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

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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.

    Read related post here: Consider the Lifetime Allowance before you transfer your defined benefit pension

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