Whether it’s worth exchanging guaranteed income for cash depends entirely on your situation.
Below, The Telegraph explains what to consider before giving up a high-value annuity, including when is the best time to replace it.
why transfer?
A final salary pension, also known as a defined benefit pension, provides a guaranteed lifetime income that can withstand inflation, plus additional benefits such as paying your spouse or partner money after you die.
According to the Pension Protection Fund, the scheme is still underrepresented in the private sector, with 930,700 people still enrolled in such schemes. By comparison, in 2006 it was 3.62 million. Most public sector employees are still members of these generous schemes.
Final salary pensions, while very generous, are relatively inflexible compared to modern ‘defined contribution’ individual pensions.
You can receive a lump sum from your defined contribution pension whenever you want (this helps with income tax limits) and can be inherited indefinitely across generations, but final pay schemes typically require you or your partner to Payments stop when you die.
But replicating the income of the final pay scale is very difficult, and city watchdogs say it’s not in the best interest of members in most cases.
In one case, a financial advisor was found to have mis-sold the benefits of forgoing a final salary plan. In 2022, a former steel worker was found to have been unfairly waived of his corporate pension and won compensation.
Under rules set by the Financial Conduct Authority, transfers of £30,000 or more must be approved by financial advisors.
This is to fully understand the value of what you are about to give up. Until now, Telegraph readers have found it nearly impossible to find an advisor willing to agree to a transfer.
Once the transfer is complete, you are responsible for where you invest your annuity, decide how much you will earn, and bear the risk that your investment will underperform.
If your advisor doesn’t recommend moving, moving can be nearly impossible. Hargreaves Lansdowne, AJ Bell, Interactive Investors and Pension Bee, major private annuity providers, said they would not accept transfers from the final pay system unless recommended by an advisor.
AJ Bell said he is conducting checks to ensure that the advice given is from advisors who are qualified to advise on transfers.
However, Aviva has allowed so-called “persistent customers” to move (when the customer insists on implementing the move but does not proceed with the advice) so long as the stakeholder’s plans are met.
Few advisors currently offer advice on pension transfers, and the complexity of the process makes the fees high.
Fees vary, but costs are usually expressed as a percentage of the amount transferred, averaging £2,500 for a £100,000 worth annuity. unbiased.co.ukDirectory of Financial Advisors.
Advisors must communicate the charges before proceeding with advice. Please note that charges will be incurred regardless of whether a transfer is ultimately recommended. So it’s important to consider whether it’s worth paying for. For example, if a transfer saves him £1,000 in income tax over the next 10 years, that would be a good use of the money. But if you paid £2,500 and were told you weren’t going, it might be frustrating.
Fiona Tate of Intelligent Pensions, an advisory firm that specializes in pension remittances, said: “Ask if your advisor offers a ‘triage’ service or ‘summary advice’, both of which are available before you remit your annuity. It helps you get yourself out of the way quickly.” You will have to pay an advice fee. ”
The Telegraph called on pension and investment firm Aegon to help savers understand in advance the likelihood that their advisers will encourage them to send money.
Our table shows what questions advisors ask, and what responses increase or decrease the likelihood of a transfer.
