For most, transferring out of DB is the wrong choice

Alistair Cunningham

During recent months we have noticed a significant increase in the number of people contacting us to discuss transferring their benefits out of final-salary pension schemes to take advantage of the forthcoming increased flexibility in pensions.

While many final-salary schemes have been ‘closed’ to at least some extent, they generally still offer very valuable guaranteed benefits and, as such, should be treated with considerable care.

It is in fact rarely considered to be in an individual’s best interest to transfer their benefit out of a final-salary pension scheme due to the valuable guarantees such schemes provide.

Article continues after advert

The Money Advice Service states in its guidance: “In most cases you are likely to be worse off if you transfer, even if your employer gives you an incentive to leave your scheme.”

A final-salary scheme is held in a trust that is not part of the sponsoring employer’s assets.

Not only is the pension fund not part of a company’s assets, the pension protection fund provides a valuable ‘parachute’ for those who are unfortunate enough to require it.

Because transferring out of a final-salary pension scheme is unlikely to be in the interest of a client, we make a point of charging an explicit, fixed fee for any transfer analysis advice.

Alistair Cunningham is financial planning director at Wingate Financial Planning