Financial Planning

Final salary pension schemes – a life-changing opportunity?

Transfer values from final salary schemes have increased significantly over the past 12 months. Although you would be hard-pressed to find many people who would turn down the chance of receiving a substantial sum, the decision to transfer out of a final salary scheme is not an easy one.

Transferring a final salary pension – a case study

I had a client who was looking forward to an annual pension of £29,000 from age 65 and a tax-free lump sum of just under £90,000. Having just turned 62, he decided to request a transfer, having heard rumours about generous transfer values. He was delighted to tell me about his “life- changing” offer of £975,000 – nearly 34 times the annual pension value.

A life-changing offer

The client considered the cash transfer value to be life-changing because:

  • the tax-free lump sum of £243,750 would enable him and his wife to buy their dream second home
  • he would be able to use the income flexibility of a defined contribution scheme to maintain their desired lifestyle while they’re still young enough to enjoy it. Such flexibility is not available with a final salary scheme. This was much more important than having a guaranteed income for life
  • his wife had previously battled cancer and although recovered, they both felt this would affect her life expectancy. The final salary pension would die with him or his wife, whereas defined contribution pensions can be passed on without paying Inheritance Tax. They have two children and grandchildren and he found the thought of dying prematurely with nothing to pass on from the final salary pension depressing
  • a defined contribution pension would stay outside his estate, it won't ever be charged with Inheritance Tax.

The need for expert financial advice

As the transfer value was in excess of £30,000, the client was legally obliged to obtain advice from a suitably qualified pension transfer specialist. This became extremely important as the process became much more complex than he first thought.

Through effective planning and guidance, we concluded that the transfer was viable and would enable the client to achieve his financial goals. It would allow him to live the life he loves and give his grandchildren the best start to life.

To find out more about transferring a final salary scheme, why not download our guide?

Speak to a financial planner

While on the surface a transfer value might look a great financial opportunity, it is vital that you seek advice to see if it this is a good option for you. Many people approach retirement with little or no idea how much money they will need or the best way to take an income, but we’re here to help. Our financial planners can give you the answers and show you what your retirement finances could look like – then create a plan to make sure you are on track.

Speak to a Tilney financial planner without obligation by booking an initial consultation on our website, calling us on 020 7189 2400 or emailing contact@tilney.co.uk. We can visit you at your home or local Tilney office, or contact you over the phone.

 

Important information

This case study is based on a real Tilney client situation. Personal details have been changed for anonymity.

Before you consider transferring a pension, it is important to ask yourself: Will I lose any valuable benefits or features from my existing pension plan? Will I incur any penalties on my existing pension if I transfer? Is it an occupational final salary pension scheme? (in which case it is very unlikely to be advisable to transfer) Have I considered the charges on my current plan? (a new arrangement may be more expensive – especially if you have a stakeholder pension).

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