An Introduction to Pension Transfers

5-March-2019

 

Gary Slater is a pension transfer specialist authorised by the FCA to offer advice on occupational pension transfers. In this introduction to pension transfers, Gary explains exactly what a defined benefit transfer is and what you should do if you are considering your pension options.

 

In 2015, the Government introduced new pension freedoms, which gave people over the age of 55 the flexibility to access their entire pension fund at any time. Under these rules, the cash value of a defined benefit (also known as salary related) pension can be released and transferred to another pension scheme. A defined benefit pension transfer is available to people who have left an employer and wish to change or consolidate their pension funds, as well as employees reaching retirement age and those taking early retirement or redundancy.

 

You may want to take advantage of a pension transfer if you are not happy with your current pension options, combine a number of pension pots or seek a higher income from your pension. Once you have started taking an income from the defined benefit pension, the option to transfer ceases.

 

It is worth highlighting the fact that you can only transfer your pension if you are in a private sector defined benefit scheme or a funded public sector pension scheme. An unfunded public sector pension scheme, such as a teacher or NHS pension, cannot be transferred under this arrangement. The cash sum must be transferred to a regulated or HMRC-recognised personal or stakeholder pension, pension scheme with another employer or SIPP (self-invested personal pension).

 

If you are considering transferring your pension, you must initially request a cash equivalent transfer value of your existing pension pot from the scheme’s trustees.

 

This value or lump sum is calculated using a number of factors, including:

  • Your retirement date
  • Your pension entitlement on leaving the employer
  • The time between leaving and your retirement
  • Widow’s benefits, if applicable
  • Standard life expectancy
  • Expected returns on funds allocated to meet your pension liabilities
  •  

Some employers may also offer you a transfer incentive, such as a further cash sum or an enhancement of your pension benefits. If you choose to accept this incentive as a cash sum, rather than adding it to your pension transfer, you may incur additional income tax and national insurance charges. You may receive less pension overall and you could be charged an exit fee.

 

As with any financial change, pension transfers have their risks. By leaving your defined benefit pension, you will be giving up a fixed retirement income. The transaction is irreversible and you cannot reinvest in the original defined benefit scheme. Your investment may go up as well as down.

 

However, a pension transfer offers a variety of benefits for a variety of people. If, for example, your health is in decline, gaining access to your pension pot during your early retirement years may be beneficial. With a defined benefit pension, spouses and civil partners could receive up to 50% of the pension value on death but is not relevant for divorced or single people. Additionally, if you have additional assets and you aren’t solely dependent on your pension, you may not require a fixed income throughout your retirement years.

 

If you have over £30,000 pension fund to transfer, you are required to seek regulated financial advice. However, I fully recommend you do this regardless of the amount to ensure you are making the best possible decision based on your needs and circumstances. If you would like to discuss your pension options, please do not hesitate to message me privately here or via my email, gary.slater@dandgifa.co.uk.

 

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