Anyone know about final salary pensions/ transfer out/CETV?

[YaasssQueen]

Just looking at final salary pension stuff on line and I can see some options around transferring out with an enhanced Cash Equivalent Transfer Value, which I guess is like a sweetener from the pension trustees? A "Take your money please so we don't have to manage it for you, and here's a top up to make it even more attractive"

But what do people do with it then? Do you decide which pension to invest it in as a lump sum? Or do you get the option to take a lump sum now and put the rest in a fund?

I know quite a few people at work have recently cashed theirs in early (good Final Salary scheme from an ex-government organisation) and i have been there longer than them!

But I don't really understand what the benefit is. Can anyone explain please?

The cashing in/transfer of final salary pension schemes is heavily regulated and any advice on pros and cons of doing it needs to be done by an independent financial advisor. Money transferred out is still held until you reach retirement age though and you can’t take any lump sum until then.

A Government body called The Pensions Advisory Service offers free impartial guidance on this type of transfer (not financial advice). Would be useful to speak to them first before making any decisions, if indeed you were considering it.

It was really just to understand what it is- I'm reviewing all my finances at the mo (ha! Just my pension, mortgage and overdraft then 😂) and wondered what it even means.

I'll have a look at them, thanks @Jonsnowscodpiece

Unless for reason you think you have a shortened lifespan cashing in a final salary pension is generally not a good idea

Not sure what info you are looking for So sorry if this tells you what you already know, but at the moment you have a defined benefit pension. This will give you a set income once you reach retirement age. The amount you get will depend on your salary and the number of years worked for the company.

If you transfer this out you will lose the right to this income. In its place you get a transfer value, that you can only put into another pension, known as a defined contribution pension. This type of pension has no guaranteed income, you invest the money in the pension in funds, and then when you come to retirement age, you can take 25% of this as tax free cash and then take income from the rest, which will be taxed at your normal tax rate. You will not be able to take the money before retirement age without very heavy taxation.

That is it in a nutshell, but as a pp said you really need to seek some specialist advice on this before making any decisions. Final salary pensions are like gold dust for a reason!

I’m no IFA but you trade off a regular income with the responsibility in investing the fund yourself. It also can be transferred tax free as part of your estate, if you don’t spend it all in your lifetime, although it would be taxed as income when your beneficiaries take it. Depending on the commutation factor it may work out many years’ worth of pension payments. I suggest you get some proper financial advice and research it yourself - and maybe ask those who have cashed it in why they did it/ if they have regrets.

Trustee of a final salary pension scheme here. It’s about risk and return. Generally for most people low risks best strategy, so leave it in final salary scheme.

Is there a reason the CETV is enhanced? Is your scheme being bought out do you know? The enhancement wont be offered for ever, so it is worth taking the time to get some professional advice. Often enhanced cetvs will come alongside free/discounted advice from an IFA appointed by the company. Do you know any background to the enhancement?

I am looking into transferring out of a final salary pension. It pays out at age 60 but not enough retire/live on, though imo more than I would need once state pension kicks in. I really don’t want to work until age 67.

I want the option to take a higher income initially to enable me to retire in my late fifties then drop to a lower amount once I reach state pension age. I have no spouse to inherit but want to leave any funds that might be left to my DC. My final salary pension can only be left to a spouse.

My health is not great and I want to enjoy my retirement while I can. My gut feeling is that I won’t make old bones.

It is a big step to take so you need to look at the pros and cons for your own circumstances.

Private pension schemes are paying out low annuities right now. Retiring early with more money is a pipe dream.

It's also worth looking at the other benefits the Final Salary Pension has. Some have spouse benefits if you were to die first, but many private Pensions don't do that.

Oh no, @MyOMy that has burst my bubble a bit.

I had been hoping from a transfer value of almost a quarter of a million to take around £11k per annum for up to 12 years then just £2k or less from state pension age. Is that really unachievable?

Frog fairy, that sounds like a very frugal existence. Couldn’t you work a bit longer?

@Sarjest I currently earn less than £10k per annum so used to being careful. Luckily I am debt and mortgage free, plus am very much a home bird happy to live a simple life. I would have the 25% tax free lump sum as a buffer too.

My IFA has advised me that it would be wise to wait a few years for the new fund to grow. So while I had dreamed of retiring at 55 I accept it is likely to be a bit later.

Frogfairy, fair enough. I’m also going through the process and can see the flexibility it provides (the numbers aren’t the only thing to consider) but I accept it’s not for everyone.

If you head ver to the Money Saving Expert Forum, there is a talk board on Pensions and Annuities. There are several pension experts on there who might be able to help if you post and others that have transferred out. I think it is now a legal requirement to have advice if you transfer and that has to be 'signed off'? The stock market hasn't been good recently and with a world wide recession looming I'd think carefully about your options.

@Lightsabre I must confess that I am concerned about the implications of a global recession. I originally approached my IFA at the end of last year and was feeling frustrated at how slow things were moving, then Covid-19 happened.

My biggest fear would be not having enough money to live on if the pension value crashed.

I wish that my final salary pension was more flexible. It would pay £6k per annum from age 60 which is too low even for a frugal lifestyle but I really would not need £6k on top of my state pension. I will pop over to MSE, thanks for the tip.

OP, I have been doing the same as you, reviewing my finances etc over lockdown. I made an appointment with PensionWise through the gov.uk website and had a telephone consultation with someone who gave me impartial advice.
Make sure you have all information re your existing pension plans to hand before the appointment.
Good luck.

Could you not take your final salary Pension and do some part time work to make up the shortfall and give some purpose to the week?

Many people struggle after the holiday period of retirement when they find they have little in their life to do and can't afford to do more interesting things/eat out.

@FrogFairy you might be able to buy a fixed term annuity or benefit from a drawdown product (disclaimer - I am not an expert but I worked in the pensions industry a while ago and have recently helped my dad make sense of his options).

Remember to take into account inflation when thinking about future income needs.

there is a scandal brewing over the independent and regulated advice given to people that have taken these transfers. They are often a bad idea

@Kpo58 that is a possibility, though I feel ready to retire and five years feels like a long time atm. I currently job share so already part time. Unfortunately, every couple of years seems to bring a new health problem so there may come a time when I am not well enough to work.

@ DorisLessingsCat thank you for that advice, although I am dealing with an IFA I still like to inform myself so those options give me something to research for myself.

OP I hope you don’t feel that I have hijacked your thread and the advice I have had helps you and anyone else who searches for this subject.