Can I Get an Annuity if I Smoke?
Question asked by Ms D Morgan
Could you help explain the difference between pension fund values and pension transfer values please?
If you have a defined contribution or money purchase pension, you’ll probably have received a pension statement with your fund value on it. There’s not much more you need to do to calculate your fund value.
As the name of these types of pension suggest, defined contribution pensions are pots filled with a finite amount of cash that you’ve been contributing to during your working life. A pension fund value is simply the amount of money in your pot, which you’ll then have to use to provide yourself with a retirement income later in life.
How you provide a pension income is up to you, thanks to the reforms enshrined in the new pension freedoms.
Calculating the pension you’ll get from money purchase scheme is far harder, as it very much depends on your circumstances and how you decide to provide yourself with a retirement income.
Getting pensions advice can help steer your decisions and provide you with the retirement you’d prefer to have.
For a defined benefit or final salary pension, there’s no pot of money with your name on it. What you might receive instead is a cash equivalent transfer value or CETV from your provider.
A final salary pension transfer value is the sum of money your employer will offer in exchange for you leaving the pension scheme and forfeiting your right to any future income from the plan.
Today’s transfer values are high. This is partly as pension funds try to incentivise people to transfer out of final salary schemes due to issues of affordability. Final salary pensions are expensive promise, compounded by low interest rates, plummeting bond yields and rising longevity.
High final salary pension transfer values also reflect the value of the underlying pension you’ll be giving up by transferring. Remember, a final salary pension scheme is a guaranteed income for the rest of your life, usually index-linked to rise each year with inflation.
This is an incredibly valuable promise and you shouldn’t give it up lightly. For the vast majority of people, a final salary pension transfer won’t be the right option. They’ll be better off staying in the scheme and benefitting from its generous terms.
If you do want to consider a transfer, then you’ll need to consult with an expert pensions adviser.
Meanwhile, The Drewberry DB Pension Transfer Calculator can give you a rough idea of what your final salary pension transfer value might be.
If you still want to transfer your final salary pension, an adviser can apply for an official CETV from your provider on your behalf without you having to lift a finger.