When you started your career your final salary pension came with a very big promise – to reward your long term commitment to the company during your working life with a generous income in your retirement.
However, with many final salary pension funds closing to new members or even being wound up is yours still safe or the best option for you? Pensions decoder Nicola Downs from Trentham Invest considers the risks:
“Should I stay or should I go”? “I’ve received lots of paperwork I can’t make head nor tail of and mostly I haven’t a clue which option is right for me”. “I’m worried about ticking the wrong box because I know it’s a one off decision”. These are the big questions I hear all the time.
You’ve been loyal to the company when you could have jumped ship many times along the way. But you stuck with them and now sometime in the near future you would like to receive your reward.
What If Your Former Employer Goes Bump?
There is, however, a problem. Will your former employer, who is funding the scheme, still be around when you’ll be relying on the pension to keep you fed, watered and housed in retirement?
If your employer were to close down or your final salary pension was wound up before you reach the scheme retirement age, the pension scheme would either be taken over by the Pension Protection Fund (PPF) or sold to an insurance company – either way the chances of you ending up with less are high. Plus, what you might receive from the PPF is capped at £29,897.42 (effective 1 April 2011) and less if you are under 65 – a problem if your deferred benefits are in excess of £33,219.
And What If The Scheme Survives?
Let’s say the scheme is still around on your retirement and starts to pay out your pension. If the scheme were then to fail you’d be faced with a similar problem. If you were to die just a few years into retirement your spouse would receive a much reduced pension and certainly not a fair reflection of the pension fund you had built up over your working life.
What Would Be Ideal?
Ideally, you’d have the reassurance that your pension would pay out what you rightfully deserve and then when you died your remaining dependents would receive the capital (lump) sum that was funding your pension payments. But, you’ll only get this benefit if you take your benefits away and transfer out.
Control Your Own Wealth into Retirement
Rather than leaving your retirement benefits (income) in the hands of pension trustees or relying on your employer staying in business, with specialist professional help you can take control of your wealth by transferring out of your final salary pension scheme. Plus, if you’re aged over 55 you can even take a 25% tax free lump sum and bring forward the personal goals you thought you had to wait for.
Seek specialist advice from an independent financial adviser who understands the complexities of final salary pensions and has gone through the process with many other clients before. You can also visit www.FinalSalaryPension.com or call Trentham Invest on 01306 881999.
Watch a video of Nicola Downs explaining how they have helped one client: http://youtu.be/NdqBVwq1sVI