It is important to note that our approach when reviewing when reviewing pension transfer case involving 'Defined Benefit' schemes (also known as 'Final Salary' schemes) is to to start with the presumption that, in most cases, transferring away from the 'Defined Benefit' scheme is not in the individual's best interest.
To briefly explain the rationale behind our stance, it is important to understand the basic difference between 'Defined Benefit' ('Final Salary' scheme) and 'Defined Contribution' scheme (Money Purchase scheme) and how benefits are funded.
With a 'Defined Benefit' scheme the pension income the individual receives at retirement is based on the number of years’ service and, in most cases, their 'Final Salary' with the employer.
Typically, this type of scheme providers benefit to the Individual (current or former employees) based upon length (years, months and days) of service.The main benefit of these types of scheme is that the pension available to the individual at retirement can be pre-determined(subject to various increases due to inflation) irrespective of how the financial markets performing.This is because the pension paid is not dependent on investment growth as it is a promise from the sponsoring employer.
While 'Defined Benefit' schemes can be transferred into another employers 'Defined Benefit' scheme, more commonly in the private sector, transfers from an existing scheme will typically be placed into an alternative arrangement-a 'Defined Contribution' scheme(also known as Money Purchase schemes).
With 'Defined Contribution' arrangements, the benefit payable at retirement are based on the amount of money paid into the scheme, how well the investments perform and when the benefits are drawn via 'income withdrawal',whether the pension and the underlying investments can sustain income for the remainder of your life.As such, the pension paid is heavily dependent on investment growth as there is no promise or guarantee to pay a minimum level.
Where an individual is looking to secure income in retirement, the benefits payable will depend on several factors, for example, the fund size along with annuity and interest rates at the date of retirement.
Alternatively, where a flexible income strategy is required, it will be reliant on fund size at retirement, the level of income required at various life sages and the performance of the investments within agreed risk parameters. These factors mean that the certainty or guarantee available with 'Defined Benefit' scheme in regards to pension income is lost once the benefits have been transferred away.
It is important to note that a transfer, once completed, cannot be reversed.
As such, based on the above, we would not recommend a transfer unless we can demonstrate, taking all relevant factors into consideration, that it is in an individual's best interest to do so.
There is a set timescale for transfers and this runs from the day the transfer is provided, the timescale is 90 days, if the offer is not transferred within this timescale a recalculation is required by the scheme with additional charges payable to the trustees.
*We do work within these timescales however we provide no guarantee that this can be completed within the timescale due to circumstances outwith out control.
Have your pension reviewed now, we offer the following services;
A firm that is regularly advising on transfers is much better placed to advise you, than one who does so infrequently. At Advanced Asset Consultants Ltd. we have a dedicated Pension Desk that will guide you through the full transfer process. With the knowledge and experience to challenge scheme information and transfer values, we can help improve your transfer value.
1. Initial Discovery
Our first step is all about getting to know you. What is important to you, what are your needs, and what are your aspirations and concerns?
2. Willingness and Ability
Whilst you may be willing to transfer, are you able to cope with the associated risks, costs and potential uncertainties of leaving the guarantees of the scheme?
3. Scheme Information Request
Engage with the scheme to gather all the information to undertake the transfer value analysis (TVAS), in our experience this can take several months to complete
4. Cash Equivalent Transfer Value (CETV)
Request the cash equivalent transfer value from the scheme – this is only valid for 90 days therefore it’s important not to request it too soon otherwise you may be charged for a new transfer value
5. Full Analysis
Our full holistic analysis includes lifetime sustainability modelling taking into account all of your personal needs, objectives, goals and concerns, we’ll report to you with a personalised recommendation in a jargon free manner
We’ll help you to decide whether to stay in the scheme, transfer out of your scheme or defer the decision until nearer your retirement
The process ensures that we manage your journey in the most efficient and effective way possible, ensuring you receive personalised advice that will provide you with a recommendation to meet you and your family’s needs and objectives.
George Osborne started a pensions revolution in late 2014, opening up a wealth of new options and having a profound impact on the way people use their pension savings in retirement. Rules and tax treatment changes to personal pension accounts in retirement came into effect in April 2015, making them considerably more attractive.
These changes simultaneously rang the death knell for annuities. Over the past twenty years, annuity costs have soared as risk-free investment returns have fallen and life expectancy has risen. Annuities are an inflexible and irreversible retirement product that lock in current interest rates and lock out further investment opportunity or access to capital.
Not only are they expensive but they look increasingly outdated for modern retirement, which can extend over 25 years with periods of very different income and capital requirements. Even when rates were more attractive, annuities were never popular primarily because of the implicit gamble they represent. Those who die young do badly and end up subsidising those who live longer. Annuities are ultimately worthless to the next generation.
It is not surprising that within months of the legislative changes being announced, annuity sales collapsed. Swathes of people are using the new rules and using pension drawdowns to access their pension savings in retirement.
According to the HM Revenue & Customs (April 17), a total of £10 billion in pension assets had been withdrawn and the Association of British Insurers stated that annuity purchases have fallen by approximately 62%. The Association estimates that this trend will continue as people begin to more fully understand the options available to them.
Sunday February 10, 2019
£21.6 billion has been accessed since pension freedom were introduced,in 2018 730,000 individual withdrew £6 billion from their pension holdings.Most of the withdrawals represent small amounts circa £8,000 per individual. However there are clients who have accessed much larger pots by way of Defined Benefit transfers and moving into drawdown to access the flexibility that …
Sunday February 10, 2019
The chances of a client fully understanding the implications of a transfer will vary across the market, most clients who receive an option to transfer focus on one thing and one thing only the “BIG” number on that bit of paper. This can be considerable and may well be an eye-watering number moreover their biggest …
Friday November 02, 2018
“A goal properly set is halfway reached”. Zig Ziglar The key to building wealth Our life is an endless series of daily choices, and how we manage those choices determines the outcome of our life. We all want financial freedom, but how will we achieve it? Financial goal-setting is the key to building wealth. There …
Saturday June 30, 2018
Traditionally when retiring an annuity was purchased providing income throughout life providing longevity protection with over 700,000 pension holders accessing their pots, 17% of which have purchased some form of an annuity, not that surprising I hear you say. However, annuities purchased from existing providers (clients not using open market option) are still hovering around …
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Registered in Scotland SC362302 Advanced Asset Consultants Ltd. is authorised and regulated by the Financial Conduct Authority FCA Registration No: 506551 The Financial Conduct Authority does not regulate National Savings or some forms of mortgage, tax planning, taxation and trust advice, offshore investments or school fees planning.
The information contained within this site is subject to the UK regulatory regime and is therefore targeted primarily at consumers based in the UK. This website is designed to provide you with general information only and does not attempt to give you advice on any particular investment or to recommend any particular investment to you. If you have any doubt as to whether a particular investment is suitable for you, you should contact Advanced Asset Consultants Limited on 0141 331 2434.