Should I Transfer My Old Company Pension Scheme?
Question asked by Jayne Cross
I am a member of my employer’s defined benefit pension scheme and have heard that with the new pension freedom rules it may be worthwhile leaving this final salary scheme and transferring into a money purchase pension.
I wanted to know whether this is possible with final salary pensions and what the pros and cons would be?
Retired members of defined benefit schemes who are already receiving payment of their benefits are barred by law from making transfers to defined contribution schemes.
Transfers from unfunded public service defined benefit schemes are also prohibited. These cover somewhere in the region of five million UK residents and include the pension schemes for the NHS, teachers, the armed forces, the civil service, police and fire service.
The exclusion also extends to the 30,000 or so members of smaller unfunded schemes such as those run for MPs, the judiciary, research councils and the UK Atomic Energy Authority.
By contrast, it is possible to transfer out of funded public service defined benefit schemes. So if you’re looking to transfer out of the Local Government Pension Scheme then it may be possible, subject to certain safeguards.
Transfers from private sector defined benefit schemes are still permitted subject to certain requirements.
The biggest such requirement is that individuals seek professional pensions advice for the final salary pension transfer from an adviser who is independent from the defined benefit scheme and authorised by the Financial Conduct Authority (FCA).
Note that this requirement to seek financial advice doesn’t apply to scheme members with a pension pot of less than £30,000 as the ‘trivial commutation’ rules apply to situations like this. However, we’d recommend all individuals seeking to transfer their final salary pension seek advice because it’s a huge decision, one that won’t be right for most people.
Although your defined benefit pension offers you a guaranteed income for life, something a pension transferred to a defined contribution scheme doesn’t offer, there could be benefits to transferring out of your pension plan in limited circumstances. These include:
One of the biggest risks of a final salary pension transfer is that you’re giving up a secure income for life. The move is permanent: you can’t transfer back in.
Other drawbacks include:
While it’s possible to transfer your final salary pension, the reality is that for most people it won’t be the right move and you’ll be better off staying in the scheme and enjoying a guaranteed income for the rest of your life.
For expert advice in the area of transferring final salary pensions, don’t hesitate to get in touch. We’re available on 02084327334 or you can email wealth@drewberry.co.uk.