Would you rather have £24k a year from 65 or £849k now? This is a question a number of pension savers are now faced with.
Following the pension shake up in 2015, savers with DB schemes – sometimes referred to as a ‘final salary’ pension scheme – are now allowed to transfer to personal plans to enjoy the new pension freedoms, and have been tempted recently by the increasingly generous transfer values currently available.
Due to falling interest rates and low gilt yields, the transfer values available to move across to a personal plan are at an all time high. But some experts fear such tempting amounts – sometimes even exceeding £1 million – may not be enough to compensate for giving up predictable retirement incomes promised by the original pension schemes.
Is transferring out of a DB scheme to access lottery-sized sums really worth it?
There are both pros and cons to consider. By transferring from a DB scheme to a personal pension plan, savers gain greater ownership of their money and can access their funds from the age 55, instead of being tied to the age of retirement, which is currently 65. Savers also have the opportunity to access flexible drawdown, withdraw a 25% tax-free cash lump sum and pass their pension savings to the next generation, rather than just 50% to their spouse when they die.
However, savers should be fully aware of the advantages of remaining in a DB scheme too. By staying put, savers are guaranteed not to run out of money as DB pensions pay out a secure inflationary-based income for life. There’s also the issue of tax. This isn’t a problem for most, but could impact those who have managed to build up a large pension pot. Under the current rules, you can build up pension savings of £1 million and not have to pay tax charges on it. If you exceed this amount by transferring, you are then liable.
To find out more about transferring from a DB scheme, click here.
For some, transferring is seriously worth considering, but it is entirely dependent on the individual’s circumstances, which should be assessed on a case-by-case basis.
While the lottery-sized sums may look appealing at the current time, it is not a decision to take lightly. We would always recommend that you seek independent financial advice before you take any action with your final salary pension scheme as it is usually irrevocable and there are valuable benefits that would be lost on transfer.
To arrange a Free Pension Review call 01794 525500 or email firstname.lastname@example.org.