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Final Salary pensions: Why are transfer values rising?
New research, by Xafinity, has shown that Final Salary pension (also known as Defined Benefit pensions) transfer values rose by 3% in August.
The rise is predominantly due to a fall in the yield on gilts, which are routinely used to underpin the guarantees provided by Final Salary pensions.
The trustees of every Final Salary pension calculate transfer values differently, so not all will be rising at the same pace. However, the general increase, plus new rules, which from 2019 will communicate the value of their Final Salary pension to members, is likely to lead more people to consider a transfer.
Figures published earlier this year, also from Xafinity, showed a massive 166% increase in Final Salary transfers during the first quarter of 2017, compared to the first three months of 2016.
Over 11 million people have Final Salary pensions, which provide valuable benefits, including:
A guaranteed income for life
Indexation, protecting, in part at least, the income from being eroded by inflation
A spouse's pension should you die before your husband, wife or civil partner
However, there seems little doubt that rising transfer values, coupled with the introduction of Pension Freedoms, are leading to more people than ever transferring their Final Salary pension.
But, is it really a good idea?
For most people, transferring their Final Salary pension isn't the right thing to do; the guaranteed, inflation proofed, income, along with the spouse's pension, is just too valuable to give up.
However, there are occasions when it might make sense to consider a transfer. These include:
The desire to pass on a lump sum after death
A requirement for a more flexible income, especially when essential expenditure is already met from other, guaranteed, income sources
When the spouse's pension will never be used
There will, of course be others. However, the decision to transfer is irreversible. It must therefore be taken with care.
Final Salary pension transfer advice
Indeed, if your transfer value is more than £30,000, the Pension Freedom rules state you must take independent financial advice before making your final decision.
That rule is designed to stop people making an irreversible mistake with their Final Salary pension, which they will come to regret later in life. However, for many people, it can be frustrating, often seen as a hurdle, preventing them from accessing "their" money.
We see it differently and believe good quality, independent, financial advice, from someone suitably qualified and experienced is invaluable. Especially if it prevents a mistake which could make you significantly worse off in retirement.
There is little doubt that Final Salary pension transfer values are rising (how long this will continue, we do not know), and that increasing numbers are moving theirs to an alternative arrangement. However, that doesn't mean it is always the right thing to do. Only good quality advice can confirm that.
If you are considering transferring your Final Salary pension and would like to discuss your options we are here to help. Sarah and Bev, our financial advisers, are:
and would love to hear from you on 0115 933 8433 or by emailing info@investmentsense.co.uk
by Phillip Bray
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