Final Salary Pension Advice

In 2015 the Government implemented changes to how those saving for retirement could take their benefits. This new legislation was widely referred to as Pension Freedoms. We will explain how this will affects a Final Salary Pension Scheme.

FINAL SALARY/DEFINED BENEFIT PENSIONS

The pensions freedoms to made by the government in 2015 did not apply to those whose retirement benefits were held in a Defined Benefit (DB) arrangement, commonly called a Final Salary Pension Scheme.

As a result there has been huge interest from people with DB benefits in transferring these to a Defined Contribution (DC) arrangement that they can then use to take advantage of Pension Freedoms. There are reports that the number of requests for transfers has tripled since the introduction of pension freedoms. Typical examples of DC arrangements are personal pensions and stakeholder pensions.

We understand this can be a little daunting and so we’ve put together a summary to help you understand the sorts of things you need to consider carefully before deciding if transferring your DB benefits is right for you.

Anyone who has DB benefits with a transfer value over £30,000 is required by law to take financial advice before they can transfer to a DC arrangement.

OUR REGULATORS GUIDANCE

Our guidance to you regarding Defined Benefit pensions starts with the assumption that a transfer will be unsuitable for a client. This starting point does not mean a transfer will not be suitable, but the process, rationale and advice for any positive recommendation should be clear, detailed and comprehensive.

Any recommendation will be personal and provide by one of our Pension Transfer Specialists (PTS) and will be supported by an appropriate transfer value analysis (APTA). This will clearly show the benefits being given up and the cost of purchasing these benefits if the funds are transferred into a Defined Contribution (DC) environment.

The process we go through starts with our Triage Service which we do not charge for. This allows us to ask a number of questions relating to your defined benefits (DB) prior to looking at specific details with the aim of assessing whether our full advice process may or may not be worthwhile progressing with.

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WHY TRANSFERRING MAY NOT BE RIGHT FOR YOU:

  • Not wanting to take on Investment Risk
  • Guaranteed Income for life required
  • Guaranteed Income for your dependants
  • Lifetime Allowance Limits

WHY TRANSFERRING MIGHT BE RIGHT FOR YOU:

  • High Transfer Values
  • Flexibility when drawing benefits
  • Higher Tax Free cash
  • Increased death benefits and inheritance
  • Whether you are in good health or not
  • Poor Scheme solvency/funding level
  • Control

TRIAGE SERVICE

This helps us to quickly identify if a transfer to Defined Contribution (DC) is likely to be more appropriate for the client than retaining their existing Defined Benefit (DB) Pension. It allows our client’s to better understand if moving from the ‘safer’ DB environment is likely to be right for them before incurring the time and expense of full transfer analysis and advice.

At a high level, the complications of DB transfers can be broken down into four key considerations:

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The following questions allow us to quickly assess whether the existing DB plan is a good fit for our client, or if a transfer might be appropriate and merits proceeding to advice.

NEEDS

  • What income do you need in retirement and how does your DB pension compare to this?
  • Are you comfortable taking investment risk?
  • Is tax or legacy planning more important to you than a guaranteed income?

VALUE

  • Sustainability
  • Are you in good health?

Sustainability

  • Do you need the guaranteed DB income?
  • Could you run out of money if you transfer?
  • Do you have other assets to fall back on?

Understanding

  • How do you feel about moving from a safe, guaranteed retirement income for life to a flexible pension pot subject to market fluctuations?
  • What is it about the guaranteed income for life which does not appeal to you?
  • What will you do if you transfer and your plans go off track?

FULL ADVICE PROCESS

Once a client decides that they would like a full analysis, review and recommendation on whether their defined benefits pension should be retained or transferred, there are two main steps as follows;

1. Assessment of benefits

This involves obtaining a letter of authority so we can contact the scheme administrator of your scheme to get full details on your benefits, running an appropriate transfer value analysis (APTA) and formalising this in a summary document which sets out the benefits you have.

The charge for this service is £750. For existing clients where we provide an ongoing advice and review service this fee may be waived.

2. Implementation

If, after our further discussions our advice is to transfer your benefits to a personal pension environment we will make our formal recommendation on the transfer, the new product and underlying investment portfolio. Our charges will be dependant on the value of the funds being transferred as follows;

Under £50,000
a Fixed fee of £2,000
£50,000 to £99,999
4% of the investment
£100,00 to £499,999
3% of the investment
£500,000 +
2% of the investment

For further information, or to speak to one of our Pension Transfer Specialists, please either call on 01273201813, or email on [email protected]