What makes a good or bad pension transfer?

However, this is not a simple or enjoyable process for a grieving individual. Furthermore, the outcome is normally solely at the discretion of the trustees' and might take some weeks or months for a decision to be made. 

LTA

Avoiding additional life time allowance (LTA). For individuals who have amassed significant wealth in their UK pensions pots and are approaching or have surpassed the current LTA allowance of £1.073M, transferring a final salary to a QROPS (Qualified Recognised Overseas Pension Scheme) and triggering a BCE8 (Benefit Crystallisation Event) can help them avoid paying 25 per cent tax on any further growth above their lifetime allowance.

This is a specialist area of advice and not suitable for all clients.

Sipps

Currency Choice. Final salary schemes can only be held in GBP.

Should an individual no longer reside in the UK, they may wish to use a solution such as an International Sipp (iSipp) to reduce or remove currency risk by holding some or all of their pension in the same currency as their retirement needs.

For example, a UK national residing in the US (non-UK resident) can use an international Sipp and use investments held in USD.   

If you have a short life expectancy and do not have a spouse or would benefit from your income for life, then you may take more benefit from your DB pension by transferring it and accessing the capital or buying an impaired life annuity.  

Other assets

Significant other assets. Perhaps one of the most controversial points. When a client has significant other assets, for example £3m in assets with no mortgage, and they are considering a £500,000 DB pension transfer, they can quite easily assert that they are not relying on their DB pension income for life to fund their retirement.

As such, transferring the pension will not substantially affect their standard of living in retirement as they do not ‘need’ the income to maintain their standard of living and have more flexibility to pursue other ways of using the pension money.

Company liability

Employer’s Financial Health. You might have concerns about the financial health of the employer who sponsors your DB pension schemer and believe they are at risk of collapse or significant under funding. The Pension Protection Fund would be activated in this instance, but clients with larger pots, could stand to lose a portion of the payouts they are entitled to. 

Here are the possible reasons a transfer may not be in a client's best interests:

Loss of income

Losing income for life. By completing a transfer-out, individuals are waiving their rights to an income for life each year until their death.