Should I transfer my old company pension?
Since pension freedoms were introduced in 2015 making it easier to draw money out of pensions, many people are considering transferring from final salary (also known as defined benefit) pensions into personal pensions.
Whilst the relatively high transfer values might look attractive, there are a number of different factors we’ll take into account when advising on a potential transfer:
Loss of guarantees
This is the most crucial point. A final salary pension is a guaranteed income for life. If that pension is transferred, the guarantees are lost and how long the income lasts will depend on things like investment performance and the level of withdrawals.
The money has to last
It’s not unusual to see transfer values that are over 30 times the value of the annual pension. On the face of it then, it might look like the transfer value would last 30 years. But it’s not quite that simple, you need to remember that the final salary pension will usually increase every year in line with inflation, so the pot might not last that long.
What happens in the event of death
Almost all final salary pension schemes provide a pension for your spouse if you die before them. So not only is the pension guaranteed for your lifetime, some of it’s probably guaranteed for theirs too.
If you’re not married though, it might be possible to use the transfer value to get a better income elsewhere as you may not need the death benefits the existing scheme provides. If you’re in poor health and might find it difficult to get life insurance or have a reduced life expectancy, having a lump sum available might prove useful.
Other savings and income
Any final salary pension transfer needs to be considered as part of a review of your overall circumstances. If you have other sources of income to live on in retirement, such as other pensions, property or investments, giving up the guarantees may be justified. If it’s your only pension, there must be compelling reasons for transferring.