Pensions

Secure your retirement with expert pension advice. Tailored solutions for a prosperous future, ensuring financial comfort in your golden years. Plan with confidence today.”

Pensions

NEST — a defined contribution workplace pension scheme — was set up by the UK government to facilitate auto enrolment. As a ‘qualifying’ scheme, NEST can be used by any and all UK employers to make pension contributions. Employers can auto enrol employees in NEST rather than setting up their own pension scheme.

Members can transfer other Defined Contribution pensions they may have into their Nest scheme, should they wish, and are also free to transfer out to another pension scheme, providing they have stopped making contributions into the NEST account.

Although Auto Enrolment is compulsory, membership of NEST isn’t. NEST is, by design, a very simple scheme offering very few ‘bells and whistles’. Employers with more sophisticated requirements are free to consider establishing other types of workplace/occupational pension schemes.

Key considerations for employers:

1. Which type of scheme are you offering your staff?

Look at the advantages and disadvantages of other employer pension schemes when compared with the NEST scheme. Once you have analysed this, you can then decide which is more suitable for your organisation. A combination of two schemes may be the most appropriate approach initially, with staff eligibility for different schemes contributing to the solution; e.g. senior and employed staff being enrolled into an occupational scheme and contract staff being enrolled in NEST.

2. Work on your budgets

Employers have to contribute 3% of every employees’ ‘qualifying earnings’ to their occupational pension scheme, which will have a considerable impact on the costs of the business. If you offer a higher contribution rate, plan for the cost and long term implications of enrolling all staff on this basis. Look at whether you are making contributions on the full salary amount or band earnings. The key is to budget for these newly introduced measures, so that larger pension contributions do not make a sudden impact on costs. Employers may consider reviewing their total remuneration package in order to absorb these extra costs.

3. Review your current systems to make sure they can cope with the additional administration.

Can your payroll and HR systems cope with any extra administration? This is particularly relevant for any organisations that run both an occupational pension scheme and enrol some staff into the NEST system.

4. Effectively communicate these changes to your staff

Consider how you are communicating these changes to your staff. It is important to try and engage employees with their pension and get them to ‘buy-in’ to your company scheme. A pension scheme is viewed by many employees as an essential part of their benefits package, and when offered as part of the overall remuneration, can add tremendous perceived value to an organisation and the way it views its employees.

Organisations that provide pension schemes above the standard laid out by the government are likely to be a more attractive proposition for new and existing employees and demonstrate a commitment to their workforce.

Employers which offer schemes with contribution rates above the statutory minimum may be interested in applying for a pension quality mark to differentiate their scheme from others. (www.pensionqualitymark.org.uk)

Please contact us for further information and advice.

Nest is regulated by the pensions regulator

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

Tax treatment varies according to individual circumstances and is subject to change.

Occupational Pensions

How occupational pension schemes work

Every payday, a percentage of the employee’s pay is deducted automatically from their salary or wages and invested in the scheme. The employer also contributes to the scheme on the employee’s behalf as does the government in the form of tax relief.

Two types of scheme

In a ‘defined contribution scheme’, the employee’s retirement income is based on the contributions made, whereas in a defined benefit scheme, the employee’s pension income is based on his or her salary and length of service with the employer. Most occupational pension schemes are defined contribution schemes.

What happens if the employer goes out of business?

Whether the scheme is managed by insurance companies or by the employer, the pension funds are not available to creditors of the employer, so employees’ pension pots should not be affected if the employer goes bust. If the scheme is a trust-based scheme, employees will still get their pensions, although not as much because the scheme’s running costs will be paid out of members’ pension pots rather than by the employer.

Auto Enrolment

Under ‘Automatic enrolment’ rules, any employer (with at least one member of staff) must automatically enrol every employee between the age of 22 and State Pension age and earning in excess of £10,000 a year (2023/24 tax year) into a ‘Workplace pension scheme’.

Contribution costs

The minimum contribution for employers is 3% of the employee’s earnings, whilst employees are obliged to contribute a maximum of 5% of their earnings before tax.

Advice on auto enrolment pensions is not regulated by the financial conduct authority.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

Tax treatment varies according to individual circumstances and is subject to change.

(From April 2015, the rules involving annuities and income drawdown changed. Rather than having to purchase an annuity, pension savers can, if they wish, withdraw as much as they wish from their pension pots. In total, 25% of the pension pot can be taken free of tax; the balance being subject to income tax. Although this change may make annuities less attractive for some, many still prefer the security of knowing they have a guaranteed and secure income for life.)

What is an annuity?

An annuity is a contract between an insurance company and a pension scheme member, where the member uses some or all of their pension savings to purchase a regular and guaranteed income for the rest of his or her life or for a predetermined number of years.

The factors that determine the amount of income you can expect to receive include (but are not limited to) your age, state of health, your postcode, prevailing annuity rates, the type of annuity you buy and the size of your pension fund.

What are the advantages of an annuity?

  • A regular and secure income for life (or a selected term)
  • Can be tailored to meet specific individual needs and circumstances

What are the disadvantages?

  • The income you can obtain will depend  on the annuity rates that are in force when you decide to take your pension benefits and it is not possible to predict what they will be or whether they are higher or lower than current rates.
  • Payments cease on death (unless you purchase an annuity which continues to pay income after you have passed away)

Depending on your circumstances and requirements, some annuities may be more suitable for you than others. We are here to assist and to ensure that you purchase the annuity that most suits your needs and circumstances.

Important note

If you do decide to buy an annuity upon retirement, you should ensure that you check policies, rates, restrictions, and benefits very carefully, and if necessary seek advice from a financial adviser. Investing in the wrong annuity scheme could cost you a great deal in annual income, so make sure that you look into this subject carefully before you make any commitment.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

Tax treatment varies according to individual circumstances and is subject to change.

(Please note – Income Drawdown is a complex and constantly changing subject and the information provided here reflects the current situation. For more information call us today or complete our short enquiry form and we’ll be pleased to help you further.)

Traditionally, when the time came to retire, most people with defined contribution (DC) pensions (usually where the same amount is paid in each month), either used their whole pension fund to buy an annuity or used the remainder to do so after taking their entitlement to tax free cash (normally 25% of the fund). They did so because they either didn’t qualify for income drawdown or were not willing to accept (or unable to afford) the associated investment risk.

Since income drawdown was introduced some years ago, anyone of retirement age with a DC pension has been able to take income directly from their pension fund without needing to buy an annuity. Now, with the introduction of new ‘income drawdown’ rules, anyone with a DC pension and age 55 or over, can use income drawdown to provide the income they need in retirement. Pension savers who are currently in a capped drawdown can move out of that arrangement whenever they choose.

How Income drawdown works

Rather than exchanging your pension savings for an annuity (a fixed and regular income for life paid by the pension provider) the pension fund is left invested and you draw income directly from the fund. As the bulk of your pension remains invested the fund is still able to benefit from any growth (or not!) in the value of its investments. There’s no limit to the amount of income you can withdraw — you can draw as much (or as little) as you like, even the entire fund if you want.

And unlike an annuity, in a drawdown arrangement the pension saver keeps their pension pot.

Tax implications

Although you can withdraw up to 25% of your pension fund tax-free, anything else you withdraw from your pension pot will be treated as income and as such subject to the marginal rate of income tax.

Considerations

Income drawdown plans are a higher risk than a secured income arrangement such as a pension annuity, as the underlying assets of the fund are usually invested in the stock market. To ensure the pension fund does not run out of money, the member will require investment advice and regular reviews.

Some income drawdown products can be expensive in terms of charges, although they normally vary between 2% and 4% a year.

It’s also helpful if you have some experience of managing investments.

Please note we provide advice not a facilitation process, if you engage us for services we will assess your suitability and we may deem that a drawdown is not suitable for your needs, in which case we will not recommend this.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

Tax treatment varies according to individual circumstances and is subject to change.

A personal pension plan helps you save money for retirement and is available to any United Kingdom resident who is between the ages of 16 and 75 (Children under 16 cannot start a plan in their own right but a Legal Guardian can start one on their behalf). You, in conjunction with your adviser, choose the pension provider and make the arrangements for paying the contributions to the plan.

You can start a personal pension even if you have a workplace pension or if you’re self-employed and don’t have a workplace pension. You don’t have to be working to take out a Personal Pension Plan and you can also provide a Personal Pension Plan for your spouse/partner or your child/children.

When you contribute to a Personal Pension plan, your money is invested by the pension provider (usually an insurance company) to build up a fund/pension pot over a number of years.

Tax relief

If you’re a basic rate taxpayer, your pension provider will claim back Income Tax at the basic 20 per cent rate on your behalf on the contributions you make and add it to your pension pot. Higher rate taxpayers claim the additional rebate through their tax returns.

Contribution limits

The total amount (the ‘annual allowance’) you or your employer can contribute to a defined contribution personal pension scheme, or schemes, is limited to £60,000* per annum or your annual salary, whichever is lower. If you contribute more than that you will pay a tax charge. For 2023 to 2024, no Lifetime Allowance charge will arise, but the Lifetime Allowance legislation will remain on the statute until Finance Act 2024..

Tax-free cash

Most schemes allow you to withdraw 25% of your fund tax-free from age 55 onwards. Subsequent withdrawals are subject to income tax.

The size of your pension pot will depend on:

  • the amount of money you paid into the plan
  • the performance of the plan’s investments
  • charges payable under the plan
  • advice charges (where applicable)

Taking your pension

Although most personal pension schemes specify an age when you can start withdrawing benefits from your personal pension (usually between 60 and 65) you are allowed to do that from age 55 if you wish. You don’t have to stop work to draw benefits from your plan.

Death Benefits

If you die before the age of 75 and haven’t purchased an annuity, your beneficiaries can inherit the entire pension fund as a lump sum or draw an income from it completely free of tax. If you’re over 75 years of age when you die, there will be tax to pay on any withdrawals made by the recipient of your fund.

*Tax year 2023/2024

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.
Tax treatment varies according to individual circumstances and is subject to change.

A Stakeholder Pension (SHP) is a type of Personal Pension Plan designed to provide an optional lump sum and income in retirement. In common with a Personal Pension Plan, Stakeholder Pensions are available to any United Kingdom resident under the age of 75.

You, in conjunction with your adviser, choose the pension provider and make the arrangements for paying the contributions to the plan.

You can start a SHP even if you have a workplace pension or if you’re self-employed and don’t have a workplace pension. You don’t have to be working to take out a SHP and you can also provide a SHP for your spouse/partner or your child/children.

When you contribute to a SHP, your money is invested by the pension provider (usually an insurance company) to build up a fund/pension pot over a number of years.

A Stakeholder Pension incorporates a set of minimum standards established by the government, which include:

  • A capped charging structure which is a maximum of 1.5% per year for the first 10 years and 1% per year thereafter
  • The minimum contribution is £20 per month
  • You can pay in lump sums whenever you want
  • You can stop and start payments as you wish
  • You can switch to another scheme at any time without penalty
  • You do not need to retire to draw your stakeholder pension benefits. You can take benefits from age 55
  • At retirement, the option exists to take a quarter of the fund as a tax-free amount

The key point about SHPs, as with any other pension, is to start contributing as early as possible and keep making contributions for as long as possible. That way your pension pot has time to build up and the investment returns compound through reinvestment over many years. The result should be a significant sum of money to invest when you retire.

If you die before age 75 and you have not started to take benefits from your pension the funds will normally be passed to your spouse or other elected beneficiary free of inheritance tax. Other tax charges may apply depending on the circumstances.

It is possible to continue past age 75 without taking benefits. If you die after age 75 your pension pot can still be passed to a nominated beneficiary free of inheritance tax, however if paid as a lump sum, tax at the beneficiary’s marginal rate will apply (2023/24). If it is paid as an income to your spouse or dependant there will be no initial tax charge, but any income paid would be subject to income tax.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.
Tax treatment varies according to individual circumstances and is subject to change.

(Please note – this is for information only and does not constitute advice. This is a potentially complex area and for further information or to obtain a State Pension statement please visit the government website at https://www.gov.uk/browse/working/state-pension)

About the state pension

A State Pension is a regular payment made by the government to people who have paid or been credited with a minimum amount of Class 1, 2 or 3 National Insurance Contributions and have reached State Pension age.

State Pension Age

The State Pension age for men and women is currently 66 but will increase to 67 between 2026 and 2028.

Under the current law, the State Pension age is due to increase to 68 between 2044 and 2046. However, the Pensions Act 2014 provides for reviews of the State Pension age at least once every 5 years, taking into account a range of factors that are relevant to setting the pension age, one of which will be changes in the life expectancy of the population.

The State Pension is paid whether the claimant is working or not and is paid regardless of any income and/or existing savings or capital the claimant may have.

Claiming the State Pension

The State Pension must be claimed — it is not paid automatically. The claim can be made online, by calling 0800 731 78098 or by downloading a form and sending it to a pension centre. N.B. Different arrangements apply in Northern Ireland.

Payment frequency

The State Pension is usually paid every 4 weeks, in arrears, directly into the claimant’s bank or building society account.

Working beyond State Pension age

The State Pension can be claimed even if the individual chooses to work beyond State Pension age.

The State Pension may be taxable

The State Pension is considered part of the recipient’s earnings and may be subject to income tax.

Postponing the State Pension

It is not compulsory to claim the basic State Pension at State Pension age — it can be deferred until the claimant chooses to receive it. In return for ‘postponing’ his or her claim (and providing the claimant lives in the EU, European Economic Area, Gibraltar, Switzerland or any country the UK has a social security agreement with) the pension payment will increase by 1% for every 9 weeks it is deferred.

Claiming the State Pension while living overseas

Although the State Pension can be claimed while living outside of the UK, it will only be increased each year if the claimant lives in the EEA, Switzerland or in a country which has a social security agreement with the UK.

Basic State Pension on death

Any surviving spouse or civil partner that is over State Pension age and not already receiving the maximum payment may be able to increase their State Pension by using the deceased’s qualifying years. If the spouse or civil partner is under State Pension age, any State Pension based on the deceased’s qualifying years will be included when he or she claims their own State Pension.

There are currently two State Pension systems — each system has different rules.

The State Pension for individuals reaching State Pension age prior to 5 April 2016 (‘old’ State Pension).

This summary applies only to women born before 6 April 1953 and men born before 6 April 1951. Different rules and benefits may apply for people living in the Isle of Man, Northern Ireland and abroad.

Maximum payment

For the financial year 2023/2024, the full rate of benefit for women born before 6 April 1953 and men born before 6 April 1951, is £156.20 per week.

The payment is increased every year by whichever of the following three percentages is the highest:

  • the average percentage growth in wages in Great Britain
  • the percentage growth in the Consumer Price Index
  • 2.5%
    National Insurance Contribution record
    The amount of State Pension a person receives is based on the total number of annual

National Insurance Contributions (NICs) paid in the UK by him or her prior to reaching their State Pension age.

To be entitled to the full State Pension, it is necessary to have 30 ‘qualifying years’ of NICs or credits. A qualifying year is a tax year in which the claimant has paid or been treated as having paid or has been credited with sufficient NICs to make that year qualify in State Pension calculation terms.

Each qualifying year entitles the claimant to 1/30 of the full State Pension.

If there are ‘gaps’ in his or her NIC record, the claimant will get less than the full amount of £156.20 a week. NIC gaps can be caused by being employed but with low earnings, being unemployed but not claiming benefits, caring for someone full time, being self-employed and choosing not to pay NICs, or living abroad.

Bridging the contribution gap

Depending on the claimant’s age, it may be possible to pay voluntary NICs to bridge some or all of the  gaps in his or her National Insurance record over the past 6 years or beyond.

The new State Pension (for individuals reaching State Pension age after 5 April 2016)

This summary applies only to women born on or after 6 April 1953 and men born on or after 6 April 1951. For individuals who are already claiming a State Pension, or reached State Pension age before 6 April 2016, the old State Pension rules apply. Different rules and benefits may apply for people living in the Isle of Man, Northern Ireland and abroad.

Maximum payment

For the financial year 2023/2024, the full rate of benefit for people reaching State Pension age, on or after 6 April 2016, is £203.85 per week.

Unlike the old State Pension, the new State Pension will not be subject to additional pension-related benefits, such as the State Second Pension (S2P) and the State Earnings Related Pensions Scheme (SERPS). The new State Pension will instead provide a single tier of benefit.

The payment is increased every year by whichever of the following three percentages is the highest:

  • the average percentage growth in wages in Great Britain
  • the percentage growth in the Consumer Price Index
  • 2.5%

National Insurance Contribution record

The amount of State Pension a person receives is based on the total number of annual National Insurance Contributions paid in the UK by him or her prior to reaching their State Pension age.

To be entitled to the full State Pension, it is necessary to have 35 ‘qualifying years’ of National Insurance Contributions (NICs) or credits. A qualifying year is a tax year in which the claimant has paid or been treated as having paid or has been credited with sufficient NICs to make that year qualify in State Pension calculation terms.

Each qualifying year entitles the claimant to 1/35 of the full State Pension.

If there are ‘gaps’ in his or her NIC record, the claimant will get less than the full amount of £203.85 a week. NIC gaps can be caused by being employed but with low earnings, being unemployed but not claiming benefits, caring for someone full time, being self-employed and choosing not to pay NICs, or living abroad.

Bridging the contributions gap

Depending on the claimant’s age, it may be possible to pay voluntary NICs to bridge some or all of the gaps in his or her National Insurance record over the past 6 years or beyond.

National Insurance Contributions made before 6 April 2016

The claimant’s National Insurance record before 6 April 2016 is used to calculate a ‘starting amount’ for their pensions. The starting amount will be the higher of the amount he or she would get under the old State Pension rules (less any Additional State Pension) or the amount they would get if the new State Pension had been in place at the start of their working life. If the starting amount is less than the full new State Pension, the claimant is allowed to add more qualifying years to their National Insurance record.

National Insurance contributions made after 6 April 2016

Individuals starting to make NICs from 6 April 2016 onwards, will need 35 years of NICs or credits to claim the full amount of state pension. Those with 10 – 34 years of contributions will receive a proportion of the full State Pension and anyone with less than 10 years of contributions will not be entitled to any amount of State Pension.

Tax treatment varies according to individual circumstances and is subject to change.

SSAS — also known as a Small Self Administered Scheme (SSAS) — is a company pension scheme, the members of which are usually directors and key employees of the sponsoring employer.

Whilst subject to the same rules relating to contributions and benefits as a normal company pension scheme, SSAS’ schemes have considerably more flexibility and control over the investment policies and the scheme’s underlying assets.

Other considerations are that only one scheme is permitted per employer, normally the scheme should have less than 12 members and there can be limits on the amount of investment.

If you would like further details please contact us.

SSASS are regulated by the pensions regulator.
The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.
Tax treatment varies according to individual circumstances and is subject to change.

A Self Invested Personal Pension (SIPP) is a Registered Pension scheme under the terms of the Finance Act 2004.

SIPPs are designed for investors who want maximum control over their pension without being dependent on any one fund manager or insurance company. As such, a SIPP requires active management and a degree of investment expertise. Furthermore, the charges (levied by the SIPP manager) may be higher than for a personal pension or stakeholder plan.

Unlike a standard personal pension, a SIPP holder has a much wider choice of assets to invest in, each of which can be selected to meet the individual’s personal circumstances and requirements.

Investments which can be held in a SIPP include:

  • UK and overseas equities
  • Unlisted shares
  • OEICs and unit trusts
  • Investment trusts
  • Property and land (but not most residential property) insurance bonds

It’s possible to use a SIPP to raise a mortgage to fund the purchase of commercial property, where the rental income paid into the SIPP either completely, or partially, covers the mortgage repayments and/or the property’s running costs.

Please note SIPPs are not suitable for everyone investing into a pension, we will conduct an assessment of your situation to determine suitability.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.  Tax treatment varies according to individual circumstances and is subject to change.

Executive Pension Plans (EPP) are tax-efficient savings plans set up by the company for key employees. The employer (and sometimes the employee) pays into the plan, to build a tax-efficient fund, which is used at retirement to provide tax free cash and a pension income. In effect, EPPs are money purchase occupational pension schemes and operate for the most part like any other pension scheme.

EPPs are normally established by company directors or other valued employees for their own benefit, though only the favoured can expect to be given the levels of investment that these schemes offer.

From an employer’s perspective, an EPP can form the core of a benefits package to attract, motivate and reward key executives, plus the financial benefits of contributions being allowable as a business expense and able to be set against taxable profits. Furthermore, there is no NIC liability and so extra pension contributions into an EPP can be made instead of salary increases.

The pension fund is set up under trust, with the trustees responsible for the trust’s day-to-day administration, such as ensuring contributions are paid regularly and benefits are paid out promptly.

For the individual, there is flexibility of retirement, allowing the person to retire early and hand over to others (although benefits can only be taken from age of 55) or to work well past the company’s normal retirement date.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

Tax treatment varies according to individual circumstances and is subject to change.

Transferring out of a final salary/defined benefit scheme is unlikely to be in the best interests of most people.

What is a final salary pension?

A defined benefit pension scheme – sometimes called a final salary pension scheme – is one that promises to pay out an income based on how much you earn when you retire. Unlike defined contribution (DC) pensions, the amount you’ll get at retirement is guaranteed, and it will be paid directly to you – you won’t have to use your pension pot to decide your next move.

What are the different types of final salary pension?

If you’ve saved into a final salary pension scheme, your savings, along with the contributions of your employer and the tax relief you receive from the government, have been invested in the stock market over your working years. But the income you ultimately receive from your pension is a guaranteed, pre-agreed amount. This is why they are called ‘defined benefit’ pensions.

There are two types of defined benefit pension.

  • Final salary schemes, which are based on how much you’re paid when you finally retire
  • Career average schemes, which are based on an average of your salary across your career.

Both types of pension provide valuable benefits, the biggest of which is something called ‘index linking. This means that your pension income is guaranteed to rise each year so it can keep up with rising prices in the future. This protection is usually capped at 2.5% a year, although, in some cases, it’s linked to the Retail Prices Index measure of inflation.

Other benefits of final salary pensions

Other benefits of final salary pension schemes include:

  • death-in-service payments to spouses, partners or dependants if you die before reaching pensionable age
  • full pension if you have to retire early through ill-health
  • reduced pension if you retire early, although this can’t be done before the age of 55.

Private sector vs public sector final salary pensions

Defined benefit pensions have historically been provided by both private companies and public sector organisations.  Final salary pensions are in decline, but millions of people still hold them. According to the Office for National Statistics, 1.3m people are actively contributing, and 11.8m have a DB pension they will be able to claim in future.  If you hold a private-sector DB pension, you have the right to request a transfer, as do members of so-called ‘funded’ public sector schemes. In a funded plan, contributions from the employer and employee are invested in a fund towards meeting the benefits. Some public sector schemes, such as those for teachers, NHS workers, the armed forces, the civil service, police, and fire service, aren’t linked to specific pension funds (they’re paid out of general taxation). These are known as ‘unfunded’ DB pensions.  These schemes cover somewhere in the region of five million UK residents.

Can I cash in or transfer my final salary pension?

Transferring out of a final salary pension is unlikely to be in the best interests of most people.

You will be giving up all of the guarantees that a final salary pension offers you if you transfer out.

The value of pensions and the income they produce can fall as well as rise. So, you may get back less than you invested.

What this guide does seek to do however is simply to help you in the early stages of considering a Final Salary Pension (Defined Benefit) to a Personal Pension (Defined Contribution) transfer by familiarising you with some of the key issues that you will need to take into consideration. The guide seeks neither to encourage nor to discourage such transfers, but to set out in a balanced way the pros and cons of retaining your Final Salary pension rights as compared with taking a transfer.

This guide helps pension scheme members to understand the value of what they already have as well as the potential benefits of transferring before having a more in-depth conversation with their Pension Transfer Specialist.

Former pensions minister and Director of Policy at Royal London, Steve Webb, said: “Large numbers of people are still transferring out of traditional salary-related pensions, but whether this is a good idea or not depends crucially on your individual circumstances.

For most people, a guaranteed salary-related pension that lasts as long as you do and is unaffected by the ups and downs of markets will be the best answer.”

 He added: “But there will be some who want extra flexibility or are focused on passing on some of their pension wealth for whom a transfer might be the right answer. It is vital to take, and listen to, impartial financial advice before making a big decision of this sort.”

Five Reasons to Leave

1.  Flexibility – Instead of taking a set pension on a set date, you have much more choice how and when you take your pension. Many people are choosing to ‘front load’ their pensions so that they have more money when they are more fit and able to travel, or to act as a bridge until their state pension or other pensions become payable.

2.  Tax-free cash – Many Final Salary pension schemes offer a pretty poor deal if you want to convert part of your DB pension into a tax-free lump sum. Although the tax-free cash is in theory 25% of the value of the pension, you often lose more than 25% of your annual pension if you go for tax-free cash. In a Personal Pension (DC) you get exactly 25% of the pot as tax-free cash.

3.  Inheritance – Generous tax rules mean that if you leave behind money in a Personal pension pot it up to 100% can be passed on with a favourable tax treatment, especially if you die before the age of 75. In a Final Salary pension, while there may be a regular pension for a widow or widower, there is unlikely to be a lump sum inheritance to children etc.

4.  Health – Those who live the longest get the most out of a Final Salary pension, but those who expect to have a shorter life expectancy might do better to transfer if this means there is a balance left in their pension fund when they die which can be passed on. (Note that HMRC may challenge this for those who die within two years of a transfer.)

5.  Employer solvency – While most pensions will be paid in full, every year some sponsoring employers go bankrupt. If the Final Salary pension scheme goes into the PPF, you could lose 10% if you are under pension age and may get lower annual increases but if you have transferred out, you are not affected.

Five Good Reasons to Stay

1.  Certainty – With a Final Salary pension, you get a regular payment that lasts as long as you do but with a Personal Pension pot, you have to face ‘longevity risk’ – not knowing how long you will live.

2.  Inflation – A Final Salary pension has a measure of built-in protection against inflation, but with a Personal Pension pot you have to manage this risk yourself, which can be expensive.

3.  Investment risk – With a Personal Pension you have to handle the ups and downs of the stock market and other investments. You also need to be careful not to draw too much of your fund to ensure that you don’t run out of money in retirement. Whereas with a Final Salary scheme you don’t need to worry – it’s the scheme’s problem.

4.  Provision for survivors – By law, Final Salary pensions have to offer a minimum level of pensions for widows/widowers etc., whereas if you use a Personal pension pot to buy an annuity, it dies with you unless you pay extra for a ‘joint life’ policy.

5.  Tax – Final Salary pensions are treated relatively favourably from the point of view of pension tax relief. Those with larger pensions could be under the lifetime allowance limit inside a Final Salary scheme but the same benefit could be above the limit if transferred into a Personal Pension arrangement.

For further advice on pensions from experts that specialise in dealing with all aspects of wealth management, please contact us through our confidential online enquiry form or telephone 01327 317388

Pension Transfer Gold Standard

Vision Wealth Management has earned the prestigious Pension Transfer Gold Standard Award, showcasing their dedication to providing top-notch financial services. This recognition demonstrates their commitment to helping individuals make informed decisions regarding pension transfers, ensuring that clients receive expert guidance and transparency. The Gold Standard Award signifies their unwavering commitment to high ethical and professional standards in the financial industry, instilling confidence in their clients that their retirement planning is in capable hands.

Pension gold standard

Contact Us

For a free initial consultation

By submitting this form, you accept and agree with our privacy policy.

Our Services

External Link

You are now departing from the regulatory site of Vision Wealth Management. Neither Vision Wealth Management nor Quilter Financial Planning are responsible for the accuracy of the information contained within the linked site.

External Link

You are now departing from the regulatory site of Vision Wealth Management. Neither Vision Wealth Management nor Quilter Financial Planning are responsible for the accuracy of the information contained within the linked site.