We have been receiving a lot of enquiries from people wondering whether they should be transferring out of their private sector final salary pension schemes.
Not that long ago, it would be very unusual for an adviser to recommend coming out of such schemes, as the inbuilt, guaranteed benefits that would be given up rarely made a transfer attractive.
However, transfer values being offered from such schemes have increased dramatically in the past couple of years, mainly because UK Government bond yields, otherwise known as Gilt yields. Since the financial crisis in 2008 Gilt yields fell significantly, and because transfer values are inversely correlated to Gilt yields, as Gilt yields continued to fall, transfer values continued to rise.
The large transfer values on offer meant that transferring out became increasingly popular, but is it the right thing to do? it is important to remember that by transferring you’ll be giving up a guaranteed source of income for the rest of your life. If you are relying on this as a major part of your income in retirement, then in some cases transferring out would not make sense.
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For others, the ability to have more flexible access to their pension capital and greater control over how and when they retire can make a transfer attractive. The ability to pass on a pension fund as a lump sum to your family upon your demise, rather than a widow’s pension payable to a spouse or partner, is also a consideration that can make a transfer out appealing.
If you are in this situation and are considering transferring out, or you are unsure about the effect of gilt yields on your pension value, you should seek independent financial advice before making any decisions, as once done, a transfer cannot usually be undone.
A financial advisor will talk to you about the type of plans you can transfer to, the sustainability of income if you do transfer, your investment options for the capital coming out of the scheme, and help map a tailored financial planning route for both pre and post retirement to help you make the most of what you have.