Answered by Stephen Moore
Getting to grips with your pensions
Today a lot of people have built up a number of pension funds with several different employers.
If you have a number of different pension scheme arrangements, the best way to get the process started is to contact each of your schemes – whether they’re defined benefit arrangements that are run by your former employers or personal pensions – and request a ‘transfer offer’.
Each will provide a written response. In the case of a defined benefit arrangement this is called a cash equivalent transfer value (or CETV) and will be guaranteed for three months. By contrast, defined contribution transfer values aren’t usually guaranteed.
Once you have a set of up-to-date valuations on each of your pension arrangements, you’ll need to sit down and work out whether you’re likely to be better off by leaving them where they are or moving them to a new portfolio.
This has the benefit of putting all your pension savings in one place. If you move your savings into a SIPP, you’ll benefit from the extensive investment options that are on offer and the ability to manage your entire portfolio from a single screen.
Transferring a final salary pension
However, if you have defined benefit (final salary) rights it’s a complicated process. This is because, essentially, you need to compare a set of relatively rigid benefits that are guaranteed for life with the wide array of potential benefits that come with defined contribution (money purchase) arrangements.
The latter offer far greater flexibility on all fronts, especially since the introduction of the new pension freedoms in 2015. That’s why the new rules also introduced the legal requirement to seek professional advice on any such transfer of over £30,000 in value.
This is just as well as although you’ll need to pay a fee for any advice you receive, very few of us have the necessary background required to make such a comparison.
A good adviser can handle the process right form the outset and maintain close contact with your scheme administrators to ensure you have all the required information at your fingertips.
Together, you and your chosen adviser can work out how much your transfer is worth – both as a future source of income and as a financial asset that can be passed to your beneficiaries.
Your adviser should:
- Provide their professional opinion on whether the transfer makes good sense for you;
- Help track down any missing or lost pension entitlements you may have;
- Ensure your old scheme will authorise a transfer and that your new scheme will accept one;
- Explain any fees or charges attached;
- Discuss your options for when you could afford to retire;
- The various combinations of tax-free cash and income open to you;
- Highlight options such as flexi-access income drawdown;
- Generate a projection of the investment performance that your new arrangement will need in order to at least match your previous benefits;
- Design a portfolio for your transfer that matches your individual needs.
To do all this, your adviser will need to take a look at your finances in the round as it’s not just your pension assets that will be providing your income in retirement.
This means that there are probably two aspects to sorting out your pensions once and for all. The first is to contact your existing scheme providers to request transfer offers. The second is to find a reliable adviser who’s well versed in this field and can show you how to optimise the value of your hard-earned pension savings.
Frequently Asked Pensions Advice Questions
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