The value of final salary pensions in the pensions freedom world
There is no doubt that for the majority, the decision on whether or not to transfer away from a final salary pension scheme to take advantage of ‘pensions freedom’ is a complicated one.
Pension’s freedom introduced the flexibility to be able to pass on your pension wealth to your chosen beneficiaries, free of Inheritance Tax and also possibly free of all tax. This in itself can be an attractive reason to consider a transfer away from the safety and security of a final salary pension. To add to the dilemma, we are now seeing very high ‘cash equivalent transfer values’ i.e. the cash value available to leave the final salary pension.
However, it is important not to be ‘blinded’ by the high transfer values available and to be absolutely clear on what you would be sacrificing with any transfer away from your final salary pension. Remember that final salary pension schemes have guarantees built into them, these guarantees are usually far in excess of those offered by personal pension plans, they are also likely to have a degree of inflation-proofing built in and very often have excellent provision for your spouse on your death.
There are numerous further issues and questions surrounding pension transfers including:
- Do you want to retire early?
- What level of GUARANTEED income do you need in retirement?
- Does your spouse need an income in retirement after your earlier death?
- Do you worry about your finances?
- Do you have experience of investing money?
- Is saving tax important to you?
- Do you want to leave money to your heirs?
- What are your objectives in later life?
Cash-flow planning is an integral part of the decision making process, in crude terms, this allows you to clearly understand, in the event of you transferring away from a final salary pension, the risk of your income expiring before you do.
There are many caveats to understand and consider and many pitfalls that could make it absolutely clear that a transfer would not be in your best interests and in truth could be the worst financial decision you will ever make.
The advisor team at G+E Wealth Management are experienced in providing advice in this area, clarifying your options and helping you to understand the advantages and disadvantages.
Many of our clients have been pleased that G+E have dissuaded them from proceeding with pension transfers. At G+E Wealth management we can help you to understand all these issues before making what would be an irrevocable decision.
Give G+E Wealth Management a call, to allow us to guide you through the pension transfer minefield – 01904 464 100 or fill out out contact form below: