions freedoms were announced in the UK in 2015, more people have looked into transferring out of their final salary pension scheme. That’s often because they’re interested in having more control over their pension.
The 25% tax free lump sum that was also granted in 2015 also made a transfer out of a final salary pension scheme more attractive, which is still the case in 2020. That’s because it meant many pension holders could benefit from their pension savings earlier than their final retirement date.
However, while more people have been transferring their final salary pensions, the numbers are steadying and could decline following the FCA’s requirement for advice. Previously advisors supported a number of final salary pension transfers. However, investigations suggest not all of those transfers were the right decision. With more scrutiny on final salary pension transfer advice, it’s possible fewer advisor will sign off on a transfer.
Why are transfer values so high?
There are a number of reasons that final salary pension transfer values have been so high in recent years. But, the main reason is the long period of low interest rates and the effect that has had on something called Gilt yields.
In an environment where UK interest rates have been low, the Gilt values are higher and this has lead to higher pension transfer value calculations. But, when interest rates are expected to begin rising, then Gilt values will likely begin to fall and that could lead to lower final salary pension transfer values.
How do I transfer out of my final salary pension?
Transferring out of a final salary pension scheme is straightforward but can’t be done without the approval and help of a pension advisor.
The process of how to transfer out of a final salary pension scheme is detailed below…
- Find out all the details of your final salary pension, including who runs the fund, what your pension will be when you retire and any other benefits you may receive.
- Find and speak with a pensions expert, like those we work with.
- Ask your chosen pension advisor as many questions as you have about your possible final salary pension transfer.
- Take advice and consider all your transfer options.
- Once you’ve found a personal pension type and fund you like, gain permission from your expert that a final salary pension transfer is in your best interest.
- Instruct your pension advisor to go ahead with the transfer.
- Provide and sign and relevant paperwork.
- Wait for the transfer to go through and store the confirmation details and anything relating to your new pension scheme, safely.
Should I transfer my final salary pension?
Whether you should transfer your final salary pension depends on a number of different details, including your specific circumstances.
It’s important to realise that in many cases, a final salary pension scheme which is also known as a defined benefit pension, is often an excellent pension to have. That’s because you have a guaranteed pension amount throughout your retirement and they’re often index linked, meaning they aren’t devalued by inflation. You may also have other benefits, including for your spouse.
However, if you’re concerned that your employer’s final salary pension scheme may not be fully financially supported, that could be a reason to find out more about a possible transfer. Another reason could be that you’re well provisioned for retirement and would like to find a way to share your pension with your family.
Where can I transfer my final salary pension to?
If you have a final salary pension and would like to transfer it, you have a number of options as to where you can transfer your pension pot to. Most personal pensions will accept the transfer in of final salary pension funds.
It’s also possible to transfer your final salary pension into a money purchase scheme, which is another name for a defined contribution pension. However, this isn’t always the right option for every transfer.
If you would like to transfer your final salary pension overseas you will have less choice. That’s because you can only transfer into a Qualifying Recognised Overseas Pension Scheme (QROPS).
It’s unlikely, though, that you will be able to transfer from one final salary pension scheme into another. Although, if you have an unfunded public sector pension, such as an NHS pension, you may be permitted to transfer your final salary pension to an equivalent scheme that’s managed elsewhere.
Can I transfer into a SIPP?
Yes, where you’re able to transfer your final salary pension, you can transfer it into a Self-Invested Personal Pension (SIPP). There are a number of SIPP pension options to choose from and they offer you more control and flexibility over how your pension pot is managed.
To find out more specific details about transferring out of your final salary pension scheme, including if you should transfer it into a SIPP, you can speak with a pension expert. They understand the process inside out and can answer any questions you may have about it.
Final salary pension transfer calculator
If you would like to get an idea of what your final salary pension transfer value might be, there are a number of calculators available online. The government also has some useful information on how transfer values are calculated on its Pension Regulator website.
However, keep in mind that online calculator tools will only return raw numbers with no context. One of the pensions advisors we work with can provide you with bespoke calculations as well as suggest the best course of action with them in mind.
Make an enquiry to speak to one of them on the phone today.
Should I seek advice for my final salary pension scheme transfer?
Because it’s such an important decision, it’s a good idea to seek advice from a qualified and experienced pension advisor about your final salary transfer decision.
In addition to this where your final salary pension fund is over £30,000, the FCA have ruled that anyone considering a final salary pension transfer must take advice from an expert and that they can only make transfer out of a final salary pension scheme if they agree the decision is the right one.
How much does transfer advice cost?
The advisors we work with will carry out an initial review of your pension options for free. If it turns out that a transfer is not in your best interest financially, there will be no fee for this advice.
If a pension transfer would benefit you, the amount you are charged would usually be a percentage of your pot’s transfer value. Around 3-5% is standard, so the exact amount you’re billed will depend on how much you have saved up over the years.
Should I use a specialist transfer service?
Since the 2015 pension freedoms were announced, a number of specialist final salary pension transfer services have been created. They can be a useful resource for information and in some cases the service they offer may well be just right for your needs.
However, in some cases those services may not have all the available information on every option for your possible final salary pension transfer. That’s when it can be a good idea to speak with a pension advisor. They will understand all your options and also know about all the different pension providers and help you select the best one to transfer your final salary pension into.
What are the transfer fees?
If you decide to go ahead with a final salary pension transfer then the fees associated with that transfer do differ between advisor and requirements. However, you should expect to be charged a one-off fee in the thousands.
In some cases, where you wish to transfer out of your final salary pension scheme into more than one personal pension then the fees could rise considerably. In addition, where your final salary pension pot is large, then the costs associated with a transfer could also be higher.
Pros and cons
The pros of transferring out of a final salary pension scheme include:
- You can get more flexibility of how to manage your pension fund.
- You can take a 25% tax free lump sum when you’re over 55.
- The new scheme you choose could support more options for your plans to leave money to your family.
- If you’re in ill-health a transfer could work out to be more appropriate.
- If you’re concerned about the financial health of your company (or a previous company you worked for), it could be a good decision to transfer out of your final salary pension scheme.
The cons of transferring out of a final salary pension scheme include:
- The existing benefits of your final salary pension scheme may be too good to lose.
- There is increased risk to the value of your pension pot.
- You may have to buy the guarantee that your spouse will receive the remainder of your pension after you die and there’s still some money left in your fund.
- If you have a large final salary pension pot of over £1 million then you may face a significant tax bill.
- You could lose the inflation protection that comes as standard with final salary pensions.
Is there an optimum age to transfer?
Not really, because whether the best decision for you to transfer out of your final salary pension depends on each individual situation. In some cases an early transfer could be the best decision, particularly if you’re concerned about the long-term financial health of the company paying into your final salary pension scheme.
But, in other cases, transferring out of your final salary pension later on, when you’ve built up a good pension pot but which to take advantage of the pension freedoms, including the tax free 25% lump sum payment, can be the best decision.
To find out the best age for you to transfer out of your final salary pension, you could speak with a pension expert. They can answer all your questions and talk you through your different options and why one might be better for you than another.
Are there any reasons why I can’t transfer?
There are some reasons why you can’t transfer out of your final salary pension. One of them is where your pension advisor states a transfer would not be in your best interest.
Another is where your final salary, or defined benefit pension is an unfunded public sector pension, such as those earned by teachers, NHS staff and the police. That’s because the benefits associated with these pensions come from the central government’s pension pot rather than solely from any regular contributions you might make.
Another situation where you might not be able to transfer out of your final salary pension is where you wish to transfer it overseas. You can only transfer to a QROPS and if one isn’t available then your final salary pension should remain where it is.
Can I transfer out of all the different types of final salary pension?
When it comes to final salary pensions, there are also some different types of them that alter the way your draw them upon retirement. They are usually deferred final salary pension schemes.
It is possible to transfer out of these types of final salary pensions. However, it’s often a good idea to seek advice and make sure you know what benefits you’re losing and what gains you secure from the transfer.
Can I transfer into a final salary pension?
There may be some circumstances where you can transfer into a final salary or defined benefits pension. However, there likely aren’t many situations where this is possible.
To find out more about transferring any existing pension you may have into a new final salary pension you gain from a job change, it can help to speak with an experienced pension advisor like those we work with.
Get pension transfer analysis from a specialist
If you’re interested in transferring out of your final salary pension and would like to find out more about your options, then you can speak with a qualified pension expert, like those we work with. Give us a call on 0808 189 0463 or fill in our online enquiry form.
Then you can sit back and relax while we do the hard work of connecting you with the right pension advisor for your specific needs.