Answered by Neil Adams
Who can’t transfer from a defined benefit scheme?
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.
Transferring out of private sector final salary pension schemes
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).
The key benefits of any transfer to the defined contribution regime are:
- the opportunity to take your benefits as and when they’re needed
- the ability to keep your pension pot invested
- to keep contributing to your fund (even after you start taking your benefits)
- to pass on your remaining pension wealth to your chosen beneficiaries.
Is the time running out for me to transfer out of a defined benefit scheme?
For those considering the transfer of a deferred final salary scheme pension, the real issue is whether they’ll be better off if they transfer the cash value of this pension pot to a defined contribution arrangement such as a personal pension or a SIPP.
Final salary pension transfer values, known in the business as cash equivalent transfer values or CETVs, have recently been at record highs. That means there’s rarely been a better time to consider transferring out of your final salary scheme.
To get an idea of the lump sum you might get for leaving your final salary pension, the Drewberry Final Salary CETV Calculator can calculate a ballpark figure for you.
However, although timing might be a factor when it comes to reinvesting the proceeds of the transfer, it’s generally best to avoid trying to ‘time’ market investments.
For those who are still active members of a final salary arrangement, timing is far more important. Thanks to the greater security and indexation they offer, and the fact that transfer values can often be less than the net present value of the benefits, most private sector defined benefit scheme members are likely to be better off if they remain within their schemes for as long as possible.
For those who, after receiving advice, decide that it’s in their best interests to transfer, the timing of the move will have a significant impact on the value of the transfer.
Final salary pension transfer advice
Although it’s compulsory for all savers with a final salary scheme worth more than £30,000 to seek professional financial advice before transferring out, not every financial adviser is qualified to provide transfer advice. Those who are have completed rigorous training and secured professional qualifications.
I myself hold these qualifications and have many years of experience in this field. If you would like to consider your options please don’t hesitate to call me on 02084327333 or email me at firstname.lastname@example.org.
Pension Specialist at Drewberry
Frequently Asked Pensions Advice Questions
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