A good analysis on the pros and cons of transferring a final salary pension. This relates to a UK transfer rather than a QROPS transfer which offers many more advantages when it comes to taxation on the income for an expatriate
Some final salary pension members are keen to take advantage of George Osborne’s new freedoms. But should they?
Hundreds of thousands of savers with “final-salary” pensions, which are considered the crème-de-la-crème of company pensions, are planning to trade in their future guaranteed income for a cash lump sum.
It is estimated that as many as 10pc of the 3.7 million private sector workers who are yet to start drawing their final-salary pensions will choose to forgo their generous guaranteed benefits and take the money as a lump sum instead.
In recent years these generous “gold-plated” pensions, which pay a guaranteed income linked to the worker’s wage at retirement, have become a dying breed. For millions of workers they have been replaced by the less generous “defined contribution” pensions. With these the employer pays a fixed amount in on a worker’s behalf. What they get at the end depends on investment returns, among other factors, and there are no guarantees.
But the huge attractions of final-salary-type schemes are expected to be outweighed by the new freedoms, first outlined by the Chancellor in his March Budget, which come into force in April 2015 but which only apply to defined-contribution plans. So to benefit, final-salary members would have to transfer their accrued benefits out of their scheme.