BIG questions about final salary pensions

We know final salary pensions can be confusing. Here’s some
answers about defined benefit pensions that might just help you get your head
around them.

This article is for information purposes only and is not financial advice – if you are looking for advice or considering changes over your own final salary pension, always seek financial advice from an FCA regulated party.

What does a final salary pension mean?

A final salary pension is a type of defined benefit pension that promises a guaranteed income in retirement, one that is index-linked and doesn’t cost members any fees to run. How much final salary pensions pay out in retirement depends on how long the person has been a member of the scheme, the accrual rate, and the salary they finish their career on (the longer you work there and the more money you finish on – the bigger your potential annual pension allowance).

Pensions like these are considered to be both rare and valuable in the UK today, with few employers leaving their schemes open to new members, while preserving the final salary benefits of those who remain in the scheme.

Should you transfer a final salary pension?

If you’re asking whether you should transfer your own final salary pension, then it’s a question that needs serious thought, and you should always seek independent financial advice. You can find out if a company or individual is regulated to provide advice by looking for their entry on the FCA register – it’s FREE!

While a final salary pension transfer may have been suitable for some people, many people end up unknowingly worse off in retirement because they transferred on the back of negligent pension transfer advice.

Pension transfer mis-selling can be hard to detect as it may appear that the pension pot is growing, but it may not be growing in-line with what the old pension would have provided, leaving people out of pocket without them noticing.

What happens to final salary pension on death?

Final salary pensions are considered to come with some
pretty generous Death Benefits. While the amounts can vary from one final
salary pension scheme to the next, if a member dies before drawing on their
pension then their spouse or any dependent children may be entitled to a draw
an income from the pension.

If you are a member of a scheme, you can make an enquiry as to what would happen to your final salary pension on death. If you are considering moving your pension to make alterations to your death benefits, always consult with an FCA regulated financial adviser.

Should I take a lump sum from my final salary pension?

Many people may be able to take as much as 25% of their
total pension value, tax free, from their final salary pension, either because
it is written into the terms or on a discretionary basis. This often becomes
available when the pension scheme member reaches 55, and depends on the scheme
rules.

Where it is advisable to take any tax free cash from your
final salary pension depends on your personal circumstances and the rules of
your specific pension scheme.

Many people were persuaded to transfer their final salary
pensions to get access to tax-free cash, but in many cases this may have been bad
advice.

Transfers away from final salary pensions often means giving up a guaranteed income in retirement.

Disclaimer

This article has been written for information purposes only and is NOT under any circumstances to be mis-construed as financial advice. Always seek advice from a regulated financial adviser.

Spencer Churchill Claims Advice are specialists in mis-sold pensions, including negligent final salary pension transfers.