Since new pension flexibility was introduced in 2014, many people have reaped the benefits. We now have more control over how we access our money when we reach retirement.

However, the new flexibility brings with it some difficult decisions; choosing the best option can be confusing.

A complex area to consider is occupational pensions, also known as defined benefit or final salary pensions. These pensions provide many benefits but can also have drawbacks. There is the option to transfer out of your occupational pension but this has potential risks.

Before you even consider a transfer, you should seek professional independent financial advice from a pensions expert. In fact, if your defined benefit pension assets total over £30,000 then the government stipulates that you must receive regulated financial advice before the transfer can proceed. This protects you from making what could be a costly mistake.

Potential benefits of transferring your pension

Occupational pensions can’t usually be passed down to your children after your death whereas other pension schemes can be. This can be a big advantage to transferring, as it means your pension pot doesn’t just disappear when you die. However, this shouldn’t be used as a reason on its own to transfer; ultimately, you must put your best interests first.

The key benefit in transferring is access to tax-free cash and a tax-efficient income that can be taken according to your needs.

Potential risks of transferring your pension

Whilst the idea of more flexibility may be appealing, there are also benefits to keeping your pension where it is.

The cash value offered to you to transfer may be far less than the value of the defined benefit payments and there may also be a transfer penalty. The new pension scheme may not deliver the returns you expect due to charges and investment risk.

You will also lose other benefits tied to your pension, such as life cover, death benefits and guaranteed annuity rates. Some pension providers offer bonuses if you remain with them long-term and you’ll miss out on these if you leave. If your new scheme has higher costs but doesn’t offer more benefits, then a transfer may not be in your interest.

The scariest drawback to a transfer is that it’s irreversible. Once you leave your final salary pension scheme, you lose all benefits and there is no turning back.

Obtain a professional transfer analysis

Advice on pensions must be given by a pension transfer specialist. They will complete a full transfer analysis, taking into consideration all your pension assets.

A transfer analysis will look at several factors; your dependents or beneficiaries, tax implications and any lifetime allowance implications. Your pension transfer expert will assess the cash sum benefits and the returns needed to match your existing scheme benefits. They will ensure that you fully understand the implications of any proposed transfer before you make your decision.

You should make sure you obtain full, unbiased advice before making any irreversible financial decision. One of your options may suit your interests right now but you need to be sure that you take care of your financial future too.

Find out more

At Rockwood Financial Solutions, we are qualified pension transfer specialists. We take our role as independent financial advisers extremely seriously whilst offering a down to earth, personal service. We take our time to get to know you, your current circumstances and your retirement plans. Then, we will analyse your options and provide a comprehensive report outlining the benefits and drawbacks of any potential transfer.

Our aim is to give you a personalised recommendation which will help you make informed decisions that are right for you.

Before you go to the expense of a full recommendation report, we will give you guidance at a much lower cost so that you can make a fully informed choice before you commit to the advice process.

If you have a defined benefits pension and are considering a transfer, then contact us today to book an appointment with one of our pension transfer specialists.

At Rockwood we’re passionate about pensions and can help you understand what your options are. Whether you have one or several pensions we can review them for you and explain the advantages and disadvantages of consolidation. If you do decide to switch or consolidate we can help you chose the pension scheme that is right for you. This will be based on your circumstances now and the lifestyle you want to achieve in the future. All of our advice is completely impartial. If you’d like advice on existing pensions or setting up a new pension then we’d love to help. Contact us today to start making the most out of your pensions now.

Nothing in this blog constitutes financial advice or recommendations, for more information please contact Rockwood Financial Solutions on 0330 332 2679.