Why are the fees so expensive to transfer? I can do this myself I don’t want to pay these fees…
It might seem patronising that the FCA requires all final salary schemes with above £30,000 transfer value to get advice, but it’s for good reason, although many might not agree. As this is the way then it’s best to get this done in the most cost effective and efficient way possible. Talk to us and we can facilitate such a transfer in the best way possible for yourself, at the best price.
Although believe us when we say, it’s not just signing a form, if only it was….
1. Death Benefits
If you die within a few years of taking benefits from a DB scheme then your scheme will pass on to your wife or partner, usually at 50% of that initial income. If your partner then dies, this money then stops getting paid. This could mean a small pay out, or a very large one if you live for a long time. A drawdown plan, on the other hand, is controlled by the member. On death the entire amount goes to the wife/partner or child and can be paid however they would like, with no limitations and nothing is kept for the insurance company.
I once spoke to a friend who worked at Prudential and when they had a death in the annuity team the bell would ring to signify a lump sum to go to Prudential from the pension pot. I hope this story wasn’t true but annuities make life companies very rich when a death occurs.
A DB scheme pays a set income, this may well increase in line with inflation or another such increase, but ultimately this is a fixed income. That may not be such a bad thing but if you need a lump sum for an emergency or want to reduce or increase income, for whatever reason, this is not possible, whereas a drawdown plan will have this flexibility. When people first retire money will be spent and this could happen well in to their 70’s, but as people get a lot older they become less active and spend less money. In effect, a DB scheme will provide the most money just at the time the member may not require it. A drawdown plan can adapt to changing lifestyles.
3. Personal Circumstances
Are you single, have a family? You may feel as as single person you need to get the most income possible, this could be done via a drawdown plan to exhaust money sooner than it may come out of the DB scheme. You may feel as a single person that you are determined not to leave it all to the insurance company or scheme if you die early. As a family man/woman you may want to ensure that all money is passed on to your family in the event of your death. You may feel that flexibility is needed so that lump sums can be taken from a drawdown plan to pay for a child’s deposit for a house. The ability to call on the money in an emergency may be something you want from your pension.
Do you need an income? Are your outgoings taken care of already? Will you be taking money out that will potentially be liable for a tax charge? Pension money is outside of your estate for inheritance tax purposes so many people may feel they want to take pension money last of all.
Is it a risk to be invested in Drawdown? You may well argue with the turmoil in the DB pension market and with many schemes closing and failing; BHS, Toys R Us, Monarch, Bernard Matthews, to name but a few, that these failures could mean that your DB scheme is at risk. Once your pension is in payment, you are not exposed to such a risk so you need to understand what risks you are exposed to.
Married with one dependant child, has been offered a transfer value of £502,000 which represents over 40 times his final salary pension amount. He wants to cash in his pension.
Married with no children and a transfer value of £74,000, the pension available at 65 of £3,400 a year will be insignificant and he felt he could do better with the money himself.