Due to the pension changes, introduced in April 2015, there has been an increased interest in final salary pensions transfers (or defined benefit transfers). It is now possible for many people to transfer out of a final salary pensions scheme into a defined contribution scheme, to take advantage of the new pension rules which allow full access to a pension fund. Here Mark Stewart, director at Sheards Wealth Management, offers his Top 10 Tips for considering Final Salary Pension Transfer…
1. Consider all your options. Due to the pension changes introduced in April 2015, there has been an increased interest in final salary pension transfers. But there are risks involved so it’s important to consider every option available to you.
2. Be aware of scam schemes. Those looking to cash in on final salary pensions are being put at risk of scams by advisers who aren’t doing proper transfer checks. Make sure you speak to your adviser and check they have a robust due diligence process.
3. Understand the investment risk. The saying that “past performance is no guide to future performance” still rings true. A final salary pensions scheme mitigates many of the risks of retirement for you but that risk becomes yours if you transfer out.
4. Consider what you’re giving up. A good question to ask yourself is “why do I wish to give up an index-linked income stream that I cannot outlive and that goes to my spouse at 50% should I die?”
5. What is your marital position? Most schemes will normally pay 50% of your pension to the spouse on death, for single or divorced members this has no value, however the transfer value includes the cost of providing spouses benefit and can therefore be realised to the member on transfer.
6. Consider the state of your health. If your life expectancy is reduced then the opportunity to spend more income in the early years via flexi-access might seem more attractive which can be achieved through the inflexibility of a defined benefits scheme.
7. What is the value of your assets, other income and other pensions? If you aren’t dependent on the final salary pension as your only income in retirement, then it might be that a transfer is more appropriate.
8. What is your current expenditure? An increasing retirement income from a final salary scheme might be more appropriate for those who have a higher expenditure than someone who has more modest outgoings.
9. What is your current tax position? Another benefit of final salary transfer is that it gives you the ability to take income as and when required which might allow you to mitigate income tax.
10. Ensure you get sound financial advice. A transfer offers you complete flexibility and control over your pension but as outlined there are a number of risks and other factors as to why it wouldn’t be suitable, so ensure that you seek an experienced specialist for advice.
For more information on pensions visit www.sheardswealthmanagement.co.uk
Sheards Wealth Management Limited was formed in 2008 in response to increasing requests from clients of Sheards Accountancy for advice on financial advice type matters such as investment and pension issues.
Sheards Wealth is headed up by Mark Stewart who has over 25 years experience in the financial services sector before joining forces with Sheards Accountancy.
Sheards Wealth Management now employ 7 members of staff at its headquarters in Huddersfield but serve clients throughout Yorkshire and the North East.