Moving your UK Final Salary (Defined Benefit) Pension
A major study by the Pensions and Lifetime Savings Association (PLSA), published in September, found that three million savers in the remaining schemes had only a 50% chance of receiving the payouts they had been promised. The PLSA said there was a "real possibility" of a collapse for more high-profile pension schemes.
What happens to pensions when a company goes bust?
For the most part, the Pension Protection Fund steps in to pay defined benefit pensions but, for some, this may be less than they expected. The PPF started on 6 April 2005 in response to public concern that when employers sponsoring defined benefit pension schemes became insolvent, scheme members could lose some or all of their pension if the scheme was underfunded. Under this system:
If your scheme falls into the PPF and you are already retired, your pension will be paid at exactly the same level. If you are yet to retire, payments are capped at 90pc of the promised rate.
For workers under pension age, 90% of the pension will be paid, subject to a cap.
That cap is currently set by th
e government at £38,505, which equates to £34,655 when the 90% level is applied, per year. The cap relates to someone at age 65; is reduced for anyone younger and increases for anyone older. There are different caps at different levels which can be seen here: PPF CAPS
Future pension increases may also be lower than expected, not necessarily matching inflation.
What are my options?
The most popular option at present is to remove your pension from the company and transfer it into a new plan as a cash lump sum. Depending on the size of your pension, the actuaries would put together a report and calculate a 'Cash Equivalent Transfer Value' (CETV) which will incorporate various different considerations including your age, life expectancy and years of contribution. If you are living abroad then the most suitable structure would be our International Plan which is structured depending on which country you are currently residing in and where you intend to retire.
However, moving these pensions is becoming more costly and complicated and consequently smaller firms are deciding not assist people with the transfers or only doing so for increased fees. Whilst Loadstone have managed to maintain the same fee structure for these transfers, many firms are now charging up to 6% and even have a fee of as much as £2,100 for offering a report of advice without even conducting a transfer. One individual went to 14 companies before discovering that 11 would not do it and the remaining three were charging inflated amounts. (Full article from the Telegraph available here)
There is certainly good reason to consider a transfer if you hold a Defined Benefit Scheme but we do recommend in the first instance that you speak with an Advisor (these transfers are not permitted without a full report from an Advisor that is registered and licensed by the financial regulators in the UK). Our advisers would be able to have a conversation with you regarding your options in depth and provide you with a free preliminary report to help you decide what is best for you before committing to a transfer. To speak with one of out consultants kindly fill in the contact form on our website or alternatively feel free to email us at info@loadstonegroup.com
