Answered by Stephen Moore
A missed opportunity
Like a number of other public sector pension schemes such as those of the armed forces, police, civil service, NHS and teachers, the Firefighters’ Pension Scheme is what’s referred to as an ‘unfunded’ or ‘pay as you go’ scheme which is paid out of general taxation rather than a large pot of scheme cash.
Such commitments already place a huge strain on the UK economy with the Office of National Statistics recently estimating that the current cost of paying out all these future pensions stands at over £850 billion – almost 60% of the UK’s GDP.
No transferring from unfunded schemes
With little advance notice, the government announced in early 2015 that members of unfunded public final salary schemes had just one month to undertake transfers before the door was closed by the legislation introduced in April of 2015 as part of the new pension freedoms.
The move was intended to protect government from the need to borrow in order to meet the huge potential cost of the transfer values that might be involved. It’s estimated that around a fifth of adult Britons will have deferred rights in one of the UK’s unfunded schemes. But, as it stands, unless they transferred out before April 2015 they’re now stuck with these scheme benefits.
Not all is lost
This may be no bad thing. Such schemes benefits are far more generous than those found in the private sector and, as they’re government backed, they’re among the most secure of all pensions.
We often recommend that clients maintain smaller final salary benefits as they provide an excellent source of guaranteed income in retirement. This can be used to ensure that regular ongoing costs such as food and household bills are always met.
You can always use any money purchase benefits you may have to plan for tax-free lump sums and the additional income you may need over the course of your retirement.
Frequently Asked Pensions Advice Questions
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