Since pension rules were relaxed and people were given more choice about how and when they can withdraw from their pension, there has been a lot of interest in final salary pension transfer. But what is it, and could it help you? Read on to find out all about your final salary pension and if you should consider an early transfer.
How Your Pension Works
Traditionally, you would pay into a pension pot and then withdraw from that pot once you reach retirement age. How you pay into that pension pot depended on your pension scheme – some employees would pay with a portion of their monthly paycheque, but another method is called the Final Salary Pension. Instead of paying each month, your employer agrees to pay you an amount for your pension based on your final salary and the length of time served.
Should I consider a transfer?
If you are or were on a final salary pension plan then you have some options available to you that you didn’t have until recently. The government has opened up these pension plans which means you are now allowed a final salary pension transfer. Since pensions deal with significant sums of money, unfortunately there are a lot of cases of pension mis-selling and mis-sold pension claims. If you feel you have been victim to any of these, make sure to get claims advice. You should always consider your options carefully when managing your pension, but transferring your money out could work for you.
What are my options?
If you have such a pension plan with your employer, then chances are they are managing the funds and you can have little more involvement than collecting your monthly pension if you so choose. However, fewer companies are offering such pension schemes and there have been notable instances of companies collapsing and raiding pension funds before liquidating. If you’re worried about the safety and security of your pension long-term, you may feel more comfortable by being in control of where and how your pension is invested.
Why should I transfer?
There are some advantages to transferring your money. The most common reason for people to transfer from their current pension plan is so they can put the money in a SIPP (self invested pension plan). There are plenty of providers offering services akin to a marketplace for stocks and shares. If you’re comfortable about picking your own investments, you could choose that and have total control over your pension money. If you’re less comfortable with that, you can still choose to have your pension money managed at any other provider of your choosing.
The other advantage to transferring your money is to take advantage of the rule allowing you to 25% of the fund tax-free if you’re over 55. If you’ve been paying into your pension for your whole career, that could be a significant sum of money to get early access to. Be careful, however, as these lump sums unfortunately attract pension mis-selling scammers and has lead to many people filing mis-sold pension claims. Be sure to get claims advice if you think this has happened to you and always consider your options carefully.
In recent years a lot of flexibility in how you can manage and use your pension has opened up. Now that employers are required to provide pensions for almost all employees, it’s definitely worth paying attention to yours no matter what your age. There are a lot of options out there, so always do your research before deciding!