Was I right to transfer my final salary pension?

NOTE: This post is more than 12 months old, and the information contained within may no longer be accurate.

The decision to transfer from a final salary pension scheme is significant and irreversible. If you are considering this question shortly after transferring, then that is concerning and speaks a lot about your feelings now and how they may well change, for the worse, in the future.

To use a medical analogy, you have just had a significant “operation” and you should be feeling positive about it and have a full awareness of the benefits of such a decision, albeit balanced with the disadvantages like giving up guaranteed income. Nevertheless I would expect you to be confident that you are overall better  off than you were previously.

If you do regret the decision, then your first port of call is to speak to your Financial Adviser who should be able to explain to you clearly the value of the benefits that you have given up, and the advantages that you have in your new arrangement. If they are unable to do this clearly, and unable to refer you to information that is contemporaneous to your decision to transfer then you should continue to ask questions until you are satisfied. Your ultimate recourse may be a formal complaint but there is a limited window in which this can be made, so if you have any concerns you should act promptly. It is not enough for you to be left with a feeling that the decision is unclear or to be told “trust me I am an expert” – you should have a clear understanding that you are now better off than you were in the defined benefit scheme.

The decision to give up a scheme pension is irreversible and should be supported by a long-term cashflow plan. The day to day expenses and the essentials that you have should ideally be met by guaranteed income, either State Pension or other final salary pensions that you have not transferred, and the new money purchase pension you have financed by the transfer out will either be “icing on the cake” or a less essential part of your planning. Nevertheless, you should have a clear understanding of how your income and expenditure moves with time, alongside your assets and liabilities. At Wingate Financial Planning our cashflow plans are drawn to age 100, which may seem unusually optimistic but by having a pension at the level you would have from transferring out of the final salary scheme you are already amongst the wealthiest individuals in the UK and therefore it is reasonable that most people would expect you to live longer than anticipated.

That being said, two of the primary (if not only) reason that we would recommend transfers out for those in very poor health and/or with inadequate dependents’ provision. Nevertheless, it is still useful to see how your cashflow will move with time for your dependants and those who else you think will benefit from your pension when you are gone.

Supporting all the above should be a sensible investment strategy which typically would be billed from a range of appropriately managed collective investments, across a very broad range of sectors.

As I write this blog we have just had a market downturn, which has been particularly unfortunate as most asset classes fell at the same time, and the normal benefits of diversification were not as strong as we might expect through normal investment theory. That being said if the fall was alarming to you, or felt unduly sharp you should assess whether the investment strategy is appropriate for you. Relative to historic investment falls this downturn was quite modest – remember we are looking back on a stock market that has been unusually benign for ten years and this may well not continue over the next ten years (or longer).

If you feel “OK”, “relaxed” or similar about your final salary pension transfer, then we may be able to help. By supporting your long-term plans with our cashflow analysis, and our expertise in pensions and investments, we expect we could give you appropriate confidence to live your life in the way that you plan.

It is perverse that many of the firms that did the most transfers are not true Chartered Financial Planners, and are more interested in “assets under management”. We will not test the suitability of previous advice but we can help you make the most of your situation. My core area of specialism means I look after significant money purchase pensions for our existing clients that have been accumulated over the last few decades.

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26 Jan 2024

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