Final Salary Pensions

People employed or previously employed by large companies may have enrolled into the firm’s Final Salary pension scheme.

Final Salary pensions, sometimes called Defined Benefit (DB) or Gold-Plated pensions offer the employee a secure income for life and usually increase year on year up to and throughout retirement.

Start Pension Assessment

Why do I need financial advice with a Final Salary Pension?

The Financial Conduct Authority’s stance on Final Salary schemes is that a transfer is unlikely to be in the best interests of most people. The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

If we give you advice, we will give you one of two outcomes. The first outcome being that we can demonstrate that the transfer is clearly in your best interests, suitable for you and would result in a transfer recommendation. The second outcome would result in a maintain recommendation, meaning that it is not in your best interest to transfer and remaining in your current scheme is the most suitable outcome for you.

It’s a legal requirement to seek expert advice from a fully qualified Pension Transfer Specialist for any Defined Benefit Pension valued over £30,000 or more if you are considering a transfer. At Pension Works, we hold the necessary qualifications to advise on Defined Benefit pensions.

At Pension Works, our Independent Financial Advisers will assess your Defined Benefit pension and the Cash Equivalent Transfer Value (CETV) you’ve received, along with a number of other careful considerations in order to determine if transferring the pension to a Defined Contribution policy is in the best financial interests for you.

Considerations - Why transferring might be right for you

Tax-free cash

Final Salary schemes work out the amount of tax-free cash you can take in a different way to a Personal pension. You could get more tax-free cash with a defined contribution pension.

Poor Health

Unfortunately, not everyone enjoys the same level of health yet a Final Salary pension will not take your state of health into account when establishing your income. Sometimes, transferring to an annuity with another provider could offer a higher level of income, particularly if you have a limited life expectancy.

Flexibility

A Final Salary scheme has a set retirement age and pays a fixed income that cannot be changed. A Personal pension allows you to control how much income you withdraw and at what time, and lets you alter this as your needs change over time.

Death benefits

A Final Salary pension will normally pay a lifetime pension to your spouse or Civil Partner in the event of your death. Yet if you are single and have no dependants, the benefits will likely stop on your death. A defined contribution pension will allow you to nominate your chosen beneficiaries to receive the remaining fund value on your death.

IHT Planning

You are usually able to pass on pension funds free of inheritance tax (IHT), so if you are able to forego the income provided by your Final Salary pension and fund your lifestyle using assets held outside a pension wrapper, this may enable you to reduce your IHT liability and to pass on your pension savings tax efficiently.

Control Tax on Withdrawals

Moving your Final Salary pension to a Personal pension plan could help with better income tax planning. If available, flexi-access drawdown enables you to control how much income you withdraw throughout your retirement, helping you manage your income tax liability.

Considerations - Why transferring may not be right for you

Management of Investment risk

A Personal pension is always more risky than a Final Salary as the value of the pension could go down as well as up depending on the success of your investments. You or someone you pay will also have to manage this risk.

Income for life

Final Salary pensions will give a secure income for life, regardless of how long your retirement lasts. A Personal pension has a fund value that you’ve built up, and once that fund has run out, you will receive no more income.

Guaranteed income for dependants

Based on the scheme rules, your Final Salary pension will normally provide an income for your dependants when you die for the rest of their lives too. You would lose these guarantees moving to a personal pension.

Concern about overspending

Keeping a close eye on your income and spending is important if you transfer your Final Salary pension to a private pension as you no longer have the fixed guaranteed income. There is more of a risk that you could run out of funds before you die unless you have other pension pots available.

Losing inflationary protection

Final Salary pensions rise in line with inflation, if you transfer to a Personal pension you are not guaranteed the same inflationary protection.

Transfer charges

Transferring from a Final Salary pension could incur charges from pension providers, platform operators, or investment managers which would be deducted from the transferred pension pot.

Fall in pension pot value

The value of your pension pot can go up and down, you may not be comfortable with falls in the value of your investment.

Potential lifetime allowance problems

The way Personal pensions are assessed against the lifetime allowance (the amount you can save in a pension without incurring a tax charge) is less favourable than a Final Salary scheme. A transfer could mean that you end up paying a higher lifetime allowance tax charge in the future.

Our Process

Initial Engagement

At the start of the process our client engagement team will explain everything to you, this will involve you being asked to watch our ‘triage’ video and review a series of case studies. If you wish to proceed we will issue our Terms of Business and provide an overview of our charges. We may also ask you to sign and return a Letter of Authority for your pensions(if you haven’t already done so).

Information Gathering

Your signed Letter of Authority will then be sent to your pension provider(s) to gather all the relevant details of your scheme(s).

Fact Find

Our bespoke online fact find has been designed to gather as much information as possible about your financial life and your objectives. Accurately completing this will ensure that we have sufficient details about your personal circumstances to help us decide if a transfer will be in your best interests.

Abridged Advice

A qualified Pension Transfer Specialist will then review your case to provide Abridged Advice. This is a shortened form of regulated advice which will determine whether a transfer-out of your Defined Benefit scheme is suitable. This will be presented to you in our Abridged Advice report and your adviser will call to discuss the outcome with you.

Full Advice

If the outcome of the Abridged Advice is that a transfer may be suitable, you can choose to proceed through to Full Advice upon commitment to paying our advice fee at the end of the process. This will involve a full analysis of your pension scheme, in respect of your objectives to deliver a personal recommendation. A full report will be issued and your dedicated Financial Adviser explain the advice to you.

Transfer

If a transfer is recommended and you wish to proceed we will then facilitate this for you.