21 09 '21

What is a Pension Transfer Specialist?

A Pension Transfer Specialist is a UK qualified adviser who has taken additional qualifications to advise on pensions with safeguarded benefits.

Essentially, pensions with a promise to pay pension benefits can only be advised upon by an adviser who has the relevant qualifications. The caveat to this is if the benefits are less than £30,000, in which case the pension member can enact a transfer themselves if they wish.

https://www.gov.uk/government/publications/pension-benefits-with-a-guarantee-and-the-advice-requirement/pension-benefits-with-a-guarantee-and-the-advice-requirement

A change in the Pension Schemes Act 2015 brought about changes that made the advice of certain schemes with protected benefits mandatory.

These protected, or safeguarded benefits, are not money purchase or cash balance benefits. The pensions that are included are:

Guaranteed Pension which include Guaranteed Annuity Rates (GAR’s)
Defined Benefit/Final Salary Pensions
Guaranteed Minimum Pensions (GMP’s)
Hybrid Schemes

If a member of these schemes is considering transfer their pension benefits to a more flexible arrangement, advice by a Pension Transfer Specialist is required. These guaranteed schemes can be complex and need detailed analysis together with considering a member’s individual circumstances.

Advice is required whether, the member wishes to transfer their whole scheme, part of their scheme, take a flexible income or a cash lump sum.

A Pension Transfer Specialist needs to consider a variety of factors before providing advice. These include.

Comparing the offered guaranteed benefit to the offered transfer value to determine if the offered amount is good value. There is no fixed way of calculating transfer values against offered income as all schemes value this differently. Some schemes may offer a multiple of 20 x income and others may offer 50 x income. The more multiples of offered income against the transfer value is often seen as a more attractive offer. E.g.

Person A – is offered £20,000 at normal retirement age or a transfer value of £400,000 (20 x)

Person B – is offered £20,000 at normal retirement age or a transfer value of £1,000,000 (50 x)

This is only part of what a Pension Transfer Specialist considers, however.

They will need to determine

If the member is married
Has dependent children
What their current and future income looks like
What their current and future expenditure looks like
Has other guaranteed pension income
Has other defined contribution pensions
Has other saving both cash or investment based
Has other assets such as investment property
If the member is in good health
The stability of the safeguarded pension scheme (is it in trouble or well underfunded)
If there is any debt, mortgages or loans

On top of the above and most importantly, a Pension Transfer Specialist needs to determine the needs and objectives of a member who is considering a transfer.

One of the most popular objectives is flexibility. However, this is a too broader definition. Why do they need flexibility, when do they need flexibility, how much flexibility is required? This all needs to be quantified by the financial adviser as, without it, they won’t have a full picture of the member’s circumstances and can’t make a suitable recommendation.

In short, if a member is wanting to transfer their pension, the Pension Transfer Specialist has to be confident that their needs and objectives can’t be met by staying in their existing scheme. This has to be documented and quantified against their circumstances.

A Pension Transfer Specialist offers advice only once an agreement has been made to undertake the process. This can be either in the form of Abridged Advice or Full advice.

What is Abridged Advice?

Abridged advice is designed to help advisers filter clients for whom a pension transfer is unlikely to be suitable.

It provides a mechanism to engage with someone who wishes to discuss their possible defined benefit transfer, but without going into full advice and most importantly committing the client to the full costs of advice.

It allows the adviser to ask for some standard basic information from the client to allow them to make a decision as to which possible route is feasible.

It is an optional service advisers can offer as part of their process and has two possible outcomes.

A personal recommendation that the client shouldn’t transfer or convert their pension.
This can only be done if there is sufficient evidence from the limited information provided by the client to demonstrate a transfer isn’t suitable.

A summary that it is unclear whether the client would benefit from a pension transfer based on the limited information provided as part of the abridged advice process. The purpose of this is to then offer full advice where further information can be gather to form a solid recommendation either to transfer or stay within the scheme.

It’s important to note that the outcome from abridged advice can’t be a recommendation to transfer. This can only be possible by going through a full advice process.

Assessment

All advisers will assume a starting point that a pension transfer isn’t suitable. This follows guidelines stated in the FCA handbook.

However, as part of the advice, an adviser should determine if staying within the scheme is also suitable. For example, the scheme could be well underfunded and at risk of failing.

The areas an adviser should consider and assess as part of the abridged advice process are:

Intention of when the client wishes to access the pension
The risks of staying in the current scheme
The risks of transferring from a guaranteed income to a flexible benefit scheme.
The views of a clients need for a guaranteed income
The client experience, views and knowledge of investments. Has the client managed an of their own investments in the past.
Has the client paid for advice in the past
How much income does the client need in retirement and how much of this is met by the current pension benefits. What would be the impact of losing this guaranteed income.
Are there any other ways to achieve the clients objectives from other funds/income
The client own personal attitude to investment risk

An adviser offering abridged advice should offset the cost of the advice against the cost of full advice if the client were to go down that route. This is to ensure the client isn’t charged twice for the same work.

The new advice process to include abridged advice came into effect in Oct 2020 and was designed to help more people access advice in this area without potentially incurring full advice fee’s.

Due to the nature of the new form of advice, however, many advisers were initially nervous about offering the service.

Without any previous experience of the pitfalls and potential exposure to risk for advice firms, many felt staying away from offering such a service would protect their business.

Already, a year into the new form of advice, questions are already beginning to be made about its suitability and efficiency of it.

Advisers are asking for the format to be tweaked. Over the course of the last year, situations have arisen which may not have been thought of when designing the concept.

For example, a lifetime allowance issue may come up which is relevant to the client, not the transfer, but under the abridged advice rules, this can’t be discussed.

Further discussion on the subject can be found here https://www.ftadviser.com/pensions/2021/09/09/abridged-advice-needs-to-be-tweaked-industry-says/

As a concept, we believe abridged advice is a good idea as it allows people potential access to advice without the full cost usually associated with it.

Also, read about what affects defined benefit transfer values

However, as with any new process, there are further improvements that could be made to make the experience smoother and more appropriate.

12 08 '21

Transferring a Million+ Pension

Client Situation

£1,400,000

No spouse, 2 children
Age 55
Has other deposit based savings of £350,000
Has no debt
Outgoing of £40,000 per annum
Plans to work until 65 with an income of £80,000

Are you in a similar situation?

Request a consultation

Learn more about transferring assets here

I reviewed a client who had concerns over their Defined Benefit Scheme’s suitability. They were considering a transfer for a number of reasons and wanted to understand the benefits and implications of it.

One of their main concerns was their current schemes health. Three years previous, they had been offered a reduced transfer value as the scheme was well underfunded and they wanted to clear the liability off their books. At that time the client didn’t consider it as he didn’t want to take a lower offer. As the scheme had now offered him a full value transfer value he felt it might be worth transferring. He was aware of the Pension Protection Fund, which guaranteed a percentage of the original offered income if schemes fail, but this has a cap.

Currently 2021/2022 the limits are £37,315 for a 65 year old, £31,275 for a 60 year old and £26,884 for a 55 year old. As the clients pension had promised to pay around £55,000 at 65, this was a big concern for him. If the scheme failed, he would only come away with a fraction of what he was promised.

Another concern was the loss of benefits back to the scheme if he were to die before getting value out of it. Having had a cancer scare a few years previous, this objective was high on his list. With no wife or dependent children, no one would be entitled to the benefits. He had 2 children, out of marrage and therefore wanted any remaining benefits to be passed to them. The only way this would be possible would be a transfer the scheme.

The client had a good amont of deposit based savings to fall back on, which would continue to grow with his disposable income until retirement at 65.

A transfer was recommended which met his objectives of:

* avoiding a scheme failure which would result in a lower guaranteed income;
* transferring the assets into his control so he had more flexibility and importantly allowed him to pass assets onto his two children;
* increased his overall wealth without increasing his inheritance tax liability (pension scheme assets are not calculated as part of the estate on death)

There was a lifetime allowance discussion given the size of the fund value, however, we deemed it still appropriate given the risks of not transferring and being unable to meet his objectives.

A full cashflow forecast was created as part of the advice process which showed a more than sustainable wealth over his retirement, with the added benefit of being able to pass funds to his children.

25 01 '24

What Is the Transfer Value of a Pension

Hundreds of thousands of pension transfers take place each year, signalling a significant movement of retirement funds across different schemes. You’re likely considering the implications of such a decision on your own financial future.

Understanding the transfer value of your pension is a vital part of this process, and it’s not as straightforward as you might hope. This important sum is the amount your pension provider will offer you to move your current pension benefits to another plan. As you weigh the pros and cons, remember that this value is not merely a reflection of your total contributions but is influenced by a complex array of factors, including market conditions, underlying investments, and the rules of your existing pension scheme. Some of these factors may significantly impact the value of your pension if you transfer.

You must understand the nuances of transfer values and how they can affect your retirement strategy. This understanding will position you to make decisions with an informed mind; making the wrong decision without fully understanding your scheme could cost you thousands.

How is the transfer value and fund value different?

The transfer value of a pension is the sum you can relocate to a new scheme, often differing from the fund value, which represents the current worth of your savings without considering potential penalties or lost bonuses.

For defined contribution plans, the fund value is straightforward—it’s the total of your contributions plus any investment gains. However, the pension transfer value may factor in charges for leaving the scheme early.

In defined benefit schemes, the disparity is more pronounced. The CETV reflects an estimate of the present value of future benefits you’re giving up. It’s a complex calculation that considers your age, salary, scheme rules, and actuarial assumptions.

What is the cash equivalent transfer value?

As you consider the difference between transfer value and fund value, it’s also important to grasp the cash equivalent transfer value (CETV), if you have a defined benefit scheme. The CETV is the sum offered by your defined benefit pension scheme if you opt to transfer out, reflecting the value of your pension savings with another provider. This figure isn’t set in stone; it’s an estimate influenced by variables like age, internal scheme factors, gilt yields and life expectancy, among others.

When seeking to transfer a defined benefit scheme, you must engage with a Pension Transfer Specialist if your CETV is above £30,000. This is because defined benefit schemes are more complex than defined contribution schemes and, therefore, need more consideration.

Could my transfer value change after I decide to transfer?

When you commit to transferring your pension, it’s important to recognize that your transfer value may fluctuate due to market conditions and scheme rules before the completion of the transfer process.

As investment values change, so can the amount you’re entitled to move. Market value reduction could apply, particularly in with-profit funds, affecting the sum you receive.

It’s a financial reality that values change all the time, and these variations can occur right up to the point of transfer. To safeguard your interests, stay informed about the current market trends and understand how they might impact your pension’s transfer value.

Transfering a pension can often take weeks from the moment paperwork is submitted and markets can change a lot in this time.

If you wish to ‘lock in’ a transfer value, you could change your assets to cash before the transfer, which would avoid any market fluctuations.

How is a pension transfer value calculated?

You need to understand that calculating the transfer value of your pension depends on whether it’s a defined contribution scheme or a defined benefit scheme.

For defined contribution schemes, the transfer value is typically the current value of the funds you’ve accumulated.

In contrast, for defined benefit schemes, the calculation is more complex and can change dramatically over time. A recent example is CETV values, which during 2020-2021 were up to 40% higher than they are today (Feb 2024). This is due largely to gilt yields moving from historical lows of below 1% to over 5% in a matter of months.

Defined Contribution schemes

Calculating the transfer value of a defined contribution pension scheme involves assessing the current fund value and considering whether the fund has bonuses added.

Unlike a defined benefit scheme, your pension pot in a defined contribution plan reflects contributions made over time plus investment returns.

When you opt to transfer your pension, the transfer value is typically equivalent to the current value of your investments within the scheme.

There are some schemes however, such as with profit funds that include a bonus on top of the fund value. This bonus is not guaranteed in most circumstances and can be held back if market conditions aren’t favourable. Always check what the actual transfer value rather than just looking at the fund value.

Defined benefit schemes

Building on the understanding of defined contribution schemes, it’s essential to grasp how pension transfer values are calculated within defined benefit schemes. In these schemes, the process involves a more complex assessment of long-term financial promises rather than simply the sum of contributions and investment returns.

For final salary schemes, the final salary pension transfer value is an estimate of the present value of the guaranteed income for life you’re entitled to upon retirement. Actuaries use a defined benefit pension transfer calculator considering your age, expected retirement date, and life expectancy.

An enhanced transfer value may be offered to incentivize the transfer out of the scheme. However, it’s important to assess whether the transfer value adequately compensates for the security and benefits you’re giving up.

How long does it take to transfer a pension?

The duration of a pension transfer can vary, typically ranging from several weeks to a few months, depending on multiple factors such as the type of pension scheme and the responsiveness of the providers involved. When you ask for a transfer value, it’s important to understand that this figure is a snapshot based on the fund value at the time of the request, and it can fluctuate due to changing investment values.

To ensure a timely pension transfer, it’s advisable to be proactive in your communications with both the transferring and receiving pension providers. Delays can occur if there’s a lack of timely response or if additional information is required. There can be a lot of administration involved, and people often find it more efficient and less stressful to engage with a financial adviser.

Where is the best place to transfer a pension to

When considering the best destination for your pension transfer, it’s essential to weigh various factors, including the financial stability and performance record of the receiving scheme, to ensure alignment with your retirement goals and financial security.

Choosing a pension provider for your new pension requires careful scrutiny. The pension provider should offer a robust platform that aligns with your investment outlook and retirement timeline. It’s not merely about transferring to another pension scheme because you’ve heard it’s good; you must consider the long-term implications, such as fee structures, service levels, and fund options that match your risk tolerance.

Consulting with a pension advisor becomes indispensable here. They can dissect the nuances of your current pension, elucidating the complexities behind the transfer value and guiding you towards a decision that balances immediate financial benefits with sustained growth potential.

Help with transferring pensions with financial advice.

Navigating the complexities of pension transfers necessitates professional financial advice to ensure you maximise the transfer value while aligning with your retirement objectives. When considering a transfer, it’s not just about comparing the fund value with the transfer value but also understanding the implications of potential transfer incentives and the long-term impact on your retirement income.

I have been an independent financial adviser for over 20 years and have helped many people consolidate or move their pensions. The reasons for people wanting to move are many and varied from wanting better performance to lowering annual costs or reducing administration.

I have access to the whole pension market and can, therefore, recommend a suitable home for your pensions which aligns with your needs.

Book an appointment with my Pension Transfer Service.

17 01 '24

Can I retire at 55?

Can I Retire at 55

Like a seasoned marathon runner eyeing the finish line, you’ve paced yourself for a career that you hope can end at 55, well before the standard retirement age.

As you chart the course towards this milestone, it’s important to understand that retiring early isn’t merely a matter of wishful thinking but a strategic move that requires meticulous planning and a clear-eyed assessment of your financial landscape.

You must ask yourself if your pension pot is buoyant enough to keep you afloat for potentially 30 years or more of post-work life.

The decisions you make now about savings, investments, and expenditures could dictate the rhythm of your future years.

To navigate this terrain with confidence, you’ll need a map that outlines not only how to draw your pension at this early age but also how to optimize it for a life of sustained comfort.

The question remains: Do you have the right tools in your arsenal to retire at 55, and what might you still need to secure to make this vision a tangible one?

Let’s examine the strategies that could help you cross the finish line with your finances in winning form.

Key Takeaways

Accessing a pension at 55 is possible, but the age threshold will increase to 57 by 2028.
Drawing a pension earlier may have tax consequences and longevity risk, so exploring options like deferring pension or part-time work is important to avoid financial shortfalls.
Seeking professional advice can help. They have experience in planning early retirement and will also tell you if you have unrealistic goals.
It is critical to determine the income needed to sustain the desired lifestyle in retirement, considering factors like inflation’s impact on purchasing power and additional sources of income or investments.

Can I draw my pension at 55

Yes, you’re currently able to access your pension pot at 55, but this threshold is set to increase to 57 by 2028.

If you’re in a defined contribution pension, you can access just the tax-free cash if you wish or combine this with taking a taxable income. If you’re in a defined benefit scheme, you’re allowed to take your pension early, but you’ll suffer an early retirement penalty on your income, and you’ll have to take the income and tax-free cash at the same time.

To ensure you don’t face financial shortfalls later in life, you should explore all options, like deferring your pension or continuing part-time work.

When will it change to 57

Individuals planning to retire early should note that the age at which one can access pension pots is set to increase from 55 to 57 in 2028, necessitating adjustments to retirement strategies. Here’s what you need to consider:

Understanding the Shift

Birth Year	Minimum Access Age Before April 6, 2028	Minimum Access Age After April 6, 2028	Notes
On or before April 6, 1971	55	No change (55)	Not affected by new legislation
April 7, 1971 – April 5, 1973	55	57	Access window between 55th birthday and April 5, 2028.
After April 5, 1973	55	57	Delayed access by 2 years.

Can I take my pension earlier than 55

Whilst you have to adhere to the regulated minimum age to access your pension, there are a few exceptions.

You may qualify for taking your pension early through ill health. This is if you have less than a year to live and can be qualified by a medical professional.

If you joined a scheme that had a protected retirement age. Some schemes allowed for members to retire from the age of 50; these no longer exist, but if you are part of a scheme that offered it, you can still use this benefit.

Some people choose to access their pension before 55 with the understanding that they’ll be heavily penalised. The legislation states that a tax levy of 55% will be charged against those who access their pension before 55 so it’s only in very unique circumstances this should be considered.

Planning for retirement at 55 or 57

It’s not as simple as just deciding you want to retire early because you’ve had enough of work; you need to plan your path forward over the next 30+ years. You need to consider saving, expenditure needs, big events (such as moving house or university fees) and factor in inflation.

It’s also important to consider your partner’s pension provisions and the timing of your state pension to ensure a seamless transition into retirement.

How much Income will I need?

To ensure a comfortable retirement at 55 or 57, you’ll need to carefully calculate your income requirements, typically aiming for 70% of your pre-retirement earnings.

To establish if you have enough to retire, consider several key factors:

Retirement Income Needs
70% Rule: Aim for an income that’s 70% of your pre-retirement earnings.
Savings: Factor in how much of your savings you’re going to use to supplement income or whether your savings are going to provide growth/interest to supplement income
Lifestyle: You need to sensibly calculate what type of lifestyle you desire. Are you just after income to cover minimum costs, or do you want to be comfortable with two holidays a year and a new car every three years?

A useful way of determining this is to write down all your costs now and what these may look like if you retire tomorrow. This will show the change in required income. It’s a useful exercise and can often be humbling, but it manages expectations.

Will inflation impact my income?

Inflation invariably affects your retirement income, necessitating adjustments to ensure your pension pot maintains its purchasing power over time. You must account for the inflation impact on your income when crafting your retirement plan. If you’re pondering how much income you’ll need, remember that rising living costs can erode your savings faster than anticipated.

To afford to retire at 55 or 57, you’ll need to adjust your expectations and savings goals accordingly. Regular reviews of your retirement strategy help you stay ahead of the inflation curve, ensuring you can afford to retire comfortably.

The last few years have shown us the impact ignoring inflation might have. With annual growth in double digits, the pension income you forecast just might not go as far as you planned.

What other source of income/investments can I use?

Diversifying your income streams can significantly enhance your financial security when retiring at 55 or 57, allowing you to rely less on your pension and more on alternative investments and earnings. Here’s how you can broaden your financial foundation:

Private Pension & Investment Income:
Enroll in a private pension scheme for additional retirement savings.
Invest in stocks, bonds, or mutual funds for growth-oriented investment income.
Retirement Investment Strategy:
Develop a strategy that balances risk and return, accounting for your retirement timeline.
Consider annuities for a steady income stream in retirement.
Additional Income Sources:
Explore rental income from investment property.
Engage in part-time work or consultancy to supplement your pension.

Does my spouse/partner have a pension income?

Have you factored in your spouse’s or partner’s pension income as part of your retirement planning for an early departure from the workforce at 55? Understanding both your personal pension and your spouse/partner’s pension is paramount. Estimating the combined pension income, whether from workplace pensions or other pension schemes, can significantly affect your financial readiness for retirement at an earlier age.

Utilize pension calculators to gauge the total income you both could expect if you plan to retire at age 55. This step not only clarifies your joint retirement outlook but also aligns your savings efforts.

When will i get the state pension?

While considering you and your partner’s combined pension income for early retirement, it’s also essential to determine when you’ll be eligible to receive the state pension. The age at which you can get your state pension depends on your date of birth and National Insurance record.

The easiest way to do this is by checking on the government website. This will tell you when you’ll get the state pension and whether you’re up to date with your National Insurance contributions.

Cashflow planning

Understanding your forecasted income and outgoings and the effect inflation/growth will have on your pension/savings is a key part of planning.

Arthur Browns Wealth Management – What is cashflow planning? from CashCalc

You’ll need to assess your total income, including pensions and investments, to ensure it aligns with your anticipated costs.

If you’d like us to create a cash flow plan for you, log on here.

How can I use my investments to provide an income?

Strategically leveraging your investments to generate a consistent income stream is a critical component of cash flow planning for retirement at 55. To retire early and maintain your desired lifestyle, you’ll need to assess how much do I need and establish multiple income sources.

To diversify your portfolio, understand where your pension is invested and how much more you may need.
Dividends: Invest in dividend-paying stocks for regular income.
Interest: Allocate funds to bonds or savings accounts.
Rental Properties: Consider investment properties for ongoing cash flow.

Regularly reviewing and adjusting your investment strategy is essential to keep up with market conditions and your changing income needs. It’s wise to consult a financial advisor to optimize your pension pot to retire comfortably.

What are the retirement options at 55 or 57

If you wish to retire at 55 or 57, you’re faced with key decisions regarding annuities and pension drawdown options, and you must understand pension rules.

Annuities provide a guaranteed income for life, which can offer financial security, although they may limit access to your capital.

On the other hand, a pension drawdown allows for more flexibility and potential for growth, but it requires careful management to avoid depleting your fund prematurely.

Annuities

When considering retirement at 55, annuities offer a reliable income stream by converting your pension pot into regular payments. If you’re aiming for early retirement at these ages, understanding how annuities work is crucial, along with finding out how much state pension you’ll need. Here’s what you need to know:

Types of Annuities
Fixed: Provides consistent payments.
Indexed: Aims to adjust each year with inflation or a set rate.
Benefits
Stability: Guarantees income for life.
Simplicity: Easy to manage as you take your pension.
Considerations
Rates: Fluctuate, so timing matters.
Pot Size: Assess if you have a good pension pot at retirement to ensure sufficient income.
Health/Lifestyle: Annuities take into consideration your health and lifestyle habits, such as smoking.

Carefully evaluate if an annuity suits your financial situation and retirement goals.

Pension Drawdown

While annuities provide a stable income stream for early retirees, pension drawdown offers a flexible alternative, allowing you to take a tax-free lump sum at 55 while keeping the remainder invested.

However, to avoid the risk of running out of money, it’s important to work out how much you need in your pot to retire at 55 comfortably. Take into account your fixed costs and consider unexpected expenses like healthcare.

Remember, the pension freedom age will rise to 57 in 2028, so planning ahead is essential. It’s also vital to be mindful of market fluctuations, as your drawdown pot is subject to investment risks.

What else do I need to consider?

You’ll need to consider how inflation could erode your purchasing power over time, making it crucial to plan for increasing costs.

It’s also essential to understand how income tax will affect your withdrawals from your pension pot.

Lastly, realistically assess your and your spouse’s life expectancies to ensure your savings don’t fall short.

Inflation

Consider the pervasive effects of inflation on your retirement funds, as it can significantly diminish the buying power of your pension pot over the years. When you’re planning to retire at 55, it’s crucial to understand how inflation can challenge your financial security.

Inflation and Retirement Planning:
Evaluate how inflation will affect your need to retire with enough funds at the age of 55.
Assess the growth of your pension fund in real terms, accounting for inflation.
Strategize ways to save for retirement that consider the long-term impact of inflation.

Inflation can erode the value of your savings, making it essential to adopt an analytical approach to ensure you can maintain your desired lifestyle. Professional guidance can help you navigate these complexities, ensuring your retirement plan is robust against inflationary pressures.

Income Tax

Understanding the erosive effect of inflation on your retirement funds is important, but equally important is grasping how income tax will influence your available pension income. When you retire at 55, you’ll need to consider how your pension pot is taxed. Whether you’ve contributed to a workplace or personal pension scheme for 35 years, the amount you receive after taxes can significantly affect your ability to take early retirement.

If you stop work at 55 and don’t have any other taxable income, you can use your personal allowance of £12,570 before any tax is paid. This can be combined with taking tax-free cash to provide an annual income where you don’t pay tax. However, once you reach state pension age, your state pension income will use most of this personal allowance, so plan accordingly.

How long I and my spouse/partner might live

Estimating the potential duration of your retirement is essential, as living longer than expected could significantly impact the financial resources required for you and your spouse or partner. You’ll need to consider:

Life Expectancy Factors
Health conditions and lifestyle choices
Family history implications
The average life expectancy trends

By understanding these elements, you can better gauge how much you’ll need in your retirement fund. Aiming for a good pension pot is wise, especially since the average pension pot may not suffice if you retire at 55 and live longer than the norm.

Planning for longevity involves:

Financial Planning
Adjusting savings targets
Investment strategy refinement
Exploring additional income sources

Can I rely on the state if i run out of money

Relying solely on the state pension as a safety net if you deplete your retirement funds can leave you financially vulnerable, given its limitations and potential insufficiency to cover all living expenses. The state pension, while a cornerstone of retirement income for many, is designed to provide only a basic standard of living. If you’re aiming to retire at 55 without running into financial trouble later, you’ll need to plan beyond the basic pension in the UK.

Can I remortgage my house through an equity release?

While considering your retirement finances beyond the state pension, you might explore the option of remortgaging your home through equity release to enhance your financial flexibility. Equity release can be a viable way to supplement your pension pot, especially if you’re aiming to retire at 55 in the UK.

Here’s what you need to consider:

Types of Equity Release for Taking Early Retirement at 55:
Lifetime Mortgage: You borrow against your home’s value and retain ownership.
Home Reversion Plan: At the age of 55, you may sell a part of your home in exchange for a lump sum or regular payments while continuing to live there.

Eligibility and Amount:

Your age and property value largely determine how much you can release.
Typically, the older you’re and the more valuable your home, the more you can access.

Pros and Cons: of taking early retirement at the age of 55.

Provides financial flexibility without the need to move.
May reduce the value of your estate and affect means-tested benefits.

Before you remortgage your house, it’s important to weigh the long-term impact on your estate and explore if this aligns with your retirement goals. As always, seeking independent financial advice is recommended to understand the nuances and ensure it’s the right decision for your circumstances.

How will I manage my pension investments?

To effectively manage your pension investments for an early retirement at 55, it’s important to regularly review your portfolio and adjust your strategy to align with your evolving financial goals and market conditions.

Start by estimating your retirement income needs, factoring in the 70% rule—aim to replace this percentage of your pre-retirement income to maintain your lifestyle. Remember, your pension pot in the UK should ideally be well above the average to retire comfortably at 55.

A key aspect is optimizing your pension contributions. Maximise tax incentives and employer matches where possible to boost your savings. You’ll also want to choose the best pension funds that balance growth potential with risk management, considering both stock market performance and the magic of compound interest.

Moreover, be aware of the implications of inflation, income tax, and the state pension on your retirement income. Whether you opt for an annuity or a drawdown scheme, it’s essential to understand how each affects your pension pot’s longevity.

Seeking professional advice can provide personalized guidance to manage your pension investments efficiently. A financial adviser can help tailor your pension contribution strategy, ensuring you’re on a suitable path to meet your retirement goals and find out how much pension pot you need.

What can I do about saving more before I retire

If you’re aiming to retire at 55, it’s essential to assess and increase your savings now to ensure a comfortable retirement. Analyzing your financial landscape and making strategic adjustments can significantly improve your pension pot’s growth. Here are some steps to consider:

Utilize Tools and Advice
Use a Pension Calculator to gauge how much you need.
Seek professional advice to keep your pension strategy on track.
Understand income tax implications on your pension income.
Budgeting and Expenses
Differentiate between essential and non-essential spending in order to determine how much money you need to retire.
Calculate fixed costs and anticipate changes to regular expenses.
This will clarify how much you need to save to maintain your desired lifestyle.
Evolve your investment strategies based on an anticipated need in your pension pot.
Investigate how stock market trends and compound interest could boost your pension.
Select the best pension fund options to optimize your savings for a good pension pot at 55.
Start saving early; the longer you wait, the more you’ll need to contribute monthly.

Retire at 55 Checklist

Before you set sail into the sunset of retirement at 55, using your pension pot, ensure your financial compass is accurately calibrated by using the Unbiased Pension Calculator to estimate your retirement income needs.

Here’s your

Assess Your Savings
Have you saved enough to match the recommended pension pot?
Will your savings withstand the impact of income tax?
Is your current savings trajectory aligned with the lifestyle you desire?
Understand Your Pension Options
Have you accounted for how inflation could erode your pension’s value?
Are you aware of how the state pension will supplement your income?
Have you decided between an annuity or a drawdown scheme?
Plan for the Future
Have you considered potential changes in annuity rates and how they might affect you?
Are you prepared for uncertainties, such as healthcare costs or market volatility?
Do you have a strategy to adjust your plans if circumstances change?

Conclusion

In conclusion, retiring at 55 is achievable with meticulous planning and smart financial strategies, keeping in mind how much money you need.

You’ll need to assess your pension options, manage investments astutely, and possibly boost your savings while constantly asking yourself.

Consider all variables, from cash flow to tax benefits, and use available calculators for a precise retirement target.

Stay informed, make informed decisions, and your dream of an early, comfortable retirement can become your reality.

Don’t forget to utilize the retire-at-55 checklist to keep your plans on track.

Book an appointment to discuss your Pension.

09 11 '23

Should I consolidate my Pensions?

SHOULD I CONSOLIDATE MY PENSION

Consolidating multiple pensions into one plan can simplify management, reduce admin, save money, improve performance and provide a clearer financial picture.

However, the decision to consolidate can be overwhelming and confusing, requiring careful consideration of various factors.

This article will discuss the benefits, potential drawbacks, and key considerations involved in pension consolidation, giving you the tools to make informed decisions for your retirement.

Understanding Pension Consolidation

It’s extremely rare now that someone has a job for life and, indeed one pension. Various career moves across different companies can leave you with an array of pensions with different providers.

It’s often difficult to keep track of where they are and how they’re performing. Pension consolidation is a way of tidying up your retirement savings, giving you peace of mind you know what your money is doing.

Pension consolidation is essentially the process of combining all your pensions into one place. This allows for improved visibility, easier tracking of pension performance, and potential cost savings.

However, there are both pros and cons to consider. One of the key benefits of pension consolidation is the simplification of paperwork and reduction of charges.

By combining pensions, you interact with only one provider, saving you time and hassle. Pension consolidation also provides flexibility, which is particularly beneficial for those planning to retire soon.

On the downside, certain valuable guarantees might be lost in the process. These could include employer-matched contributions and final salary pensions that provide a guaranteed income for life.

Benefits of Pension Consolidation

Transitioning from understanding the concept of pension consolidation, we’ll now chat about the numerous benefits that this financial strategy can offer. The process of consolidating pensions involves transferring all your pensions into a single scheme, which can simplify your financial life.

Key benefits of pension consolidation include:

 Simplicity and Time Efficiency: Consolidating pensions can save time and paperwork by reducing the need to interact with multiple pension providers. You can manage your pension pot more efficiently, often online or on your phone, which you might not currently be able to do.

Financial Efficiency: Combining your pensions can potentially reduce charges, thus saving money.

Visibility and Flexibility: Consolidation provides a clear view of your pension performance and allows quick changes if needed.

Before deciding to consolidate your pensions, it’s crucial to consider the following:

 Potential Losses: Ensure you won’t lose any valuable guarantees or benefits in the pension transfer process.

 Cost-Benefit Analysis: Compare the costs and benefits of your current pensions and the consolidated scheme.

Why Consolidate Pensions

Consolidating pensions can provide a range of benefits, including cost savings on charges, enhanced investment performance, and increased visibility of your pension assets.

Moreover, it can streamline administration, simplifying the management of your retirement funds.

In the following discussion, we will comprehensively analyze each of these points, providing further understanding on the merits of pension consolidation.

 Save Money on Charges

While it is essential to consider several factors before consolidating your pensions, one significant advantage to consider is the potential to save substantial sums on charges. When you combine your pensions into one pot, you can:

Potentially reduce the costs. Some older pensions have excessive charges, and if you have several pensions, these additional costs may add up to thousands in overpayments.
Benefit from lower fees if your consolidated pension is invested in low-cost funds. Active and Passive funds have very different charges, the trend in recent years has been more passive investments, which have lower charges whilst competing on performance.

The goal is to maximise your retirement income, and every penny saved on charges helps.

 Investment performance

A significant factor to consider when contemplating pension consolidation is the potential improvement in investment performance. Some pension pots may offer a wider array of investment options, making it advantageous to consolidate and eliminate underperforming ones.

Older pension plans may be limited to a poorly managed fund or a restricted choice of funds, hindering optimal growth. By transferring pension funds into a single, better-performing pot, you can effectively manage your pension, ensuring it is aligned with the current investment environment.

However, it is important to balance potential gains against possible costs such as loss of employer-matched contributions or exit fees.

 Better visibility of your pensions

One significant advantage of pension consolidation is the enhanced visibility it offers over your retirement savings. Managing several different pension plans can be challenging. By combining pension savings into one, you get a clearer, unified view of your total retirement savings. This better visibility of your pensions allows for effective tracking and management.

Consolidation improves visibility:

Tracking and analyzing your pensions becomes easier.
It provides a holistic view of your retirement assets.

Combining pension pots reduces confusion:

It eliminates the need to deal with multiple providers.
You can check with pension providers in one place.

Determining if consolidation is right for you:

Consider the benefits and potential drawbacks.
Consult with a financial advisor to make an informed decision.

 Improved administration

In managing your retirement savings, you may find that consolidating your pensions offers improved administration. Merging pensions into a single pension scheme enables a more streamlined approach to pension administration. This centralization process reduces the complexity and paperwork involved in managing multiple existing pensions, thus saving you valuable time.

With a single, consolidated pension, making changes to your current pension plan becomes less cumbersome, eliminating the need to contact multiple providers.

Therefore, if you seek an efficient way to manage your retirement funds, consolidating your pensions could be a viable option.

Potential Drawbacks of Consolidation

Potential drawbacks of pension consolidation should be carefully considered, as this process can lead to loss of benefits entitlements and potentially incur additional costs. While consolidation can simplify administration by reducing the number of pensions to manage, it can also involve relinquishing certain advantages tied to individual pension plans.

By choosing to move pension pot funds into a consolidated account, you may:

Lose benefits from defined benefit pensions
These may include guaranteed income for life or entitlement to a larger lump sum.
Forfeit additional benefits
Some pension plans offer benefits like guaranteed annuity rates or employer-matched contributions. Consolidation might result in the loss of these.
Incur potential costs
Depending on the pension legislation, fees may apply during the consolidation process. Financial advice often also incurs costs.

In the end, the choice should deliver greater value and align with your long-term retirement goals.

Evaluating Pension Guarantees

Before you decide to consolidate your pensions, it’s important to carefully evaluate any pension guarantees that could be lost in the process. These guarantees, usually offered by your pension provider, can take forms such as a guaranteed annuity rate, guaranteed minimum pensions, or defined benefit pensions.

Guaranteed annuity rates, for instance, offer a secure, fixed income for life, often at a higher rate than what’s currently available on the open market. If you combine pensions, this beneficial rate could be lost, significantly affecting your retirement income. Given the current high interest and annuity rates, you should check if these are still advantageous.

Similarly, transferring out of a defined benefit pension could result in forfeiting a reliable, inflation-proof income for life. You will also need to seek specialist advice from a Pension Transfer Specialist for this type of pension.

Evaluating pension guarantees isn’t a task to be taken lightly. It involves an in-depth comparison of the benefits and costs associated with each pension. It also necessitates a comprehensive understanding of the conditions and terms set by your pension provider. Since these guarantees could potentially offer a more lucrative retirement income, it’s important you fully understand these benefits before moving your pension. Once you transfer your scheme, you can’t go back, so either check with your pension scheme provider or use a financial adviser.

Comparing Investment Costs and Returns of Pension Consolidation

Moving on from the evaluation of pension guarantees, our next focus is the comparison of investment costs and returns when considering pension consolidation. A critical factor to consider when consolidating different pension pots into a single pension is the potential change in investment costs and returns.

Costs related to Pension Consolidation
Annual fund management charges, which may vary between different pension providers.
Charges by the pension company to administer the consolidated pension.
Financial adviser charges that may be incurred during the consolidation process.
Potential exit charges and dealing charges when moving pensions.
Comparing Investment Returns
Compare the returns of your current pensions with expected returns after consolidation.
Consider the average returns for funds of similar risk levels. If you’re underperforming, you might be missing out on growth.
Making the Decision
A financial adviser can provide insightful guidance when deciding whether to combine your pensions.
Always weigh the potential benefits against any increased costs.

Deciding on Pension Consolidation

Often, the decision to consolidate pensions requires careful evaluation of both the financial implications and your individual retirement goals. Pension consolidation can prove beneficial in managing your old pension pots more effectively. An amalgamation of many pension providers into a single, manageable plan can simplify your retirement strategy.

However, it’s vital to ensure that this move aligns with your long-term financial goals. Consolidating workplace and personal pensions may streamline administration and provide a holistic view of your retirement savings. This might make it easier to plan for the future and reduce the overall costs associated with managing multiple pensions.

Nevertheless, it’s important to consider any potential losses before deciding to consolidate my pensions. Transferring out of certain schemes may result in losing valuable benefits or incurring hefty exit fees. Therefore, a thorough comparison of the costs, benefits, and investment performances of your current and potential new pensions is essential.

Finding Lost Workplace Pensions to Consolidate

A final thought when considering combining your pension pots is to consider a lost workplace pension scheme. Whether this be a defined benefit pension scheme or money purchase scheme, small periods of employment still often had pension contributions and the pension invested over time may be worth a good amount.

If you’ve moved house since you worked at the company, you may not be receiving scheme paperwork and may have forgotten the value of your pension benefits. The Pension Tracing Service can help. This is a government-backed initiative to reconnect the millions of pounds in lost pensions back to their owners. See also Moneyhelps guides on this subject.

Conclusion

In conclusion, pension consolidation can offer a simplified and potentially more cost-effective method of managing retirement savings.

However, it is important to consider potential drawbacks such as loss of valuable guarantees, increased investment costs, and possible exit fees.

A careful and thorough evaluation of individual circumstances and potential benefits and costs will enable a well-informed decision on whether pension consolidation is the most advantageous course of action.

21 09 '23

Should I Invest in Cash in My Pension in 2023?

Cash is King, was the old saying, and then it wasn’t if you were looking for a good return. But now the good times are back, and interest rates are at their highest for 14 years.

However, the options to take advantage of interest rates within pensions seem to be more difficult. In this article, we’ll explain how cash can be used as part of an overall investment strategy and how to access the products on offer.

Key Takeaways

Cash in pensions can offer a good risk-free return*
However, there may not be long to take advantage of current rates as inflation eases
Inflation risk is a concern with cash in pensions, and there may be potential for higher returns elsewhere.
Alternatively, investing in a money market fund can be a low-risk option with the potential for higher returns, but factors such fund management charges should be considered.

Cash Rates on Pension Accounts

As is common with mainstream banks, many pension providers have been sluggish in reflecting higher interest rates to the cash held on pension accounts.

Self-Invested Personal Pension (SIPP) accounts are typically not intended to store large cash sums over an extended period. Instead, they serve as temporary repositories for funds awaiting investment. They offer liquidity for facilitating charges and can also act as a transfer account for inbound and outbound transfers.

With the recent rise in the Bank of England base rate, a growing number of investors are now keenly aware that strategically holding cash could be a viable part of their overall investment portfolio. However, it’s worth noting that, given the historical returns, maintaining cash for lengthy periods is not generally recommended when compared to investing.

The following are the current interest rates various pension providers offer for cash stored in their accounts.

Rates as of 21/9/2023

Provider	Amount	Rates
AJ Bell	£0 – £10,000	3.20%
AJ Bell	Above £10,000	3.70%
Interactive Investor	On the first £10,000	2.75%
	£10,000.01 – £100,000	3.5%
	Above £100,000	4%
Hargreaves Lansdown	Above £100,000	4.2%
	£50,000 – £99,999.99	3.9%
	£10,000 – £49,999.99	3.65%
	£0 – £9,999.99	3.45%
Standard Life	Above £1	4.25%
Best Invest	Above £1	4.35%
Charles Stanley Direct	£0 – £24,999	1.00%
	£25,000 – £49,999	2.85%
	£50,000 – £99,999	3.05%
	Above £100,000	3.25%
Fidelity	Above £1	3.50%
Vanguard	Above £1	2.6%
Interactive Brokers	Above £100,000	4.72%

Typically, these accounts are not designed to store substantial sums of money and have been traditionally employed as intermediary accounts during the process of selling one investment to purchase another. Therefore, being cautious about the limits set by the Financial Services Compensation Scheme (FSCS) is crucial. Some providers might increase the number of protective layers by using multiple banks, but it’s always wise to thoroughly review the fine print. It’s worth noting that the FSCS compensation limit is set at £85,000.

Fixed Term Deposits

Another option for cash on pension accounts is to be fixed into a rate for a longer period. Much the same as you can fix money in a bank account for a longer period and attract a better interest rate through fixed-rate bonds, you can do the same in a pension. The product is known as a fixed-term deposit. The lack of understanding around this account probably stems from very few providers offering or promoting them.

Over the past decade, the rates on fixed-term deposits meant they didn’t offer any real return versus inflation. However, we are seeing an increased demand from both clients and new enquiries about how to access them.

The way they tend to work is a platform provider will offer access to a number of companies that offer these within a SIPP. Some platforms make it easier to access them by having a cash panel, whereas other providers offer them as an off-platform option, only if you ask.

Want to discuss SIPP cash rates?

Rates as of 21/9/2023

Provider			Term
	12 months	24 months	36 months	48 months	60 months
Cater Allen	5.05	5.2

Mansfield BS	3.79	4.1

Tandem	5.85	5.85	5.85

QIB	5.75	5.7	4.9

National Bank of Eygpt		5.21	4.86

ICICI Bank	5.5	5	4.5

Ahli United Bank	6.1

Brown Shipley	5.92

Gatehouse	5.9	5.75

Paragon	5.8	5.8

Alermore	5.69	5.58	5.17	4.79	4.6

Investec	5.69	5.74	5.74

The income or return from fixed term deposits is paid at the end of the term rather than monthly, and unlike fixed rate bonds which can be exited early to forfeit interest, these can’t. You really need to be sure you don’t need the amount for the chosen term.

Guaranteed Drawdown

There is another way of utilising interest rates while keeping your money in a personal environment. Sometimes referred to as guaranteed drawdown, the official name is a fixed-term annuity.

This is a halfway house between an annuity and drawdown. You can fix your pension for a term of between 3 and 25 years. Choose whether you want to take an income or not (and can specify the amount you want), and then an interest rate is applied to the fund.

Amount (£)	Maturity Value	Term (Years)	Effective Annual Interest
100000	128301	5	5.66%
100000	139600	7	5.65%
100000	159013	10	5.90%
100000	197717	15	6.51%
100000	253320	20	7.60%
100000	326336	25	9.05%

Lets chat about Guaranteed Drawdown

Money Market Fund

If the concept of locking money up for a period to enjoy higher interest rates doesn’t suit your access needs, there are money market funds. These offer a low-risk way to invest in short-term debt securities, certificates of deposit and commercial papers. The returns typically follow the Bank of England base rate with very few surprises. As they are funds, the investment can be accessed at any point or left alone indefinitely.

When compared to other investment styles, Money Market risk sits at the bottom.

Money Market Risk Profile

Some examples are:

Royal London Short Term Money Market -5.19%

Legal & General Cash Trust – 4.3%

Premier Miton UK Money Market – 5.77%

As of 21/9/2023

Frequently Asked Questions

What Other Investment Options Can I Consider for My Pension Apart From Cash?”

You could consider investing in stocks, bonds, or real estate. Diversifying your portfolio can help manage risk. Researching and understanding each option is essential before deciding where to allocate your pension funds.

How Will Inflation Affect Cash Investments in My Pension?”

Inflation can erode the value of your cash investments over time. If inflation rates exceed interest rates, you’re effectively losing money. It’s crucial to consider this when planning your pension investments.

Is It Advisable to Invest My Entire Pension in Cash?”

While putting all your eggs in the cash basket is tempting due to current high-interest rates, diversification is key. Don’t risk your nest egg on one strategy; the economic climate can change quickly.

08 08 '23

Pension Tax-Free Lump Sum To Be Scrapped

The Institute for Fiscal Studies, earlier in the year, proposed reforms to the pension system, including scrapping the 25% tax-free lump sum,

Key Points

The Institute for Fiscal Studies (IFS) proposes to scrap the 25 % tax-free lump sum to create a more equal subsidy for all private pensions.
The current tax subsidy for the tax-free lump sum mainly benefits high-income earners.
The IFS suggests capping the tax-free pension lump sum at 25% of the first £400,000 of pension wealth to ensure a fairer distribution of tax subsidies and provide equal after-tax value for everyone’s pension.

What is Pension Tax-Free Cash?

Pension tax-free cash is a lump sum taken from a pension fund that is exempt from taxation. The IFS proposes to scrap this in order to even out tax support for pension saving. Generally, up to 25 per cent of crystallised benefits can be taken as tax-free cash. This amount is linked to the value of the benefits being crystallised and is based on the available lifetime allowance.

Taking tax-free cash before age 75 usually means receiving up to 25% of the fund being crystallised. After age 75, it’s typically the lower of either the remaining unused fund or the remaining LTA. Defined benefit schemes have their own rules on providing more restricted levels of tax-free cash depending on scheme rules and commutation factors used by schemes.

The deferring of taking tax-free cash beyond age 75 results in its loss upon death. Beneficiaries will be subject to income taxes for any amounts received.

Will they Scrap Tax-Free Cash?

The IFS proposed scrapping the tax-free cash option for pensions, which currently allows individuals to take a quarter of their pension tax-free.

However, some are concerned that this could discourage employer contributions and reduce confidence in retirement savings planning.

As a Financial adviser, this question comes up each year from my clients who are worried about potentially losing earmarked money. Tax-free cash from pensions is an important part of cash-flow planning. Many have this earmarked for paying off debt such as a mortgage or to use to buy an investment property in retirement. People begin to plan how to use the tax-free cash from their pensions at least five years from their intended retirement. This is why scrapping it would be political suicide for any government that intends to bring this in.

The number of people this will affect across the board, from basic to high tax-payers, means few would encourage legislation for a total ban on tax-free cash. Simply it affects nearly everyone who has money in pensions.

There could be a scenario where in the future, the amount of tax-free cash from new pension contributions is reduced, but to limit access to legacy pension payments would be the death of any Chancellor who suggests it, in my opinion. Of course, this could happen, we have been surprised many a time on the budget day before, but a total scrapping of tax-free cash might be a step too far.

At what age can I access tax-free cash?

Generally, you can access tax-free cash from age 55, though in some cases, if you have protected tax-free cash with your scheme pension, you may be able to access this from age 50.

However, the age at which you can take tax-free cash is also set to change from 55 to 57 on 6 April 2028. Anyone born after 6 April 1973 could find they must wait an additional two years to access their pension.

Do I need to take all my tax-free cash at once?

No, you don’t need to take all your tax-free cash in one go. You can opt to withdraw it in smaller portions until 25% of your total pension pot has been crystallised. This allows you to manage your retirement savings more effectively and ensure that you are not taxed too heavily on a large lump sum withdrawal.

Furthermore, it provides flexibility as you can choose when and how much of the tax-free component to access.

What are the IFS Proposing

You can read the full report here, but here is a document summary.

Title: A Blueprint for a Better Tax Treatment of Pensions – Published by The Institute for Fiscal Studies in February 2023 –

Purpose: to help improve financial well-being for people on low-to-middle incomes –

Contents: – Executive summary: a brief overview of the report –

Introduction: explains the background and context of the report –

Background: provides information on private pensions in the UK and how the context has changed –

Current system: describes the UK pensions tax system and how much it costs –

Principles for the taxation of pensions: explains why the overall tax system matters –

Method for quantifying the impacts of reforms: describes how the report measures the effects of different reform options –

Comparison of the current system of pensions taxation with two benchmark tax systems: shows how the UK system compares to other countries –

Options for reform, including some that are recommended: proposes specific measures to improve the current system –

Conclusion: summarises the report’s findings and recommendations –

Empirical methods used to quantify the fiscal and distributional effects of the current UK pensions tax system and various reform options

Always seek help from a financial adviser if you don’t fully understand what options to take.

31 07 '23

Pension Advisory Service

A Pension Advisory Service can help you make educated decisions about your retirement plans. Pensions can be complex and something you might not deal with every day; well, our advisers do.

A Financial Conduct Authority-regulated adviser can assess your needs and recommend a suitable path for your retirement funds.

These professionals have the expertise to guide you in making sound financial decisions for your retirement, whether choosing the proper sort of pension, understanding the tax consequences, or performing continuous evaluations of your portfolio.

Why do I need a Pensions Adviser?

You need a Pension Adviser to ensure your pension funds, whether with one provider or many, are in the optimum place for your circumstances. A financial advisor can help you sort through the options and give personalised recommendations. They are qualified to advise you on estate planning, budgeting, investing, and transfer matters.

If your pension has some safeguarded benefits, such as a guaranteed income promise, and it’s above £30,000, it’s a regulatory requirement that you seek qualified advice for a specialist before making any decisions. Advisers can recommend suitable products and investment options aligning with retirement goals. It’s also important to consider the tax implications of different income withdrawal strategies to maximise returns and reduce tax.

Furthermore, professional guidance ensures that your pension remains on track with regular reviews. Staying informed about changing regulations and market conditions is crucial to avoid losing track of your portfolio or ending up paying more than you need to in management charges.

How Much Does It Cost For Pension Advice

Getting expert pension advice costs, as you pay for time and expert advice. How much will depend on the complexity of your plan and needs?

The most cost-effective way to pay for advice is usually from within the pension, as this can be very tax-efficient. Depending on the type of advice needed, a one-off consultation could be enough, or an ongoing retainer may be involved to access specialist support throughout life’s changes.

We will always state our charges after the initial assessment so that you are fully informed of any costs before you decide to proceed.

When choosing an adviser, look for someone with experience dealing with a wide range of pensions and investments who understands your circumstances, goals, and risk profile.

In short, getting expert pension advice doesn’t have to be expensive, but it pays off to research ahead of time to get value for money when seeking professional help with long-term planning objectives.

What is the Benefit of using a Pension Advisory Service?

If you work with a Pension Advisory Service you have piece of mind that your retirement savings are being looked after. A qualified pension adviser can help assess your current situation and create a suitable plan based on individual circumstances. They will recommend products and investment options that are appropriate for you, considering any changes in legislation or personal goals.

An experienced adviser will also be able to review existing pensions and investments, ensuring they remain suitable for your needs. They can identify areas where costs may be too high or investments may not perform optimally. Regular reviews are essential to keep track of progress towards retirement goals, and advice from an experienced adviser helps ensure this process remains manageable.

Using a pension advisory service offers additional benefits such as estate planning advice. This minimises inheritance tax liabilities while providing enough financial resources to meet long-term care expenses.

A good pension advisor understands that every client’s needs are different; therefore, they provide tailored advice so each individual receives the best information for their unique circumstances. Working with an independent professional gives clients unbiased advice from an expert who only has their best interests at heart – which is invaluable when making important decisions about one’s finances during retirement planning.

What Type of Pensions Can A Pension Advisor Help With?

A qualified financial planner can provide invaluable assistance in determining the best retirement decisions. They can help with pre-retirement advice, such as ensuring you are contributing enough to your pension pot, and retirement options, such as annuities, fixed-term annuities, and drawdown options. They can also determine if a transfer from a defined benefit pension would be advantageous.

Suppose you’re considering taking out some of your pension as a cash lump sum. An adviser will be able to recommend the most suitable and tax-efficient method of withdrawal. They can also advise on how much money is appropriate to invest in a pension scheme and explain how this could affect your income during retirement. Additionally, they can offer guidance on estate planning to ensure no surprises when leaving an inheritance.

What are ongoing pension Reviews?

Ongoing pension reviews are important for maximising the performance of your pension and providing you with a clear goal of a sustainable pension income. We usually recommend annual reviews or more frequent depending on your circumstances and investments.

Neglecting to review your pension can lead to disappointment, so it is best not to leave it too long between reviews.

A qualified financial advisor can help identify potential issues and provide guidance on necessary changes. They can also help you understand the cost of setting up a new pension plan and find the right providers to align with your goals.

Our advisors offer free consultations to discuss how they can assist you in effectively managing your retirement savings. With access to the entire pension market, our experts know to find suitable providers while considering any tax implications arising from their recommendations.

What Options Do I Have While I’m Working?

While you’re still working, you have several options to consider for planning your retirement and securing a comfortable future. One, often overlooked option is to consolidate all your pensions into one place. People tend to have more than one pension, often multiple ones from previous employers. It’s really important that those older pensions are reviewed to ensure the investments are still on track and that you aren’t overpaying in charges to run the plan.

A useful exercise many people undertake when reviewing older pensions is to consolidate them all under one roof. This allows for easier management and administration going forward.

Another option which should be regularly taken up is to review your pension value verses what you expect as an annual income in retirement. Some people fall into the trap of ignoring their pension until a few years before retirement and then discovering they haven’t saved enough. Reviewing your pensions with a financial adviser can help realign goals and set actions before it’s too late.

What Options do I have at retirement?

When you retire, you have a few options for accessing your pension.

An annuity provides a guaranteed income for life.
Drawdown gives you more flexibility and control over your finances.
Fixed-term annuities allow you to receive income for a set period.
Taking tax-free cash is an option if the value of your pension pot is small enough.

Regardless of your choice, seeking professional advice is important to ensure it suits your needs and goals.

Annuities

An annuity can provide peace of mind in retirement. It allows you to rest easy knowing you have a guaranteed income for life.

There are several types of annuities available:

Lifetime annuities: These guarantee an income for life and can cover essential spending. They may also include inflation protection.
Enhanced annuities: offer higher incomes based on medical conditions or certain occupations.
Purchased life annuities: These pay capital plus interest. The capital is tax-free, while the interest is taxable.

Pension Drawdown

Pension drawdown can make withdrawing from your pension pot easier. With an income drawdown, you can take an income while keeping your pension fund invested in the stock market. There is no limit on how much you can withdraw each year, but the fund needs to keep growing to replace withdrawals.

This option is best suited for those with a large fund or other income who are not ready to take all their pension immediately. However, it is important to consider the cost of income drawdown and ensure that it doesn’t outweigh any potential investment returns.

Fixed Term Annuity

A fixed-term annuity provides a guaranteed income for a set period. At the outset, it offers a guaranteed interest rate, which is applied to your pension and isn’t affected by stock markets.

Payment amount, annuity rates, length of term and your details determine income. This product offers flexibility in choosing frequency and term lengths from 3-25 years.

Single or joint options and add-ons, such as death benefits and inflation protection, are available.

Taking Tax-Free Cash

Taking tax-free cash from a pension fund is a well-used strategy for people who want to access funds immediately but maybe don’t want to fully retire and start taking a pension income.

Taking only the tax-free amount is popular for those needing immediate cash, but it has drawbacks, such as losing out on future potential investment growth and income benefits.

If you take the entire fund in one payment, 25% will be tax-free, while the rest will be subject to income tax at your marginal rate. Make sure that you consider your future income needs before making this decision, and seek professional advice if required.

Tax on my Pension

Regarding tax and pensions, there are two key points to consider: tax relief on pension inputs and taxes on withdrawals.

Before making any decisions, understand your current tax situation and how the rules may apply to you.

Tax relief is available on contributions made into a pension, up to certain limits, whilst income received from withdrawals will usually be subject to income tax.

Tax Relief on Pension Inputs

Tax relief on pension inputs is available up to £60,000 per year (2023/24). Contributions exceeding this amount may result in a tax charge. This includes employer contributions, which are included in the annual allowance.

Money purchases or tapered annual allowances may also impact the amount you can contribute and the tax charged.

Tax on Pension Withdrawals

Depending on your circumstances, withdrawing money from your pension can result in a tax liability. Generally, this is treated as income from employment and taxed like any other earned income you receive.

Your State Pension is taxable too and paid ‘gross’ without any deductions.

To minimise taxes, consider using tax-efficient strategies such as phasing withdrawals or structuring allowances to keep yourself out of higher tax bands. Seek advice to explore options that maximise returns and reduce liabilities.

Regularly review spending needs to manage retirement expenses effectively.

The Pensions Advisory Service

The Pensions Advisory Service provides a vital resource for individuals needing assistance with pension-related issues, empowering them to make informed decisions about their retirement. It is a non-profit organisation in the United Kingdom that receives funding from the Department of Work and Pensions and government grants. It offers free information, advice, and guidance on pensions, along with help resolving problems or complaints regarding pension schemes.

The organisation has recently merged with Money and Pensions Service and consolidated into MoneyHelper to provide a better consumer experience.

The services provided include assistance with state, company, or individual pension arrangements and a nationwide network of volunteer advisers. This includes experienced technical and administrative staff in London who can provide support. This consolidation aims to create a single source of information and guidance that all individuals can easily access.

The Pensions Advisory Service aims to ensure that people have access to free resources to make informed decisions about their future financial plans. Through its collaboration with other organisations such as the Money Advice Service, Pension Wise, government agencies, industry associations, and pension providers, it strives to raise awareness around pension-related issues while contributing to developing policies and regulations within the industry.

Overall, the Pensions Advisory Service provides an invaluable service enabling people to gain clarity on their financial situations to plan effectively for retirement – whether that be accessing advice on tax implications or understanding annuity options available. With its mission aiming at empowering individuals, it works towards providing much-needed support when dealing with such important life matters.

Conclusion

The Pension Advisory Service is a valuable resource for individuals looking to optimise their pension funds. Seeking advice from a pensions adviser is essential to maximise your retirement savings. While the cost of this service may vary, it is a worthwhile investment for its long-term benefits. Pension advisers know about all types of pensions and can provide ongoing reviews to ensure your retirement plans stay on track. During your working years, various options are available, such as increasing contributions or taking advantage of additional tax reliefs. Upon retirement, it becomes crucial to carefully consider how you will draw down your pension pot and ensure that any applicable taxes are paid correctly. By consulting with an experienced pensions adviser, you can have peace of mind knowing that your retirement finances are being managed effectively.

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Book an appointment with my Pension Advisory Service.

19 07 '23

Guaranteed Return Drawdown – Fixed Term Annuity

With uncertain global economies and mediocre stock market returns, are you looking for a guaranteed return with your retirement fund? Look no further than fixed-term annuities, an increasingly popular option for retirees who want the certainty of a return without losing control of their funds.

Fixed-term annuities falling under drawdown rules offer a guaranteed income and/or return with no investment risk whilst retaining death benefits. With increasing interest rates, guaranteed returns over 5% are now available (July 2023), but these might not be around for long.

With terms ranging from 3 to 30 years, you have the flexibility to choose what works best for you. And if that’s not enough, these annuities also allow you to retain your funds for your beneficiaries upon death, providing security and legacy planning.

Key Takeaways

Fixed Term Annuities offer a reliable and flexible way to generate returns and income without investment risk.
Choose the options to suit you. Set your income, term and how much income you need.
Fixed-term annuities have become incredibly popular due to rising interest rates.
Fixed-term annuities allow funds to be retained for beneficiaries upon death and the flexibility to move into Drawdown, buy and standard annuity, withdraw cash in full or buy another fixed-term annuity on maturity.

What is a fixed-term annuity?

Fixed-term annuities can be an attractive option for those who want to bridge income gaps and have flexibility in their financial planning. Unlike other investment options, fixed-term annuities provide a guaranteed income regardless of market fluctuations. They can be purchased using funds from a pension pot and offer various annuity options such as duration, payout frequency, and death benefit choices.

A few providers offer fixed-term annuities, so you want to find the one with the highest guaranteed rate.

A guaranteed return amount is quoted once the term length, death benefit, and income options have been chosen. This is the amount you are guaranteed to receive back at the end of the term, no matter what happens in the investment markets.

At the end of the fixed term, individuals can buy a new fixed-term annuity, take the pension as taxable income, buy a standard annuity income or move their funds into Drawdown. Fixed-term annuities provide individuals peace of mind by offering a reliable retirement income and guaranteed maturity value.

What options do fixed-term annuities offer

With fixed-term annuities, you have various options, allowing a tailored income plan to suit your needs. Here are four key options to consider when selecting a fixed-term annuity:

Term length: Fixed-term annuities offer the flexibility to select a specific period for your investment. You can choose a shorter or longer term based on your financial goals and retirement plans.
Income: You can choose your required amount depending on whether you need to take an income in retirement. The more income you choose for the fixed-term plan, the lower the guaranteed maturity value. If you want to grow your pension drawdown plan, you can choose no income, and the maturity amount will be higher.
Death Benefit: You can choose various options to ensure that any unused pension fund will be passed onto your loved ones if you die during the term.
Fixed Rates: You will receive a guaranteed maturity value when you choose the above options. This will be based on the length of the plan, death benefits, and income chosen will all affect the fixed return applied.

Understanding these options allows you to shape the plans to suit your needs.

Fixed Term Annuities vs Drawdown

Historically low-interest rates have meant Fixed Term Annuities were largely unused in retirement planning. Equally, a decade of decent stock market returns meant no need to look elsewhere. However, with increased interest rates and uncertain stock market returns, which option should you now choose?

Fixed Term Annuities provide a guaranteed income for a specific term, with a lump sum at the end of the term. They offer known guaranteed maturity sums and potential benefits from increased annuity rates. With fixed-term annuities, you can pass on the fund value to your loved ones upon death.

On the other hand, Drawdown allows you to take income directly from your pension funds while keeping it invested. It provides flexibility in choosing when to take income but comes with investment risk and uncertain investment returns. It also enables passing on the fund value to loved ones.

Depending on your risk appetite, a fixed-term annuity might be an option for guaranteed returns. If you’re happy with a 5%+ (currently 5.6% available July 2023) return per annum over five years, they may be worth considering. If, however, you feel stock markets have greater growth potential, and you can afford (or can tolerate) your pension fund going down, Drawdown might be right for you.

Another note is that Fixed Term Annuities have no annual charges, unlike Drawdown. My clients hate nothing more than paying a fund manager when the fund is going down. With Fixed Term Annuities, there are no annual investment charges as it’s not an investment; it’s simply cash tied up for a certain period.

It’s worth remembering that you don’t have to choose one option or the other. You can choose a Fixed Term Annuity for part of your funds whilst leaving the rest in Drawdown.

When deciding between these options, consider factors such as inflation protection, maturity date, and desired level of control over your retirement income strategy.

What happens if I die in a fixed-term annuity?

In the unfortunate event of your passing during a fixed-term annuity, your loved ones can still benefit from the remaining pension savings. Unlike standard annuities, which are typically lost back to the provider on death, fixed-term annuities offer more attractive death benefits.

You can choose value protection, spousal income, or a guaranteed period when setting the plan up. This means that your loved ones can receive a portion or all of the remaining funds in accordance with these payout options. It’s important to consider the tax implications when making these decisions.

Fixed-term annuities offer flexibility and peace of mind for both you and your beneficiaries in terms of guaranteed return drawdown and preserving wealth for future generations.

Is now a good time to buy a fixed-term annuity?

Arguably now is a good time for you to consider a fixed-term annuity. Inflation has forced the Bank of England to increase interest rates, which have resulted in better Fixed Term Annuity rates. However, as inflation starts to fall, the currently available rates might not be around for long.

Locking into a rate now, for several years, could become more valuable if interest rates start to fall. Equally, a guaranteed return might be welcome if stock market returns are flat or negative over the next few years.

Benefits of Fixed-Term Annuities Considerations

Guaranteed income and return No investment risk

Higher returns compared to other options Surrender value for flexibility

Retains funds for beneficiaries

Advantages of fixed-term annuities

Here are some key advantages to consider:

Known, guaranteed return available from the outset
Enjoy flexibility by going back into Drawdown, purchasing another fixed-term annuity, buying a lifetime annuity, or withdrawing your funds once the term expires.
Choose from a range of terms, from 3 to 30 years, allowing you to align your financial goals with your desired timeframe.
Preserve your wealth for future generations by retaining the funds for your beneficiaries upon death.

Disadvantages of fixed-term annuities

Fixed-term annuities may limit your ability to access your funds and make financial decisions based on changing circumstances.

One disadvantage of fixed-term annuities is that once you’ve committed to a specific term, you can’t easily change or withdraw your funds before the term expires. This lack of flexibility can be problematic if you suddenly need a large sum of money or if there are significant changes in your financial situation.

Additionally, fixed-term annuities don’t provide any potential for investment growth. While they offer a guaranteed income and return with no investment risk, this means that you won’t benefit from any potential increases in interest rates or market gains during the term.

Therefore, it’s important to carefully consider these limitations before choosing a fixed-term annuity as part of your retirement strategy.

Frequently Asked Questions

Can I change my options during the term of a fixed-term annuity?

No, once you’ve chosen the options at the outset, these are fixed for the term. The guaranteed maturity value is based on the options chosen at the start, which is why these can’t be changed during the term.

Are there any penalties for withdrawing funds from a fixed-term annuity before the term expires?

There may be penalties for withdrawing funds from a fixed-term annuity before the term expires. It is important to review the terms and conditions of your specific annuity contract to determine if any penalties apply.

Can I purchase a fixed-term annuity with money from my pension pot?

Yes, you can purchase a fixed-term annuity with money from your pension fund. You can either use crystallised or uncrystallised funds.

Are fixed-term annuities suitable for everyone, or are there specific eligibility criteria?

Fixed-term annuities may not be suitable for everyone. There are specific eligibility criteria that need to be met, such as age and health conditions. It is important to consult with a financial advisor to determine if it is the right option for you.

What happens to the remaining funds in a fixed-term annuity if I die before the term expires?

If you die before the term of your fixed-term annuity expires, the remaining funds can be passed on to your beneficiaries. This allows them to receive the value of the annuity as part of your estate.

Conclusion

In conclusion, if you’re fed up with paying investment managers who aren’t performing or want a guaranteed return, a fixed-term annuity might be worth considering.

With attractive fixed returns, these annuities offer an attractive choice in the current climate. The flexibility of choosing the duration that best fits your needs, along with various options upon expiration, provides added convenience.

Additionally, the ability to retain funds for beneficiaries ensures security and legacy planning. However, it’s essential to carefully consider both advantages and disadvantages before making a decision.

Book an appointment to discuss Fixed Term Annuities.

15 11 '22

How to Consolidate Your Pensions

If you have a pension or pensions from multiple employers, or old personal pensions, it can be difficult to keep track of them all. Consolidating your pensions into one pot is a great way to gain control and oversight over how they are doing and where they’re invested. By consolidating your pensions, you’ll benefit from the convenience of having only one plan instead of many separate ones. However, there may also be risks involved so it’s important to understand what these are before making any decisions about consolidation. In this blog post, we will look at the benefits and risks associated with consolidating your pensions as well as some tips on choosing the right provider for consolidation.

Benefits of Consolidating Your Pensions

Consolidating your pensions into one plan can provide a number of benefits such as:

a. Increased Financial Oversight – Consolidating all your pensions into one pot gives you a much better oversight of how they are doing and where they’re invested. You’ll be able to see at a glance how your overall fund is performing, as well as any fees or charges that may apply. One of the issues with older workplace pensions is the lack of visibility, many won’t have online access and may only be monitored through the posted paperwork.

Here lies the other problem. As well as moving jobs over the years you may have moved house, so any paperwork might not be finding its way to you.

Consolidating your pensions into one place can increase visibility and allow you to manage your whole pension fund by keeping all your retirement savings in one place. Utilising the many provider’s new technologies, you could have online access and maybe phone access to your pension via an app.

b. Lower Fees and Charges – By consolidating multiple pensions into one plan, you could potentially save money on fees and charges associated with managing multiple plans separately. Many providers offer a tiered system where by the more funds you hold in your pension the lower the overall charges.

Many older pensions may be on higher charges either through their administration or fund charges. Moving all your funds to a new pension could save you thousands over the course of your retirement by reducing costs.

c. Improved Investment Options – Consolidation also allows you more flexibility in terms of choosing investments within your pension portfolio, allowing you to tailor your strategy according to risk appetite and goals such as retirement income targets or capital growth objectives over time. With access to a wider range of options than what would be available through individual plans, consolidation can help maximise returns while minimising risks associated with investing in simple, limited-choice portfolios available through certain many older workplace schemes.

Consolidating all your pensions into one account makes them much easier to manage. This includes tracking performance across different asset classes, rebalancing portfolios regularly based on market conditions, and monitoring tax liabilities (if taking an income). Having just one place for these activities instead of several accounts spread out across various institutions simplifies the process and requires less attention from the investor or their financial advisor/planner.

Key Thought: Consolidating your pensions into one plan can provide a number of benefits, including increased financial oversight, lower fees and charges, improved investment options and simplified management. By consolidating multiple plans into one account you could potentially save money on fees while also gaining access to more flexible investments tailored to your goals.

How to Consolidate Your Pensions

Consolidating your pensions can be a great way to get better oversight of how they are doing and where they’re invested. Before you start the process, it’s important to identify all your pension plans. This includes any workplace or personal pensions that you have accumulated over the years.

The government offers a pension tracing service if you maybe don’t know where your pension is or have moved address and lost the details. Alternatively, a good financial adviser can help you with this.

Once you have identified them, compare fees and charges of different providers so that you can make an informed decision about which one is best for you.

It’s important to understand how all your pension schemes have been set up. Some offer guarantees such as Guaranteed Annuity Rates or Guaranteed Minimum Pension benefits. These are valuable guarantees that should be considered, as once a pension is transferred, these are lost.

When considering investment options available, look at what type of investments each provider offers and whether they match with your risk appetite. It’s also important to consider any additional costs associated with transferring funds between providers as this could impact on your overall returns. Finally, if in doubt seek professional advice from a qualified financial advisor who will be able to provide tailored advice based on your individual circumstances.

Transferring funds between providers requires careful consideration, as there may be some risks involved such as loss of guaranteed benefits or protection from insolvency, loss of tax reliefs or other benefits, higher-risk investments and unforeseen costs or charges. To ensure that these risks are minimised when choosing a pension provider for consolidation, one should look out for their reputation and track record; range of investment options; fees and charges; customer service; regulatory compliance etcetera before making any decisions regarding consolidating your pensions into one pot.

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Risks of Consolidating Your Pensions

There are risks associated with this process that you should consider before making the decision to consolidate.

Loss of Guaranteed Benefits: When transferring funds between pension providers, it is important to investigate any guarantees or protections offered by the original provider as these could be lost on transfer.

Loss of Protected Tax-Free Cash: Depending on the type of pension and when the benefits were accumulated, there may be availability within your existing scheme to take more than the legislated 25% tax-free cash. If you consolidate and transfer this pension, you could lose this protection above 25%. (there are circumstances where the protected tax-free cash can be transferred with the pension, but this requires someone else within your scheme to transfer at the same time, and to the same new scheme as you. It’s known as a buddy transfer).

Bad investment choice: If you consolidate all your pension into a new arrangement, you need to ensure your know what you’re doing. You will be making investment decisions that could affect your whole retirement fund. If you’re unsure or new to investment, taking professional advice is essential.

When considering whether consolidation is the right choice for you, it is important to factor in any unforeseen costs or charges that may arise. Transferring funds between pension providers can incur additional fees such as transfer fees which may not have been taken into account when making your decision. Depending on how you transfer your pensions and who to, some providers may charge per transfer or if the funds are transferred in specie. To avoid any surprises, be sure to check with both providers beforehand.

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What to Look for When Choosing a Pension Provider for Consolidation:

When it comes to consolidating your pensions, choosing the right provider is essential. There are a few key factors to consider when selecting a pension provider for consolidation.

Reputation and Track Record: It’s important to research the reputation of any potential pension providers you may be considering. Check out online reviews from customers and industry experts, as well as their financial track record over time. You want to make sure that they have a good history of managing funds responsibly and providing quality customer service.

Range of Investment Options: Make sure that the provider offers an extensive range of investment options so you can choose investments that match your risk tolerance and goals. Make sure there is a range of investment funds such as trackers (which are lower cost), as the actively managed funds come with higher charges.

Fees and Charges: Different providers will charge different fees depending on what type of pension you choose and how much money you invest in it. Be sure to compare all the costs associated with each plan before making your decision – including annual management fees, transaction costs, custodial charges etc – so there are no surprises down the line! Have an idea what type of investment portfolio you want to build as there is no point in paying for a pension that has features such as commercial property ownership if you aren’t going to use them.

Customer Service: The level of customer service offered by each provider should also be taken into consideration when deciding which one is best for you. Although not often the first thought, customer service levels are the backbone of a good pension company. There are some providers, not to name names (but they are the big well-known ones), that constantly have 30 minutes to an hour queues on their phone lines. This can become extremely frustrating if you only need help with a simple task, or need to call them regularly.

Key Thought: When consolidating your pensions, it is important to research the reputation of potential providers and compare fees and charges. Additionally, make sure they offer a range of investment options and good customer service.

4 Common Questions About Consolidating Your Pensions:

Here are some common questions about consolidating your pensions:

Is It Worth It? Consolidating multiple pension plans into one can offer several advantages discussed above. Many people feel more comfortable that it ‘tidies up’ their finances so they can all be managed in one place. It also forces you to review your whole retirement strategy and gain insight into where your pension are, how they are doing and what you’re paying in charges.

Are There Any Tax Implications? For the most part, no. There may be some circumstances where tax implications may become an issue, but a good financial adviser will outline these before you transfer.

Am I fixed into a term with the new provider? You shouldn’t be tied into any new pension provider once you transfer. There may be circumstances where you transfer your pension and then don’t feel the new provider is what you expected. You, therefore, need confidence you can transfer away without serious penalty. Some providers do have a small admin charge if you leave within the first year. This is usually in the hundreds of pounds and is just to cover their administration of setting the pension up. Be very aware that there is one financial services company, again I’ll not name them, but they are one of the biggest, that can impose a 5 year term exit charge (and this is a huge percentage of your fund). If you come across this, you need to be 100% confident, they are a long-term solution for you.

Can I make additional contributions? Yes, you can make additional contributions. Consolidation does not mean that you cannot add more money at any time. You just need to be aware of the annual allowance limits set by HMRC.

Key Thought: Consolidating your pensions often gives you a better choice of investments that suit your attitude to risk and circumstances. A more tailored approach can be taken rather than settling for a ‘best fit’ scenario staying in existing, low investment choice schemes.

Conclusion

It’s important to consider all the factors when deciding whether or not to consolidate, such as reputation, fees and charges, customer service and regulatory compliance. Ultimately it comes down to what works best for you in terms of managing your finances. Consolidating pensions is worth considering if you have multiple plans that are difficult to keep track of – just make sure you do your research first!

Are you looking to consolidate your pensions? Let our team of pension transfer specialists help you make the right decisions for a successful retirement. We understand that transferring pensions can be complex and overwhelming, but with our guidance, we will provide comprehensive advice tailored to meet your individual needs. Get in touch today and start planning for your future!

04 07 '22

Defined Benefit Transfer Values in 2022

Why are defined benefit/final salary transfer values going down?

Defined benefits transfer values are going down because of changing market conditions which affect the calculation of benefits. Rising inflation and rising longer-term gilt yields from historic lows are a perfect storm for the decline of transfer values.

A gilt is a UK government bond. It is a loan to the UK government in the promise for them to pay you a fixed interest rate whilst you hold the gilt. In usual times gilt yields usually fall when interest rates rise. However, we aren’t in ‘normal times’. Interest rates have been at historic lows, and inflation has raced away from governmental targets due to many factors. To combat this, the Bank Of England (as well as many other Central Banks around the world) has started to increase interest rates. Gilt yields, however, have continued to rise. Further interest rate increases should hopefully slow or stabilise this rise.

Over the past few years, defined benefit/final salary transfer values have seen an increase year on year, meaning many have put off investigating a transfer in the hope this trend would continue. The pandemic led to record low gilt yields, which positively affected transfer values.

Those unprecedented times saw massive fluctuations in oil prices, stock market value and many other financial instruments.

However, we are now in a world where gilt yields are rising, and those asking for transfer values now, shortly after their previous one had expired, are seeing declines of 10 to 15 per cent.

The consensus is that gilt yields may continue to rise, compounding the declines in values. Waiting may not be the best option if your time horizons are short, longer-term; they may come down again.

The number of people enquiring to transfer has declined massively as a result. This could be partly due to many advisers pulling out of providing advice for reasons relating to the cost of ensuring this type of business together will continue to focus on the sector from the FCA.

The FCA’s stance has always been that most savers are better off staying in their DB schemes; however, people’s circumstances mean that’s not always the case.

The number of advisers providing advice in 2018 was 3,068, but this has dropped to 1,160 in 2022.

Others may be looking at their ‘inflation-proofed’ schemes and thinking that if inflation rises, the pension is protected against these rises. The truth, however, is that most schemes put a cap on inflationary benefits, well below the current rate of 9.1% (at the time of writing on June 22). So although there is some protection, it’s not keeping up with real-world values.

As previously mentioned, the UK 15 Year gilt yield is a driving factor when calculating transfer values. When gilt yields are low, transfer values are high, and when they move higher, this reduces the offered values. The chart below shows a direct reflection of the previously generous value to reduced ones in recent months, given the rate rise.

There are other factors which affect transfer values, such as the number of members in the scheme, the scheme’s investment strategy, your age, scheme retirement age, life expectancy and the funding level of the scheme, amongst many others.

From our own research, clients who had a transfer value at the begging of 2022 and have recently requested a new one saw a reduction of around 15%.

It’s a bitter pill to swallow, knowing that the transfer value has gone down many thousands of pounds. However, the reality is that it could be a long time before these previous values are seen again.

For those who have a transfer recommended, there is some good news. Global stock markets have moved off their all-time highs, meaning that those transferring could be buying in at a discount to those who transferred earlier in the year.

Trying to predict where transfer values are going is a difficult game. The timing should be based on your own personal circumstances and needs.

As always, transferring isn’t the best option in many circumstances but for those whose scheme pension benefits aren’t going to work for them, it’s worth asking the question.

06 10 '21

Final salary pension transfer advice

What is Final Salary Pension Transfer Advice?

There are many different types of pensions in the UK; however, for final salary schemes, if you are looking to transfer your benefits, you need a final salary pension transfer adviser, also known as a Pension Transfer Specialist, these advisers have the relevant permission and experience to help you decide if a transfer is in your best interests. To be able to seek advice, you need a final salary pension transfer value.

How do I know if I have a final salary pension?

Final salary or defined benefit pensions are those which offer a guaranteed income in retirement. Often referred to as safeguarded benefits, these pensions offer a level of security over defined contribution pensions, which are reliant on stock market performance.

A final salary pension is one that has accrued using your years of service in a company and the income you have earned during that time. The benefit you receive in retirement will be based on your salary when you retire in final salary schemes or your average salary during your career with career average schemes.

Contributions to the pension will be taken every month from your salary, but it is the employers’ responsibility to ensure there is enough money in the pot at the end to pay your benefits. Therefore, the risk is wholly with the final salary scheme and not with the scheme member, as is the case with defined contribution schemes.

Your scheme should provide annual updates on the expected retirement income at your scheme expected retirement date. This is usually age 60 to 65; however, some schemes offer a retirement age of 50, which is protected against the current legislative retirement age of 55.

If you are still an active member of the scheme, your final income benefit will still be accumulating; however, if you are a deferred member (someone who is no longer in the scheme), your benefit at retirement will only go up by the stated inflation rates of the scheme.

Why consider a Final Salary Pension Transfer

Since the Pension Scheme Act 2015 gave rights to convert safeguarded benefits to flexible benefits, many people have taken the opportunity to transfer out of final salary pensions.

Although final salary pensions are an excellent retirement pension for the vast majority, some could benefit from transferring to a more flexible arrangement.

The most common reasons people are looking to transfer include:

Why consider a Final Salary Pension Transfer

Being surplus to needs:

Some people have a few pensions by the time they retire. Those wishing to transfer final salary schemes may not need the additional income offered by one or more of their schemes.

If they can meet their retirement expenditure from other pensions and state benefits, the additional income of another final salary scheme will be tax-inefficient. Taking unnecessary income may move someone over an income tax threshold, such as 20% to 40%.

Also, if additional, un-needed income is taken and subsequently accumulated in bank accounts, this could become chargeable to inheritance tax. Leaving un-needed funds in a pension escapes the inheritance tax calculations on death.

Having other savings or investments

If someone has a large amount of none-pension savings in ISA’s, cash accounts or other investments, they may not need or want to take the final salary pension income to cover their retirement outgoings. Equally, they may have additional income through buy to let properties or investment income from dividends.

Having ill health:

If someone has had ill health, which they know has shortened their life, they may wish to utilise the funds now, whilst they are still healthy enough to do so. Although we don’t know when we are about to die, some have had severe illnesses that statistically shorter life expectancy. In these instances, people want to get value out of their pensions or at least protect them to pass onto loved ones on death. It should be noted that if in serious ill health, death within two years of a transfer could bring about an inheritance tax liability to your estate.

Flexibility:

This is one of the most common reasons stated to move a final salary scheme. However, for a Pension Transfer Specialist to sign the transfer off, this has to be quantified.

What does flexibility mean?
- How much do you need and when?
- Can the existing final salary scheme meet the flexibility needs based on the answers to the above? If so, a transfer is unlikely to be suitable.

People often say they want flexibility but don’t know how flexible they need income to be or for what.

Perceived risk to the ceding scheme:

Many final salary/defined benefit schemes are underfunded. This means that if all the members wanted to draw their pension in the same year, there wouldn’t be enough funds in the pot. Companies are continually overfunding schemes to make up the gap, but for some companies, this simply isn’t affordable.

If a scheme fails, there is support in the form of the Pension Protection Fund; however, this has limits. There is a maximum annual salary limit on what they will cover and only covering 90% of the promised pension. Therefore a scheme failing is more worrying to those with larger pensions.

Benefits of a Final Salary Pension:

A final salary/defined benefit pension has many benefits, often overlooked by those considering a transfer out.

For starters, the income received in retirement is based on the number of years in the scheme and the salary earned during that time. It is not, like a defined contribution scheme, based on stock market performance. The investment risk is therefore taken away from the employee and borne by the employer.

Final salary schemes, for the most part, also include inflationary benefits. This protects your future income against the rising cost of inflation. In addition, it allows for your retirement income to not lose spending power as you move through later years.

The scheme will have varying forms of inflationary protection, some will rise by fixed figures such as 3% per annum, and others will rise with inflation to a cap of 5%. Depending on when they were accumulated, different parts of your pension will likely rise at different rates and have different maximum caps.

The death benefits of these types of schemes are also a valuable addition. If you die before or after retirement age, your spouse, partner or dependents may receive a payout. This is often reflective of the income you were going to receive or are receiving.

The most common payout is 50% of income, meaning that if you were receiving £10,000 at death, the death benefits to your loved one would be £5,000 (50% of the original income). The death benefit income is also inflation proofed and will pay until the 2^nd person dies. In addition, some schemes offer a dependant benefit for children, often 25%, which will pay whilst they are in full-time education or for life if they have a qualifying medical condition.

Although most schemes have a fixed normal retirement age, it is possible to take benefits earlier. Although the income projections are based on the pre-determined scheme retirement age, usually 60 or 65, if you are prepared to reduce the income, benefits can usually be taken from age 55. The reduction compensates for the additional years of income taken against someone who waits until the normal scheme retirement age.

At retirement, there are usually two income options quoted.

Full Income
Tax-free cash and income

Full income is where the benefits are calculated to offer the maximum lifetime income.

Tax-free cash is where some income is sacrificed for tax-free cash. The quoted amount is usually the maximum available; however, scheme members can swap any amount of income for tax-free cash up to the maximum available.

Risks of transferring a final salary Pension:

Transferring a final salary pension comes with risks that should be carefully considered before giving up these valuable benefits.

Investment Risk

Moving a pension away from one which provides a guaranteed income to one which provides a flexible income comes with investment risk. In its current form, the investment risk is with the scheme. It’s down to the trustees and investment managers of the scheme to ensure the whole scheme fund has performed sufficiently to provide an income for life for everyone. Once the pension is transferred, this investment risk is then moved to the individual. If the investment doesn’t perform, the individual could run out of money before their retirement has finished (a polite way of saying before they die). If markets aren’t kind, or investment decisions are poor, there is no safety net.

Longevity risk

One of the main benefits of a final salary/defined benefit scheme is its ability to pay an income for life, whether this is to age 75 or 105. The income is also inflation-proof, for the most part, and therefore removes the risk of running out of money.

Once a pension is transferred, it has to be managed throughout retirement, however long this may last. If someone has overspent in their early years, there is a risk of running out of pension income if they live longer than expected. The result could be a significant change in standard or living or poor care home provisions.

We would all love to spend our last pound the day before we die, but practically, this isn’t possible. It is often the case that people hold back a lot of their pension for later life only to die with thousands before they expected to. A final salary scheme removes this lifetime worry of managing a pot of money to the end.

How long could a final salary pension transfer take?

Moving funds from a scheme pension to a flexible arrangement isn’t a quick process. When a cash equivalent transfer value is received, the scheme provides a guaranteed three-month window to decide to transfer. The reason for this guaranteed period is it typically takes this long with an adviser to reach a decision.

A pension transfer specialist is required to fully understand personal circumstances, motivations, finances and the future plans of someone looking to transfer. They also have to understand the ceding scheme fully. When a pension transfer specialist requests further information from a scheme, the scheme can take anywhere from a week to two months to reply. This all eats into the three months guaranteed final salary pension transfer value window.

A common misconception is that the actual transfer of the funds has to happen within three months; this isn’t the case. As long as the member’s intentions have been sent to the scheme, along with a signature from the financial adviser and the new scheme provider, this will secure the guaranteed transfer value by the deadline date. The scheme then has a further six months to enact the transfer, although many schemes do this a lot sooner.

Typically, a final salary transfer would take four months from the point of engaging with a pension transfer specialist to the funds being transferred. However, on infrequent occasions, it may take two to three weeks and on the extreme side up to nine months.

What have been the problems with pension transfer advice?

There are a few rogue traders in any business, and this doesn’t escape the financial service industry. Transferring final salary pensions can be lucrative for financial advisers, and there have been some bad practices in the past. Advisers are paid through final salary pension transfer fees. These are often taken from the pension once transferred.

The most recent and well-documented cases are those who had a British Steel pension scheme. During the ongoing talks of a takeover and the business failing, all British Steel Scheme members were sent a final salary pension transfer value along with a cover letter stating their options.

This included transferring to a new British Steel final salary scheme or transferring their benefit to a flexible arrangement, therefore giving up their guaranteed income rights.

There are stories of so-called financial advisers camping out in Steelworks car parks so that they could sign employees up to a transfer as they came off shifts. This is not final salary pension transfer advice, this is hard-selling unethical practice!

Transferring a final salary pension shouldn’t be a quick decision. It shouldn’t be forced on you or suggest to you without basis. For example, if you don’t understand your scheme benefits or the impact of the decision to transfer, you shouldn’t transfer.

The risks of being rushed or coerced into a decision are irreversible, and often any financial compensation isn’t sufficient.

The Final Conduct Authority is doing an excellent job of tightening rules and providing updated guidance to financial advisers on who they should consider for a transfer. Still, there are always a few bad eggs who don’t have the clients interests at heart.

I would always recommend spending time researching a financial adviser, reading reviews or getting a referral from someone who has been through the process with someone. Never rush a decision, don’t invest in anything that either sounds too good to be true, or you haven’t heard of or aren’t comfortable with.

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