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High Final Salary Transfer Values Offer Greater
Control and Ownership of Your Future Income
Final salary pension transfer Your Free Final Salary Transfer Review
Ask for a free final salary transfer review and find out if this option is in your suitable for your future income - there is no obligation and the review is free
Freedom and control - Access the benefits to suit your future income
Yes Extra tax free cash - Take tax free cash now or at a later date
Yes Benefits for your family - Your pension as part of your family inheritance
Yes Write your own rules - Structure the pension to meet your family needs
Yes keep your options open - In drawdown you can buy an annuity at any time
Ask for a free final salary transfer review
Employer pensions directory   Structure of schemes   Defined benefit schemes   Specialist schemes   Benefits to members   Operating the scheme
Leaving service   Final salary pension transfer   Final salary pension transfer review      

What is a final salary pension transfer

The benefits you have accumulated in an employer final salary scheme (also known as defined benefit) can be given a cash equivalent transfer value (CETV) which you can transfer out to another pension arrangement.

Anyone planning to transfer their fund where the amount is over £30,000 is required to take advice by law.

Defined benefit pensions are governed by rules and these have fixed terms that have little to do with your circumstance. The terms would determine the income you would receive, a maximum tax free lump sum amount, the rate your income would increase in the future, the benefits to a partner even if you are single and finally an income which would end on death with no value to beneficiaries.

By transferring to your own pension arrangement you can rewrite your own rules to exactly meet your with your own circumstance. Your rules will give you more flexibility and control over your pension fund based on your needs now and for your future.

Why are so many people transferring

Over the past two years an estimated 210,000 people have moved £50 billion out of employer final salary schemes to their own pension arrangement and there are two primary factors why it is so attractive.

Firstly the opportunity to transfer out started after the chancellor George Osborne introduced the pension freedom rules taking effect in 2015 and giving those aged 55 and over more control of their pensions.

The second factor resulted in much higher transfer values following the Brexit vote which significantly reduced long dated UK government bonds including the 15-year gilt yields to an all time low of 0.90% on 11 August 2016.

Final salary schemes use yields in their calculations of transfer values and a fall creates a shortfall increasing the funding levels. Many employers have a desire to reduce their future pension liabilities and are willing to offer transfer values of 30, 40 or even 50 times projected annual income. This compares to the expected number of years the income is likely to be paid based on life expectancy of 20 times.

Transferring to flexi-access drawdown offers many benefits from income or lump sums options allowing you take early retirement, work part time, renovate your home, pay off your mortgage or even help your children onto the housing ladder.

Reasons to consider a transfer

Yes You would like more freedom, ownership and control of your pension fund.
Yes To access extra tax free lump sum which you can take now or at a later date.
Yes You would like to leave pension benefits to your dependants and inheritance for your family.
Yes There are concerns about the solvency of the pension scheme.
Yes The transfer value you have been offered by the scheme is much greater than the typical 20 times annual income.
Yes You would like to access your benefits before your normal retirement age and retire early.
Yes Due to your health you have a lower life expectancy and you would like a higher income now.
Yes You are single and do not need an income with a spouse benefit.
Yes You do not need to rely on the full benefits available from the scheme to meet income needs.

Ask for a free final salary transfer report

Freedom and control

Final salary schemes are governed by rules that provide benefits at a fixed retirement date and ridged benefit structure which is unlikely to take account of all your personal circumstances.

These rules take account of funding for the whole scheme so if you wish to retire early you may face a penalty of 3% to 5% per year being applied.

By transferring to a personal pension or flexi-access drawdown you can create significant flexibility and control over how the benefits are taken for you and your family which are allowed under the pension freedom rules for people with pensions from the age of 55 onwards.

Here are some of the ways you can take your benefits:

Yes Take your pension on early retirement
Yes Manage your investment to match your needs
Yes Buy an annuity with all or part of the fund
Yes Phase the tax free lump sum and income over time
Yes Leave the pension untouched until after retirement age
Yes Use UFPLS to take part of your income as tax free cash
Yes Cash in the whole pension in one go

By transferring you can take your benefits early from age 55. If you don't need to take your benefits at your normal retirement age you can defer your pension until after your retirement age and even preserve the benefits for future generations.

With a private pension you have full flexibility to decide how much income you need to take immediately and take all your 25% tax free lump sum initially. Alternatively you can supplement your income by phasing your retirement in stages or use Uncrystallised Fund Pension Lump Sum (UFPLS) to take an income where 25% is your tax free lump sum thereby reducing your taxable income.

If your circumstances change you still have the freedom to take a different option such as buying a guaranteed lifetime annuity from part of your fund to cover the costs of your fixed outgoings.

Extra tax free cash

Final salary schemes give you a tax free lump sum based on a formula determined by the scheme trustees and this is unlikely to give you the 25% amount allowable.

These schemes would allow you to take more tax free cash, however, this would reduce the income you can receive by applying a commutation factor.

By transferring out of the scheme you can access the full amount of tax free cash initially or in stages over time. By taking your tax free lump sum in periodic stages you can use this as tax free income while leaving the balance for a later date as there is no requirement to take this as taxed income.

This would allow the balance and remaining tax free cash to continue to benefit from investment growth tax efficiently in the pension.

Dependants and inheritance

Defined benefit schemes offer fixed terms which typically include an indexed linked pension for your lifetime and a spouses or dependants pension. This arrangement may not suit your circumstances and therefore benefits could be greater if you transfer to a private pension.

If you are single with no spouse or dependants the cash equivalent transfer value you receive can provide you with greater benefits when compared to staying in the scheme. This is because the scheme trustees usually include a spouse or dependants pension and the CETV will include the cost of these benefits when calculated.

A final salary transfer would give you more freedom about how and to whom you pass your pension wealth to.

If you are single with no spouse or dependant and you stay in the scheme, on your death the benefits will end with no value to your estate whereas for a private pension with wealth remaining, you can nominate this to any beneficiary.

If you have dependants a transfer to a private pension gives you greater freedom to decide how to pass on your pension wealth. Pensions are outside your estate for inheritance tax purposes and the full fund can be pass completely tax-free if you die before the age of 75.

If you die after the age of 75 the beneficiary would pay tax on the income at their marginal rate. For both events the benefits can be accessed by your beneficiary immediately.

With a defined benefit scheme the income would ultimately end on the death of the surviving spouse or dependant, however, with a final salary transfer the remaining wealth in a private pension can be passed on to a spouse, then to the children and down through the generations without being subject to inheritance tax.

The scheme trustees will not take account of an individuals poor health and if you have a shortened life expectancy an early death the value would be lose to the scheme. In contrast a final salary transfer would allow you to pass the pension wealth to your beneficiaries.

Ask for a free final salary transfer report

When not to transfer

Defined benefit schemes offer guaranteed incomes with a spouse's pension and dependents’ pension for children under a certain age and the majority include inflation-linked escalation. If a company becomes insolvent the Pension Protection Fund guarantees a significant part of the scheme benefits.

Members in government funded schemes such as teachers, civil service and the NHS are not permitted to transfer. Only private sector and funded public sector schemes can transfer final salary schemes to a private pension.

If you have few other assets to provide income and a guarantees offered by a defined benefit income are a critical part of your retirement plans, the risk of losing your this would be too high to consider a final salary transfer to a private pension.

Which transfers are suitable

For those that will not depend on the income from a defined benefit scheme, the high transfer values of 30, 40 or even 50 times the income can benefit from the freedom offered by a private pension.

If you have income from other sources such as investments and property or more than one defined benefit scheme providing a greater income than you need to cover your ongoing expenses, a final salary transfer can give you and your family the flexibility to access the wealth in your pension.

There are greater opportunities for taking tax free lump sums when you need them or as part of a regular income using UFPLS, early or phased retirement, taking account of poor health and inheritance planning.

Transferring changes an income you would receive from a defined benefit scheme to a capital sum available to you and your family. This wealth can be passed to your dependants tax free if you die before age 75 and taxed at their marginal rate if you die after 75 years of age.

Flexibility is another important consideration. With income from a defined benefit scheme you normally receive this from the age of 65 and by taking early retirement you are subject to a penalty reducing your income. A private pension gives you the freedom to take up to 25% of the fund as a tax free lump sum from age 55, start or stop your income and take single lump sums which can help with your tax planning.

If you are in poor health a defined benefit scheme will not take this into account. A private pension can and will allow you to access your wealth early to buy an impaired health annuity.

Even if you are in good health you can want to access your wealth early to pursue your lifestyle goals, improve your home with an extension, pay off the mortgage or help your children with a deposit for their first property.

For the more sophisticated investor looking to start a or develop a business you could use your pension fund to buy a commercial property tax efficiently in a self-invested personal pension.

Valuing final salary transfers

Recent changes to interest rates and lower gilt yields have seen the value of defined benefit schemes soar with many people with average professional salaries offered substantial six figure transfers.

The cash equivalent transfer value (CETV) represents the amount the scheme administrators are willing to offer you to surrender your rights in the scheme. The figure is calculated by actuaries and is the expected value of the scheme benefits payable in the future based on a number of assumptions such as inflations rates, life expectancy and investment growth.

To calculate the CETV the actuaries express this as a multiple of the projected annual income you are expected to receive winch is typically 20 times income.

The investment growth calculation is the amount of money the scheme needs to pay the future benefits which is discounted over time to produce a discount rate. This is based on the 15-year gilt yields and reached an all time low of 0.90% on 11 August 2016 following the financial crisis and low interest rates.

The very low interest rates set by the Bank of England have been at an all time low of 0.25% since 2008 and increased to 0.50% in November 2017 keeping the discount rate the actuaries apply at historic lows.

Actuaries for the typical scheme would assume benefits rising at a 2.5% inflation rate in the long term against 15-year gilt yields of 1.6%. This means the amount the scheme needs to fund future benefits will increase until there is no gap between gilt yields and the inflation rate.

The high transfer values will remain at multiples of 30, 40 or even 50 times the income where the scheme aims to limit future liabilities.

Ask for a free final salary transfer report

Other factors impacting transfer values

A recent trend of defined benefit schemes has been closing to new members and offer money purchase pensions instead. At the same time the scheme has matched its investments with their liabilities by moving from equities to bonds and gilts.

Although this offers greater certainty of future returns, falling yields have reduced growth rates to below the inflation rate used by actuaries and boosting final salary transfer values.

Companies are concerned with the future rise of liabilities on their balance sheets and are willing to offer higher transfer values to encourage members to transfer out.

A significant impact on funding is improving life expectancy and according to the Office for National Statistics (ONS) a male in the UK having attained the age of 65 can expect to live 18.5 years compared to 14.6 years twenty years ago. This compares to women attaining the same age can expect to live 20.9 years compared to 18.2 years twenty years ago.

If the scheme must now pay an income to a male for four extra years than expected two decades ago and if life expectancy continues to improve in the future, this adds to the reason why final salary transfer values can offer higher transfer values.

600 more schemes likely to fail

The liquidation of building firm Carillon is the latest high-profile corporate failure threatening employee pension benefits following other well publicised schemes such as BHS and British Steel. There are inherent risks facing a number of final salary schemes an important reason why you need to take advice on transferring your final salary pension.

In the UK there is a defined benefit funding shortfall of £700 billion which is the cost companies would need to pay to immediately insure all schemes.

According to the government, they expect a further 600 final salary pension schemes will fail and transfer 150,000 members to the Pension Protection Fund (PPF) by 2030.

Of the current 6,000 private sector final salary schemes in the UK there are 880 schemes and 235,000 members have already in the PPF due to the failure of the scheme. For these members, this usually means a reduction in the benefits and possible significant hit to retirement income.

Member final salary schemes could be at risk if the government makes changes to legislation in future white papers to allow existing schemes to reduce the benefits.

To protect and reduce the number of failed schemes the government could give employers more flexibility to reduce the benefits offered to members such as less generous annual increases for pensioners. If employers can link to benefits to a lower measure of inflation or suspend inflation indexation completely it would reduce the funding gap and keep more schemes afloat.

About Sharing Pensions was created by its founder Colin Thorburn in 2001 to provide a free pensions and annuity resource to hundreds of thousands of people at retirement making their decision making easier and to select the best options.

Colin Thorburn has nineteen years experience in pensions and annuities, is an individual authorised by the Financial Conduct Authority and business is submitted through Blackstone Moregate Ltd which is authorised and regulated by the FCA (no. 459051).

About the free final salary transfer review

We provide a free initial review to assess your scheme and determine whether a pension transfer is suitable by considering your income, assets, background, goals and risk appetite.

We will let you know if transferring in your case is not recommended or marginal. If we can recommend a transfer, use our specialist technical skills and to
ols to assess the long-term sustainability of your pension wealth to ensure that it does not affect your retirement income into old age, and that you never run out of money.

The result is a professional, transparent and fully-informed personal recommendation about whether a transfer is right for you which can lead to a greater control and ownership of your future income.

Find out if you can transfer your benefits with the free final salary transfer review, either complete our request form or call 020 8816 7501 today.

Ask for a free final salary transfer report

You can call our experts to ask questions
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Simply speak to our retirement expert Colin Thorburn if you need to discuss your options or would like us to take your details for your free review, please contact us:
Call 020 8816 7501
Monday - Friday 9am-6pm

Calls from overseas:

+44 (0) 20 8816 7501
Our London address:
9th Floor, 30 Crown Place, London, EC2A 4EB
Important information
you need to know
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We provide a free initial review to assess your scheme and determine whether a pension transfer is suitable by considering your income, assets, goals, background and risk appetite.

The final salary transfer review can show whether a transfer is possible for you and if it is suitable, can lead to a greater control and ownership of your future income.

By requesting a final salary pension transfer review you are not under any obligation to transfer benefits through us.
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