Step by Step
We’ve broken down the steps required to ensure a successful Pension Transfer to help you understand what you will need to do and when. Along with getting an accurate estimate of your Transfer Value with a full breakdown of all of the benefits attached to your existing Pension, you’ll also need to talk to a Qualified Pension Transfer Specialist to get professional advice and most importantly you’ll need to draw up a plan of action for the future that includes making sound investment decisions and using tax-efficient practices to make the most of your money.
Step 1 – Ask for your pension transfer value
If you’re considering a Final Salary Pension Transfer, the first step is to request a Pension Transfer Offer aka a Cash Equivalent Transfer Value (CETV), in writing, from your Pension Scheme Administrator. You can do this by submitting a request for a Transfer Offer** to the scheme administrator. Either you can ask for this, or you can ask your financial adviser to do this on your behalf, with you cc’d in on the correspondence. If you already know who you are going to use for financial advice, it makes sense to involve this adviser as early as possible. They will then be able to go direct to the pension scheme administrator for any information not included in the transfer value offer.
You should also request details of any other benefits attached to your Final Salary Pension i.e. Spousal Support in the event of your death, protected pensionable age etc. It is important when deciding whether or not to transfer your Final Salary Pension to consider the full value of all of the benefits you are giving up.
Transfer Offers generally come with a three-month guaranteed window*, during which the scheme will not recalculate the transfer value. This gives you three months to get the advice you need and make a decision or defer the decision until a later time.
*Please note that this may not be the case for all schemes. If in doubt you can request details of the process from your Pension Scheme Administrator or ask your financial adviser to clarify the process.
** Final salary pension holders are generally entitled to one free transfer offer calculation per year. If you want more than this you may be charged for the actuary’s time. This is typically a few hundred pounds.
Step 2 – Talk to a Financial Adviser
For a successful Final Salary Pension Transfer, it’s important to seek advice from a qualified professional. For those with transfer offers of more than £30,000, it is now a regulatory requirement to obtain professional advice from a Qualified Pension Transfer Specialist. This must be done before any pension transfer can be executed. Your final salary pension transfer will be refused unless there is proof that this advice has been received.
If you are not sure what to ask your Financial Adviser then have a look at our handy checklist. It covers everything that should be discussed when you seek final salary pension advice. You should also consider the 4 questions you should ask yourself before you transfer your pension.
Step 3 – Establish a Financial Plan
You will need to have a plan in place for after you have requested your final salary pension transfer. This plan needs to include:
- How will the transferred money be invested – what kind of investments will make up your pension fund?
- Who will manage your investments? – to ensure you are getting the right advice and financial management on an on-going basis; and
- When you think you might need to make pension withdrawals – what will these withdrawals be? For how much? And when?
Once you have decided on the above your financial adviser will need to find a secure, cost-effective and properly serviced pension solution that will facilitate your retirement plan.
Make Tax Work For You
At this point, it is also advisable to review all your existing investments such as your use of ‘tax wrappers’ such as ISAs and offshore bonds. If you are generating an income in your retirement make sure you are taking advantage of all of the tax opportunities available to you…
With the flexibility of pension drawdown (try our pension drawdown calculator) and with the extra cash from the tax-free lump sum you should be looking to see how you can optimise:
- Any available dividend allowance
- Lower Capital Gains tax rates
- Your Personal Savings allowance
- Tax-free ISA income