March 31, 2017
In a final salary pension you’ll typically retire at the age of 65, and conventional wisdom has always been; you’ll work until 65 and then retire on a percentage of your income (via a final salary pension).
Morbidly under this arrangement, once you die your surviving spouse will get 50% of the pension until the end of their natural life and then pension dies with them. To give a monetary example:
Mr retires at 65 years old on £10,000.00 per annum
Death at 80. (£150,000.00 income from 65 to death at 80)
Surviving spouse is still alive and would then receive £5,000.00 per annum
Mrs dies at 85 (£25,000.00 income from 80 to 85)
TOTAL INCOME FROM PENSION = £175,000.00 AND PENSION FINISHES
The above example shows that when Mr retires at 65 and Mrs dies after at 85, the pension would have paid them £175,000.00.
This may seem a lot, but if you’ve ever had a final salary pension, no matter how long ago, you may be entitled to a Final Salary Pension Transfer that will give you the ability to retire earlier on more money.
Final Salary pensions DO actually have a calculated value long before you retire, however, you must ask for this information in a very specific format in order to make an informed choice if they are offering good value for money or not.
It is common for the transfer value to be comfortably in the region of well over £250,000.00!
The benefits of a Final Salary Pension Transfer:
- The bigger the firm, the bigger the deficit for them so they have a larger pay-out.
- If death occurs at any stage, then the amount is paid in FULL to your spouse/children TAX FREE! Using the same figures as the earlier example, it would mean the children would have received an extra tax free £75,000.00 (£250,000.00 transfer value less £175,000.00 taken on the same income level)
- You are in control of your capital. Moving from a Final Salary arrangement to a personal pension you own the capital and NOT the pension firm.
- You are able to retire early which a final salary scheme wouldn’t allow, or retire on more money at the same age. You choose, and not the scheme!
This process cannot be initiated without a Financial Adviser.
We are currently in a market which is, for various economic reasons, offering vastly inflated transfer values. Pension providers will offer transfer values which can be converted into ratios to determine its value which your financial adviser can calculate for you to ensure the analysis is bespoke.
However by law, you must speak with a specialised financial adviser in order to transact this business as it’s a regulatory requirement.