Pension should i transfer

As part of these reforms, the tax treatment of beneficiaries receiving proceeds from a DC pension on the member's death, was made much more attractive.

Second, the low interest rate environment of recent years has meant that the transfer values being offered in exchange for DB pension rights have soared to record levels. This mainly reflects the fact that it is now costing DB schemes a lot more to meet the pension promises that they have made.

For all of these reasons, interest in DB to DC transfers is increasing, with advisers and schemes reporting growing numbers of scheme members asking for valuations and seeking advice.

These are valuable pension rights and they should not be given up lightly. Any decision about what to do with them should be made on an informed basis and few individual savers would have the necessary expertise to make that judgment. So we strongly support the requirement to take advice before giving up significant DB pension rights. This guide is not designed as a substitute for impartial, tailored financial advice.

What this guide does seek to do however is simply to help you in the early stages of considering a DB to DC transfer by familiarising you with some of the key issues that you will need to take into consideration. This will hopefully lead to a more informed conversation with your adviser if you decide to proceed to the next stage. The guide seeks neither to encourage nor to discourage such transfers, but rather to set out in a balanced way the pros and cons of retaining your DB pension rights as compared with taking a transfer.

You can opt for full advice or abridged advice. In addition, there is something called 'triage' which we explain below.

Some advisers may operate a 'triage' system. This is simply a stage before abridged or full advice where the customer is given generic information on the pros and cons of transferring a defined benefit pension. The information you'll get at this point is much like the information in this guide - it's simply to help you understand the options and is not specific to your circumstances.

Triage is not advice. You can then make the decision to go with full advice if you want to. You should be aware that if you proceed to full advice, there is a chance the adviser will conclude you shouldn't transfer your pension and you will still have to pay the full advice fee advisers should deduct the fee already received for abridged advice from the full advice charge. Here the financial adviser carries out a review and recommends if a pension transfer is in your best interests or not.

If you go with this option, you will have to pay for the advice given even if the adviser concludes you shouldn't transfer your pension. Before October , financial advisers often only charged for advice if the transfer went ahead. This was known as contingent charging and it has been banned by the regulator over fears it could create a conflict of interest. However, there is an exemption for specific groups of customers which mean advisers can still use contingent charging for people who are in serious ill-health or serious financial difficulty.

While abridged advice can result in a recommendation not to transfer, it is only possible to proceed with a transfer if full advice has been taken. At present, if you are a member of a DB pension scheme you have the right to ask the scheme to offer you a cash lump sum in exchange for your entire DB rights 4.

This lump sum is known as a cash equivalent transfer value CETV. This advice must be provided by, or at least checked by, a specially-qualified pensions transfer specialist. The Financial Conduct Authority has updated its rules about how advisers are to assess whether a transfer is a good idea. In simple terms this is a measure of how the money you have been offered by your pension scheme compares with the value of the pension you are giving up.

The closer the amount you are being offered is to the capital sum that emerges from this calculation, the better value you are being offered. Advisers will often talk about assessing a potential transfer with reference to a critical yield. The critical yield is the investment return that would be needed on the transferred sum to build up a large enough pot at retirement to buy retirement benefits at least as good as the DB pension given up.

In many cases, to achieve a pension pot large enough to buy an income for life of equal value to the DB pension foregone will require a relatively high rate of return which in turn would imply taking a high degree of investment risk. Whilst this is not an absolute bar to an adviser recommending a transfer, many advisers would be nervous about recommending a transfer in such a situation. However, as we discuss later in this guide, this is not the only consideration — or even necessarily the most appropriate one — when deciding whether or not a transfer would be in your interests.

If an adviser concludes that a transfer is not in your interests, this is not necessarily a barrier to the transfer taking place. If you are insistent that you wish the transfer to go ahead, some advisers will implement the transfer in any case, stressing that this is not in line with their advice and that you need to accept responsibility for this decision.

Others will simply decline to facilitate the transfer and you will need to go elsewhere. This is something worth exploring with your adviser before starting the process. It's important to understand that anyone wishing to proceed to transfer on an insistent client basis must first have been through the full advice process. Abridged advice alone is not sufficient to proceed as an insistent client.

In the next two sections we consider some of the reasons why converting your DB pension rights and putting the money into a DC pension instead might be a good idea for some, and then some of the reasons why others might be better advised to keep their pension rights where they are. There is also no right to transfer if you're in the 12 months leading up to your pension scheme's normal retirement age. Whilst DB pension rights can be very valuable and attractive, they can also be rather rigid and inflexible.

For example, a scheme may have a set pension age and although taking an early pension may be possible, it may not be on favourable terms. In this case, taking your pension earlier may mean it is much lower than if you had waited until you reached pension age. Similarly, a scheme may have generous arrangements for married members who leave behind a widow or widower but these may be of no value to unmarried members of the scheme.

If you convert your DB pension rights and put the money into a DC pension instead, then you benefit from the new pension freedoms which allow you much more choice about how you use your money. In addition, the cash amount that you are offered will generally reflect the average cost to the scheme of providing benefits to widows and widowers, so if you are a single person you will get some of the value of that provision which you would not have done if you had stayed in the scheme 5.

In terms of flexibility, those aged 55 and over can now generally access their DC pension pot as they wish. So if you wanted to retire at 60 and live off your savings you could do this with a DC pension whereas you might have had to wait until you were 65 if you had stayed in the DB scheme.

Of course, transferring the money does not mean it will last any longer and indeed if the valuation of the rights is done on a cautious basis you may be losing some value when you transfer.

So although you can take your pension earlier under a DC arrangement, you will be spreading the value of your pot over more years than if you had waited until the scheme pension age under the DB arrangement. Another important aspect of the increased flexibility following a transfer is that you can decide how you want to spread your income and spending through your retirement rather than having a rigid amount throughout.

For example, you may take the view that you want to spend more in earlier retirement while you are more mobile and able to travel, and spend less later in retirement, and having a DC pot to draw on enables you to make choices of that sort. Whilst income from a private pension is subject to income tax, most pensions allow you to take one quarter in the form of tax-free cash. In a DB pension this usually means you get a cash lump sum at retirement plus a lower regular pension than if you had not taken the cash 6.

In a DC pension you can generally take one quarter of your pension pot as a tax-free cash lump sum provided you are aged 55 or over. One reason why a transfer to a DC arrangement may be attractive is the potential to draw a larger tax-free cash lump sum than if you remained in the DB scheme. If you stay in a DB arrangement you can generally give up a quarter of your pension rights in exchange for a tax-free lump sum.

However, the value you get is generally less than a quarter of the value of your pension. This can be for a number of reasons. These include the fact that:. One way of thinking about these rates for converting pension foregone into a lump sum is to think about how long you are likely to live 7. An alternative would be to withdraw your entire DB pension rights and transfer them into a DC arrangement. Once the money is in a DC arrangement and assuming you are aged 55 or over you can then take one quarter of the whole pot as a tax-free lump sum and this is likely to be a larger figure than under the DB arrangement.

If tax-free cash is particularly important to you, there may be some advantages to transferring out, especially if your scheme is one which offers relatively ungenerous tax-free lump sums within the scheme 8. If you simply put your transfer value into a DC pension some years before retirement then whether or not you get a larger tax-free lump sum depends on the investment performance of the funds between the transfer and when you take the lump sum.

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Pensions and ill health What happens to your pension when in hospital? Pension and divorce rules How long after divorce can you claim a pension? Retirement planning Preparing for retirement What qualifies for ill health retirement? What is pension liberation? We can help you identify your attitude to risk, along with other criteria such as capacity for loss, and take these into account when making our final recommendation. If you do transfer, we will tailor your investment portfolio so that it matches your risk rating, and stays in line with it throughout your retirement.

The income provided by your Final Salary pension will usually increase each year based on the rate of inflation or cost of living. Currently, a year-old man in England could expect to live on average to almost 84, while a woman could expect to live on average to This is a figure sometimes cited as the overall rate of inflation that is impacting on someone in retirement rather than someone still working.

Think about how inflation will impact your financial position in retirement, and what action you might want to take to protect against the impact of this. Current levels of inflation are historically low, but that may not always be the case, so you should factor in the impact of higher inflation rates and rising prices on your retirement income planning. Poor health can also impact on the decision you make. Ill health may well mean a restricted life expectancy.

In this event, you may be able to take your Final Salary scheme benefits early, and receive a higher income than originally forecast. Alternatively, you might want to take advantage of the new-found flexibility through Pension Freedoms or leave a lump sum for your dependents when you die; something which may not be possible with your Final Salary scheme.

You also may be able to purchase an Impaired Life Annuity, which would provide you with a greater income for someone of the same age who is in good health. As we said, your health and life expectancy are significant factors to consider when deciding whether or not to transfer your Final Salary pension or remain in the scheme.

A financial planner will take these into account when making their recommendations. A couple of years ago you may have heard in the news about the closure of British Home Stores BHS and the collapse of their pension scheme. There is a Pension Protection Fund, run by the Government, which protects members of schemes that do collapse in the way the BHS scheme, and others, have done.

In this circumstance, you could be left out of pocket in retirement and may have to reduce expenditure or find a different source of income, such as continuing to work for longer than anticipated. That said, a lower income may still be better than the Defined Contribution alternative if you are a risk-averse investor. If you do transfer your Final Salary pension to a Defined Contribution scheme, the full value of insured fund investments will be protected, but other funds and investments may well be subject to the Financial Services Compensation Scheme FSCS compensation limits.

The level of protection provided by some other schemes is more complex. Your financial planner will outline the differences as part of your advice process. Understanding the financial position of your employer or previous employer and the Final Salary pension itself can be tricky. So far we have referred to transferring your pension to another UK pension. If you are considering retiring in another country, for example, Australia, there are other considerations such as the pension system and taxation there.

The case for transfer can be very financially compelling. It is often a complex process so professional help is a must. The rewards can be significant as the value retained is high and many of the benefits of transfer outlined prior are achieved. I have read and agree to the Privacy Policy. Important notes Transferring out of a Final Salary pension scheme is unlikely to be the right thing to do for the majority of people.

Action You should ask the trustees of your Final Salary scheme for a current transfer value, as well as full scheme details. Other pension arrangements you may have A transfer of this kind should not be treated in isolation.

Action Check other pension arrangements for yourself and your spouse or civil partner, as these should be considered when you make your decision. Whether you are impacted by the Lifetime Allowance The Lifetime Allowance is the maximum you can tax-efficiently save in pensions. How we can help A key part of our advice process is looking at your cashflow forecasts and helping you put a robust financial plan in place, so you have the best possible chance to achieve your retirement goals.

Providing for your family You should also take your family circumstances into account when deciding whether to transfer.