The plight of thousands of British Steel pension scheme members highlights two key reasons for the rocketing popularity of final salary transfers – control and certainty.
Following a deal to help keep the company solvent, 130,000 scheme members were given a choice of moving their benefits to the Pension Protection Fund (PPF) or a new scheme backed by British Steel owner Tata Steel. Both options are a poorer deal for members compared to the current scheme.
As a result, 7,000 members are reported to have requested a transfer value between April and September and over 700 have already transferred out of the scheme to a private pension.
Given the changes forced upon the members, many were understandably concerned about the sustainability of the new arrangements in the Tata scheme.
Most defined benefit company pensions are protected by the PPF if the sponsoring employer experiences financial difficulties that threaten the scheme. But, in an uncertain world, concern about the potential for such difficulties at your employer is a valid reason to consider a transfer.
This would move the money into a private pension where the capital becomes yours, and you have complete control over how and when to use it. Transferring also brings a range of other potential benefits.
The recent scandal around the BHS pension scheme shows that we do not need to look far to find other examples of supposedly cast-iron pension scheme benefits coming under sudden threat.
Unfortunately, concern that some British Steel scheme members have not received sufficiently thorough advice on their transfers has prompted a regulatory investigation into the matter.
The regulator appears to have taken swift action to bar some advisers from recommending more transfers to steelworkers where the quality of their advice has been in question.
It is a complicated decision that needs qualified, independent advice. The more specialist experience the adviser has the better, as they must consider all the individual’s assets, income, options and goals holistically to decide if the transfer is suitable or not.
As our quick questionnaire shows, there are many important factors to consider before deciding whether a transfer could be right for you. These include whether you will rely on all or part of the income from your final salary pension in retirement; whether you would be uncomfortable investing it in stock markets, which can be volatile and where returns are not guaranteed; and whether you want your pension to be as simple, secure and protected as possible.
If the answer to any of the above is yes, then staying with your final salary scheme is probably the best option. Another question is whether you are in an unfunded government scheme – if so, you are not allowed to transfer.
If your answers to the above are ‘no’ or ‘not necessarily’, you should consider a range of additional factors. These include whether you want the options of more control and flexibility over when and how you take your pension; whether you might have shortened life expectancy; and whether you want your pension to be an inheritance for future generations rather than just a retirement income.
If you answer yes to any of these, then your adviser can start assessing in more detail whether a transfer is appropriate. This should include a thorough examination of your assets income, goals and attitude to risk and loss; and a test of how sustainable the income from your transferred pension will be throughout your lifetime.
This assessment requires specialist advice and I hope all British Steel scheme members are now using appropriately skilled and experienced advisers for such a crucial decision.
Final Salary Transferwise is an initiative of independent adviser Blackstone Moregate, which has 17 years of specialist experience in pension planning.
To assess the suitability of a transfer, we conduct a thorough, holistic review of all your financial affairs, including your assets, income, background, goals and risk appetite.
Our specialist tools and technical skills will also help assess the sustainability of your retirement income throughout life, and ensure your money never runs out.
The result is a fully-informed, professional, transparent and personal recommendation about whether a transfer is right for you.
We also have investment specialists in our team. So if a transfer is right for you, we also make sure the new investments are right for you and explain them carefully to give you peace of mind.
Given the many potential benefits, we recommend that all final salary scheme members explore the possibility of a transfer. But you must make sure you do this with a specialist advisory firm that is fit for the job.