Should I switch my pension?

Should I switch my pension?

Transferring out of a Final Salary scheme is unlikely to be in the best interests of most people.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

When it comes to your retirement it is important to make sure that you have enough to live a comfortable lifestyle, any financial decisions should be made with your best interests in mind.

What is a pension switch?

A pension switch is different to a pension transfer in that it involves moving benefits from one scheme to another of similar type. A pension transfer involves transferring out of a defined benefits (final salary) pension scheme, normally to a personal pension.

Transferring funds from a defined benefit pension will mean you will be giving up benefit guarantees in return for a CETV (cash equivalent transfer value), which is then invested into another scheme.

What are the advantages?

One of the advantages with a pension switch is that it gives you greater flexibility when it comes to planning for your retirement. There is also the potential of lower costs if you switch to a cheaper scheme, along with greater investment choice.

Under the pension freedoms you will have the access to be able to drawdown on your savings with the first 25% as tax free cash from age 55.

What are the disadvantages?

There are, of course, some disadvantages and everyone’s circumstances will be different. Some pension providers may charge a penalty for switching away and there may also be no evidence that the new scheme will give you better returns than your existing one. You could also lose out on valuable benefits such as guaranteed annuity rates.

It is of course important that existing plans are thoroughly checked to make sure no guarantees or legacy benefits are lost before switching.

What types of pensions can I switch?

You are able to switch out of the majority of private pensions and most employee pensions, but you cannot transfer out of unfunded public sector schemes which include such organisations as the NHS, teachers, armed forces and the police.

Seek financial advice

While making any financial decision might seem daunting, getting experience and professional advice is the first step to understanding your goals and aspirations as well as the marketplace.

At Pensionlite our team of expert pension specialists have the industry knowledge to make informed decisions about your retirement. If would you like to speak to one of the team you can email us directly or call 01952 279379.