ADVICE
Vintage view
I
t has now been more than two years
since the introduction of pension
freedoms. And yet the spike in demand
to cash in final salary or defined benefit
(DB) pension schemes continues to gain
momentum, with transfer values at record
levels.
With four qualified in-house pension
transfer specialists, Stockton-based Vintage
Chartered Financial Planners has seen a
surge in enquiries over the past 12 months,
with people keen to explore their workplace
pension options, safe in the knowledge that
they will receive expert, bespoke advice,
focused entirely on their best interests.
Final salary pensions are a type of
workplace pension that offer workers a
guaranteed income for life when they retire.
The income received in retirement is based
on a percentage of the worker’s final salary
multiplied by the number of years they have
been in the scheme. As well as typically
being inflation-proof, most schemes of
this type tend to offer a continuing spousal
income - usually 50 per cent - upon the
dea th of the pension holder.
For a number of reasons, not least an
increase in life expectancy, final salary
schemes have become increasingly
unaffordable for employers. Therefore,
in more recent years the vast majority of
pension schemes offered to employees are
defined contribution pensions, with future
Advice – Sam Tate, managing
partner at Vintage, says
its imperative to take
professional advice before
transferring your pension.
on the final salary
pension buzz
values linked to investment returns.
At the time of this article, many people
are considering cashing in their final salary
pension due to transfer values (the value
offered to employees to transfer their
pension away from the scheme) being at an
all-time high. Some schemes are offering
transfer values as high as 40 times the annual
pension (so £800,000 today in exchange for
an inflation-linked pension of £20,000 a year
for life), whereas transfer values historically
would have been closer to 20 times.
Managing partner at Vintage, Sam
Tate, explains: “Transfer values have risen
dramatically because yields from bonds have
fallen to record lows, leading to an increase
in the cost to pension schemes of meeting
their liabilities, therefore automatically
increasing the transfer values available.”
Transferring your pension can bring with
it many risks and for some investors it may
still be best advice to stay within the scheme,
despite the size of the transfer value on offer.
The FCA guidelines currently state that “The
starting point for any advice should be that
a transfer will not be suitable.” Therefore,
any decision to transfer should only be taken
with the advice of a fully qualified pension
transfer specialist and backed up with a
detailed report which clearly demonstrates
why the transfer is in the best interests of
the client.
For those individuals whose best interests
may be served by transferring, the task
of then gaining control over the pension
pot and making investment and income
decisions each year is far from easy and
requires investment knowledge, as well as
financial planning expertise.
“There may be circumstances where
it is sensible to transfer the pension - for
example, in a case where the client is
looking to take more control over their
financial affairs,” Sam explains. “It is
imperative in all cases that any advice to
transfer comes with an agreement that the
adviser takes responsibility for reviewing
the investments and client circumstances
regularly. Given the risks involved, ongoing
high-quality advice beyond the point of
transfer is a must.
“As we approach our 30-year anniversary,
we believe passionately in providing a
professional service that must always result
in the client’s best interests being served –
whether the advice is to transfer or stay.”
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