What is a final salary pension transfer?
A final salary pension transfer means transferring out of a defined benefits (salary-related/occupational) pension scheme. By transferring, you give up a guaranteed income for life and any other benefits you would have been entitled to under the scheme.
This cash lump sum is known as the scheme’s cash equivalent transfer value (CETV). The CETV represents the expected cost of providing the member’s benefits within the scheme and therefore requires certain assumptions to be made about the future of the member and their benefits.
Assumptions considered when your scheme puts together a CETV will include:
- The investment returns on the fund
- Your retirement date
- The rate of inflation
- Interest rates
- Mortality rates
- Long-term bond yields
- Costs and charges
If you agree to a final salary pension transfer then you take on board the risk that what happens with the above and any other factors do not match the assumptions made. However, that can work against you because the cost of securing an income is higher than expected or the fund performs poorly. This means you aren’t able to match the benefits the final salary scheme would have provided.
This could benefit you as the cost of securing an income is lower than assumed and/or the value of the fund are higher than expected.
Should I Transfer My Final Salary Pension?
If you are or have the option to be, an active member of a final salary pension scheme it will only be in exceptional circumstances (or if you have lifetime allowance protection) that you should consider leaving (or not joining) the scheme.
Factors that may determine whether or not you receive a positive transfer recommendation include:
- Needs and objectives
- Assets and other pensions
- Cash equivalent transfer value
- Attitude to risk
- Investment experience
- Health and life expectancy
How Pensionlite can help?
To find out more about transferring your final salary pension contact one of our expert team of advisers. They will provide you with advice and recommendations in an easy to understand format based on your own personal plans, the options available and your unique needs and circumstances.
We will communicate with you by post, email, text, telephone and face to face. Your adviser will be available, on the phone, to answer any questions and address any queries, once you have had time to read your recommendation report.
If you follow our advice process we will provide you with either of the following outcomes:
- We can demonstrate that transferring is in your best interest and recommend that it is suitable for you.
- We cannot demonstrate that transferring is in your best interest and recommend that you do not transfer and remain in your current scheme.