Why You Should Review Your Final Salary Pension
At gpfm, we know that, as with the vast majority of people, you won’t just find employment at one workplace throughout your life. You’re now, on average, likely to work for an average of six employers in your lifetime, and this means that there’s a fair chance that you will find yourself with a few different pension pots.
Ultimately, you’ll need to choose whether to leave your pots with your old employers or to bring them forward into a new scheme. A lot of this depends on your personal circumstances, but there are a few reasons why you should certainly consider transferring your final salary pension.
- Financial Flexibility
Under the new pension laws that came into practice in April 2015, you were given more freedom to spend your pension as you’d like to. Whether that’s withdrawing a large, lump sum to pay down your mortgage or spending it on the Lamborghini you’ve always wanted, you were finally able to do it.
However, that’s not the case if you have a final-salary pension. Final salary pensions work by providing the owner a fixed, guaranteed income. It can’t be withdrawn in lump sum, and you can only use them to provide a regular income.
Transferring your final salary pension to a money purchase scheme means you could spend your pension with fewer restrictions and greater flexibility.
- Intelligent Choices
Of course, greater freedom to do what you want with your money won’t always result in a more fruitful pension. However, some lucky savers who are asking their schemes for a “transfer value” for their pension are coming out with good results.
According to Telegraph Money, based on real transfer values requested by employees, some of the best offers would swap an annual income of £30,000 for £900,000 in cash. These figures are for a 55-year-old planning to retire at 60.
While there are good fortunes to be had, it’s also crucial to remember that other offers won’t be as positive, resulting in smaller nest eggs and less financial security.
- Adjusting to Unforeseen Circumstances
While long-term financial stability might be a key goal for some, for others it may be less desirable. For example, if you are ill and have a shortened life expectancy, you might want faster access to more of your money. This makes a defined contribution scheme more desirable.
- Spend More Sooner
You might simply just want to spend more of your money sooner, or have plans that requires quick investment in the near-term, such as buying a holiday home for you to enjoy your retirement in abroad. You might then rent out your first home and live off the income.
- Leaving Money Behind
After considering all of your options, you might decide that – sooner rather than later – you want to leave a sum of money to your children or grandchildren in a trust fund, or in some other asset, like property. Transferring your final salary pension will give you access to the funds you require.
As you can see, there are a number of reasons you might want to transfer your final salary pension into a defined contribution scheme. Crucially, impartial, independent advice is an absolute must if you’re considering transferring your final salary pension. While doing so will provide you with much more scope to implement your financial plan, it might also reduce your financial security.
Transferring out of a Final Salary pension will reduce your financial security as you are giving up a guaranteed income for life. In most cases, it is in the client’s best interest to preserve a Final Salary pension.
At gpfm, our experts and our clients understand the value and importance of independent financial advice. Get in touch today at firstname.lastname@example.org or call 01992 500 261 now, and see how we can help you plan for your future.
This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions.