We tend to live in a world where yesterday’s brilliant deal becomes rapidly overtaken by today’s even better bargain. With a long term investment, such as a pension scheme, where savings are designed to see us throughout our retirement, there are likely to be many occasions when we wonder whether a better deal is going to be offered elsewhere. That is when we will consider the option of a pension transfer – but before converting any such consideration into action it is essential to seek the full and reliable advice of an independent financial adviser.
Is the grass really greener?
The incentive for a pension transfer is that the grass appears greener – in terms of the final pension you are likely to receive, the costs of managing the fund, and the flexibility of the pension arrangements. The only certain response to this is that it might be just as it appears, or it might not. Only with the help and guidance of an independent financial adviser would it be possible to make a properly reasoned judgement.
The first step in reaching such a judgement will be to obtain a transfer value analysis from your existing pension administrators. You and your financial adviser will need this in order to begin to compare the value and performance of your present pension investments. The analysis will include a measure known as the critical yield (and is likely to be between 7 and 11 per cent), indicating how quickly any alternative pension fund would have to grow in order to match your existing scheme.
Fees and charges
When comparing the financial outcomes of your present and any alternative schemes, you will also need to consider the charges made for managing and administering them. Clearly, over the life of your pension investments, these can be quite significant and the more you are saving in fees, the more you have to invest in your pension.
Flexibility
Your financial adviser will also ask you about your actual retirement plans. Do you plan to retire early and hope to start drawing your pension at that time or will you delay it? In any event, you will need to know that any replacement pension arrangements remain flexible enough to allow you the choice.
Final salary pension schemes
It is worth sounding a last note about final salary schemes. From the employee’s point of view, these are especially attractive schemes since they offer guaranteed, preserved benefits (for the same reason, many employers have started seeing such schemes as albatrosses around their necks. Many companies are winding up the schemes – to howls of protest from their employees – and many industry experts predict that such schemes will all but disappear from the private sector in a matter of years). Given the certainty of a final salary scheme, therefore, it will rarely make sense to make a pension transfer to another scheme unless it too offers enhanced, guaranteed benefits.
Once again, therefore, if you are considering a pension transfer from this or any other type of pension scheme, it is extremely wise to seek the advice of an independent financial adviser. |
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