The questions arising about who should transfer their UK pension from a final salary scheme is something we see daily in articles, blogs and adverts. I have recently heard of transfer values being offered of up to 60 times the promised pension. Given these, dare I say, inflated valuations it is hardly surprising that many are asking advisers to transfer their UK pension to somehow take advantage of this.
The previous Pensions Minister seemed to extol the virtues of this, and is now being held out as an example to those that have a vested interest in getting some to transfer their UK pension.
“Introducers” are also pushing the apparent advantages of a transfer from final salary schemes on the back of the higher transfer values and the supposed risk of staying in a final salary pension scheme.
But, is there always an advantage?
My answer, and this is my own personal opinion, is that the only people that should transfer their UK pension (DB schemes) are those that can genuinely afford to take the risk.
What do I mean by afford? Well, I am not referring to the advice fees or the commission taken by non-UK firms that can be excessive. I am referring to the cost to the pension income in retirement.
Being told to transfer their UK pension to de-risk is laughable, albeit worrying. There is no de-risking at all, it is a transfer of risk from the employer’s scheme to the individual. The original risk is with the scheme and the sponsoring employer who is guaranteeing a pension, with back up from the Pension Protection Fund if things go awry. After transfer the onus of accepting risk passes entirely to the individual and the adviser to provide a suitable replacement- perhaps up to the age of 95 or more! Therefore, the risk may not be apparent for several years.
Who can afford to transfer their UK pension?
Only those that can accept loss and problems with the resulting pension, if they arise, in later retirement. By that I mean, those that will not be adversely affected throughout retirement as they have other income or assets that will provide a suitable income – whatever happens to the transferred pension.
There are genuine reasons for considering a transfer, but misleadingly suggesting a reduction of risk and a failure to understand and analyse the clients’ capacity for loss and the effects of such a loss will lead to all sorts of problems in the future.
The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not except any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.
This article was published on 9th May 2017
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