Should I keep my Final Salary?
Millions of people have the opportunity to transfer their final salary pension schemes into an alternative pension scheme.
While final salary or “defined benefit” pensions pay a guaranteed income for life, they are not as flexible as the alternative “defined contribution” plans.
Final salary pensions are seen as the gold standard of pension funds, the retirement they offer is usually far better than any income provided by a pension funded by savings throughout your working life.
Yet final salary schemes are becoming as scarce as… well, gold dust. Existing schemes are slamming the door to new members, and only the largest employers and the public sector still offer them. As a result, the number of people who still have such pensions is dwindling fast.
Why are Final Salary schemes in decline?
The simple answer is cost. The average life expectancy of a pensioner is increasing every year, while the investment performance of many funds are not performing to expectations. As a result, the cost of providing final salary pensions has increased. This has caused employers becoming increasingly nervous about provide these types of pensions into retirement.
In response to this, employers are increasingly willing to offer large cash sums upfront to scheme members to release the financial responsibility to provide for these members until their death. Large ‘cash equivalent transfer values’ (CETVs) are being offered to persuade members to transfer their pension out of these schemes.
Should I Transfer my Pension?
This is a hard question to answer. At the end of the day, with a final salary scheme, you have guaranteed income for life and to some people knowing that they have financial security is very valuable.
Moreover, if you transfer your pension out you become responsible for investing your pension and your funds become exposed to market volatility.
However, in some cases the transfer value can be so high it is worth considering transferring out of a scheme.
It should also be remembers that if the transfer value of the pension being given up is more than £30,000 you are required by law to see a Financial Adviser first. About My Pension can put you in contact with a local adviser who can provide Financial Advice for your Final Salary pension.