Final Salary Transfers

Transfer values of UK defined benefit (final salary) schemes are reaching as high as 54 times that of an individual’s annual pension or can be as low as 11 times an annual pension, according to some financial advisers handling cases recently.

This gives an idea of the current state of the transfer market for these “gold-plated” pension types. These pensions differ to the other type, being Money Purchase (Defined Contribution).

This means that for the same pension benefit value, some generous schemes are offering £270, 000 on an example £5,000 annual pension and others as low as £55,000.

It’s easy to see why many people are looking at their pension pot now for valuation purposes. Especially post the onset of pensions freedoms.

One of the key factors determining the transfer value is the age of a client. The younger, the longer the discount period and the lower, the multiplier. A low value may also be a result of a poorly funded scheme.

Currently I would suspect those looking at their values currently (and possibly transferring them) are those more aware of factors that apply at different times of economic cycles on these pension types and are more in tune with the subtleties of a final salary/defined benefit pension. In some ways, it’s a bit like buy low, sell high. Obviously it’s not as simple as that when it comes to these pensions, but it is a factor.

I would also suspect that actual transfers are more at the larger £ values than the smaller pension pots, where advisers may be recommending against a transfer.

Ultimately it’s down to the individual’s personal circumstances, risk outlook, future requirements and needs and full understanding of the safeguarded benefits these schemes provide.

Figures from The Pensions Regulator found that up to 80,000 defined-benefit pension transfers were made in the year ending 31 March 2017. This represents a few billion.

So be very careful, but it might be worth a review just to take a look…..as the old adage goes, timing is everything.

Note: The Government insist that anyone wishing to leave a Final Salary scheme with a fund value greater than £30,000 must first obtain regulated financial advice.

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