Pension Transfers: do I switch or stick?
You may have read recently about transferring your occupational pension, in the weekend papers, perhaps. I wonder what happened to the pension plan I was enrolled into some years ago when I worked for so and so, you may ask yourself? A bit of homework later and you've discovered a pension pot you'd completely forgotten about. How do I make this cash work for me? And it isn't just the over-55s who are allowed to drawdown a tax free lumps sum that we are talking about here.
If I had a final salary pension, I'd cash it in now the headline accompanying a recent Financial Times column cried out. Pension funds are seemingly very keen for members to transfer out and are offering sensational valuations, sometimes 40 times the predicted annual income the fund will provide in retirement. Then we recall the plight of the BHS pensioners and other large pensions that have massive black holes in them.
Pension funds value their future liabilities - what they believe they will have to pay out to pensioners in the future, is based on bond yields which have recently hit record lows. This sounds technical but what it means is that the lower the yield of the bonds in which the pension scheme is invested, the more the transfer value rises. The argument goes, therefore, that now is the time to transfer your old British Airways or Barclays Bank pension, at an inflated value and put it into a more hard working pension scheme such as a SIPP or SSAS. But is it as simple as that? You are of course giving up the guaranteed regular income in retirement that your pension scheme predicts it will pay you, every month for the rest of your life and then onto your surviving spouse or partner.
Should I transfer out or leave the pension where it is? This is one of the most frequently asked questions and opinions vary. Every case is different and you really must seek the advice of your financial adviser.
