Retirement News & Insights

Juicy lottery-sized sums are being offered to savers to tempt them out of gold-plated workplace pension schemes and into personal plans. We’ve explored whether you should consider taking a final salary pension, as well as the benefits and drawbacks of withdrawing.

What is a final salary pension?

A final salary pension, sometimes referred to as a gold-plated pension, is a special style of retirement fund that is based on your final or average salary.

The main difference between this and a defined contribution pension is that a final salary scheme gives you a guaranteed sum annually for the rest of your life when you retire.

To work out the value of your final salary scheme, consider a few factors: 

Your final or average salary at your place of employment (confirm this with your employer) Your length of service The final salary scheme’s accrual rate (this is often 1/80th)

Your final salary pension will take each factor into account, and the resulting figure will be the guaranteed annual sum you are entitled to.

For instance, if you worked somewhere for ten years, and leave on a salary of £100,000, with an accrual rate of 1/80th, you will have a guaranteed retired annual income of £12,500.

It is possible to undertake a final salary pension transfer. Depending upon how long you expect to enjoy retirement, this could be a favourable choice. However, it’s important to consult a financial advisor to make your final salary pension transfer values work harder.

What are the benefits of transferring a final salary pension?

Assessing your final salary pension transfer value, you might consider it worthwhile to withdraw. We’ve outlined the main benefits of taking your final salary pension:

Receive the cash value of your final salary pension

Withdrawing from a final salary scheme allows you to receive a cash lump sum in return for forfeiting your guaranteed income in retirement. This final salary pension transfer value is the main reason to withdraw from a scheme, as it offers you financial freedom.

Remove ties with your employer

This is an especially important point if you’re concerned that your employer may not exist throughout your full retirement. For most, the pension protection fund (PPF) will cover your pension, but, for especially high earners, there is a PPF ceiling of £41,461 (as of April 2020).

Enjoy a flexible income in your retirement

A final salary scheme entitles you to a guaranteed annual income when you retire, but if you go down the route of transferring your final salary pension you will be able to enjoy a little more flexibility in how you receive your income. Usefully, by withdrawing from your final salary scheme, you can choose to take more out in your younger years.

Choose how you want to invest your pension

A final salary scheme is controlled tightly to accommodate all employees and their interests. When withdrawing from the scheme, however, you can take complete control over how your pension fund is invested.

The considerations you should make before transferring your final salary pension

While there are certainly benefits of going down the route of transferring final salary pension funds into various other pots, it’s important to consider what you’ll be giving up:

Entitlement to a fixed annual income for the rest of your life A safe income that doesn’t fluctuate with volatile markets and share prices Spousal and family benefits that come with a final salary scheme  Example: Should I cash in my final salary pension?

An example is Mrs Dee (not her real name), 4 years ago she asked for her final salary transfer values, which came in at £250,000 - a nice sum, you may think. After reviewing all the facts and figures available, however, I advised Mrs Dee to leave her final salary pension where it was, which she duly did.

Towards the end of last year, because of favourable market conditions, I applied again to see the value of transferring her final salary . This one came in at just under £600,000.

A new study has highlighted the issue of the gap between women's pension pots and those of men. The size of the difference? According to the research, by the end of her working life the average woman could potentially end up £47,000 worse off than men in terms of what's in their pension pot.

The study, carried out by Zurich, looked at 250,000 pension plans, making it one of the largest studies of workplace savings. It looked at pension plans broken down by age, gender, and the contribution rate of employers and employees.

Managing your finances is not an easy task, and many people worry whether they'll have enough money to last them through retirement. Most people are likely to need a helping hand from a financial adviser, and a new move from the government will help make receiving this advice easier than ever before.

New plans, to be introduced in April 2017, will allow pension savers to withdraw a tax-free lump sum of £1,500 from their pensions so that they can pay for financial advice regarding their retirement funding.

Is your final salary scheme safe?  Are you aware that many of these schemes are seriously underfunded? What is the exact deficit of your final salary scheme? Brexit and the BHS scandal have brought the pension deficit story in to the media spotlight again. However, the issues with defined benefit schemes have been brewing for some time. The UK faces a very real pension crisis with several schemes close to collapse unless serious steps are taken to address the growing problem.

Making sure you have enough money for retirement is a crucial part of your financial planning process. But some workers may struggle to save more than others.

The government is looking to make reforms to automatic-enrolment (AE), possibly putting employees who work seasonally or part-time at a disadvantage when it comes to saving up for their pension.

The ex-pensions minister Steve Webb is urging the government and the HMRC to do more to alert grandparents to all the pension perks they're entitled to after it was revealed that the overwhelming majority are not receiving the full state pension. By missing out on a particular benefit, unknowing eligible grandparents are missing out on £231 a year. Over the course of their full retirement, this could possibly lead to a loss of thousands of pounds.

It is a scheme called the Specified Adult Childcare Credit. It is thought that only 1,300 grandparents are taking advantage of it despite 100,000 being eligible (a mere one per cent). The scope of the problem was found out by Webb when he sent a Freedom of Information request to the HMRC.

The purpose behind the Specified Adult Childcare Credit is to allow grandparents who give up work completely to help raise their grandchildren the chance to claim National Insurance (NI) credits.

The Pensions and Lifetime Savings Association has issued a strong warning against government proposals to raise the state pension age to 68 (with the possibility of being raised higher to 70). It has said that such a scenario would create significant problems – an "unacceptable detriment" – for those with low life expectancy.

The statement comes in response to a report released by the Independent Review of the State Pension. The review was led by former CBI director general John Cridland.

Any person with either a personal or professional interest in pension transfers in Grand Cayman will be interested to learn that the UK's Chartered Insurance Institute (CII) has announced details of a new pension transfers qualification that is designed to enhance the knowledge of those providing pension transfers advice.

The new level 4 Certificate in Pension Transfers is comprised of four compulsory units, including a new advanced level 6 unit called "(AF7) Pension transfers", as well as the following three CII level 4 units: