Know What Final Salary Transfer Means
A final salary pension is a kind of defined benefit pension that pays out a secure income for life at retirement. Increases also apply on the amounts received throughout retirement. Some people consider moving their defined benefit pension to a defined contribution pension arrangement as these can be accessed more flexibly so this might seem like an attractive option. A final salary transfer involves giving up the right to this pension, along with all its guarantees.
If you decide to transfer out of your defined benefit pension scheme, the trustees who run the scheme convert the benefits into a cash sum. This is called a ‘transfer value’ (also known as a ‘cash-equivalent transfer value’ or ‘CETV’).
When you opt for a final salary transfer, you are effectively giving up guaranteed income during retirement, along with all other benefits offered under the scheme. Agreeing to the pension transfer also means taking on additional risks such as investment performance. This is why it pays to seek the advice of a pension transfer expert so you can better weigh up the implications of your decision.
Any potential advantages of transferring from a defined benefit pension scheme to a defined contribution one can often be outweighed by the costs, risks and loss of benefits involved. That said a pension transfer specialist will discuss the advantages and disadvantages, taking into account your personal circumstances and objectives, looking at all your options and making a recommendation whether to transfer or not.