Final Salary Pension Transfer Advice

Final Salary Pensions are commonly found in both the public and private sector. Traditionally, they were common within industries such as oil, gas, chemicals and engineering. However, in the modern world, they are more common in public sector roles such as teachers, NHS workers, emergency services, the armed forces and many others.

There are many members in a Final Salary Pension scheme. Generally speaking, each member pays a percentage to the scheme. Some Final Salary schemes don’t request member contributions, but these are less common. Your employer then subsidises — sometimes paying as much as three times the amount you put in or more.

If you’ve come from one of the industries mentioned in the previous question, or have worked in the public sector, there’s a good chance you have a Final Salary Pension. Your employer, pension provider or an Independent Financial Adviser such as Joslin Rhodes will be able to clear up which scheme you’re in.

Generally speaking, Final Salary Pensions are very good as they provide a secure income for life which is risk-free. You don’t need to manage anything, and they generally increase in value every year typically in line with inflation. However, like any pension scheme, it has its advantages and disadvantages.

Advantages:

• Guaranteed – payments continue throughout your life and are protected by the state or the Pension Protection Fund (PPF).

• Simple – you know how much you’re going to get every month, like a wage.

• Subsidised – you’ll likely get a lot more back than you paid in.

Disadvantages:

• Inflexible – once you’ve set what you’re getting, you can’t change this and take more or less at a later date.

• Hard-wired – if it comes with spousal benefits you can’t turn these off, even if you don’t have a spouse or partner.

• Dies with you or your spouse – when you die the payments stop, so generally no money is passed to children. However, if you have children under age 18, then benefits can be payable to them upon the member’s death.

Transferring from your Final Salary Pension can give you more options, but it’s not for everyone. Just because a colleague or family member has done it doesn’t mean it’s right for you.

You should speak with a Financial Adviser for the best possible advice on whether transferring or remaining in the scheme is the correct decision for you.

Generally speaking, the default decision is that remaining in the scheme is most appropriate.

Looking for the Pension Transfer Gold Standard can help you recognise good practice and ethical and professional standards when looking for pension transfer advice. It’s a series of nine principles that set out a robust and comprehensive code of practice for advising on Defined Benefit/Final Salary Pensions, above standard industry regulations set by the UK financial services regulator, the Financial Conduct Authority (FCA).

A common reason for looking to take advice about your Defined Benefit (DB) scheme is the possibility of greater flexibility. If you’ve got a Final Salary Pension, in most cases you can opt to transfer it to a Defined Contribution (DC) scheme, which gives you the option to move your pension into Drawdown. However, giving up a secure income requires careful consideration. Too much freedom isn’t always a good thing. If you use that flexibility to overspend, your pot could run out quicker than expected. There are also investment risks and tax implications if you take large amounts from a drawdown pension. Additionally, there are investment and advice charges that aren’t payable in a DB scheme. Another common reason for transferring to access drawdown is the option for a death lump sum. Under current rules, if you die before you’re 75, your pot will be passed on tax-free. If you’re over 75, it can be passed on as a lump sum that may be taxed at the heirs’ personal income tax rate. To find out more, visit our Final Salary Transfer Advice page here.