Defined Benefit or Final Salary pension schemes are those whereby a company guarantees its employees fixed income payments from their company pension scheme in retirement. These fixed payments are calculated based on the scheme members ‘final salary’ at retirement.
Due to the long-term financial commitment these payments impose on the company, many are offering members a cash sum ‘transfer value’ to leave the scheme. This is often referred to as a cash equivalent transfer value (CETV).
In some cases employers will offer a financial incentive on top of this transfer value. This might be through an ‘enhanced’ transfer value or an additional, separate, cash sum.
While transferring out of these schemes may not be suitable for everyone, there are plenty of people for whom this might be extremely beneficial.
Transfer values vary between companies. Often, the larger your company the more generous your transfer value is likely to be. Large financial companies, banks, insurance companies and FTSE 100 tend to offer the best transfer values. Our team have recently advised on transfers offers from Barclays, Aviva, Rolls-Royce to name but a few.
Let’s look at an example. Harry is 64 years old and his final salary pension would currently entitle him to fixed payments of £10,000 a year, starting at age 65. The equivalent transfer value is around £232,000! (source: xafinity.com, Jan 2017).
Even if your final salary scheme has not calculated a cash-equivalent transfer offer for you to consider, you have the right to request a transfer value calculation once a year for free. Once a value is given it must be accepted within three months otherwise it will need re-calculating. That means that speed of advice can be crucial if you’re considering a transfer.
It is important to note that for many people, remaining in a defined benefit scheme is in their best interests. But if you:
Then transferring may be suitable.
When scheme members are offered a transfer value they only have three months to accept the offer before it is recalculated. We have designed our processes to ensure that we are able to provide a recommendation to you, dependant on complexity, in as little time as possible.
Our team have over 100 years’ experience in pensions and investments. We’ve advised on final salary schemes and transfer offers for FTSE 100 and 250 companies like Barclays, Aviva, HSBC, Tata, Rolls-Royce and many more.
We will undertake a thorough review of your situation looking at all the options available to you. Only then will we provide a diligent recommendation of what we believe is the best course of action. This will be based on your individual circumstances and what you are looking to achieve.
Price might not be the most important consideration when choosing an independent financial adviser but it’s definitely up there. With all else being equal, the more you pay for advice and investments the less value you’ll see from your transfer.
We believe our charges are extremely competitive, but if you have a better offer we’ll be happy to discuss your situation.