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Should Final Salary Pensions Be Cashed In? 11 Factors to Consider

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    Can Final Salary Pensions be cashed in? 2020 Final Salary Guide

    In 2014 and 2015 the biggest changes to pension rules for a decade were brought in to force in the UK. These new rules affected how and when you could access your pension and who you could leave it to. These changes created a gap between what was possible to do with your pension between Final Salary and Defined Contribution (personal Pension ) schemes, forcing many people to ask  ‘can I cash in my final salary pension?’ The answer, as is often the case for Final Salary Pensions, depends on the type of scheme you are in.

    Requests for Pension Transfers have seen a significant increase but not all Final Salary pensions can be cashed in. If you’re in an unfunded public sector scheme i.e. Teachers, Emergency Services or the Armed Forces you are not able to transfer out.

    If you are in a funded scheme – normally held in the private sector you should be able to transfer your pension. However, if your pension transfer value is worth more than £30,000 it is a regulatory requirement that you receive advice from a Qualified Pension Transfer Specialist before moving your pension. On top of this, all but one of the main SIPP providers now require proof that you have not only received financial advice from a qualified individual but that you also have a positive recommendation to transfer.

    If you are able to transfer out, that doesn’t necessarily mean that you should. For a lot of people staying put is the best course of action. If you are considering cashing in your final salary pension, here are 11 factors you should consider first….

    Can I cash in my final salary pension? 11 factors to consider

    Cashing in your Final Salary pension is a big decision and one that should not be taken lightly. Our pension specialist has put together 11 factors you should consider first…

    1. Your Transfer Goals
    2. High Transfer Values
    3. Timing of Transfer
    4. Flexibility
    5. Early Retirement
    6. Tax-Free Cash
    7. Death Benefits and Inheritance
    8. Health
    9. Scheme Solvency
    10. Investment Risk
    11. Lifetime Allowance
    1. Transfer Goals?

    As Simon Sinek advised in his bestselling book ‘Start with Why’ – understanding what is driving you is a great place to start any endeavour. It is so important to consider why you want to move your pension and to understand what your goals are before you transfer. 

    Often when we talk to customers we look at alternative paths that could help them meet their goals without having to transfer their pension. Sometimes there is a win/win situation to be had, other times there will be trade-offs involved – it is highly unlikely you’ll be able to replicate the exact benefits of your Final Salary Pension when you transfer out. 

    Understanding your goals will help you to make a more informed decision when deciding whether or not to transfer your pension. You’ll be able to weigh up the relative value of reaching your goal versus the costs and or risks of transferring your pension. 

    Examples of the types of goals we often see are:

    • Early Retirement
    • Access part of my pension from 55 to fund an early semi-retirement (i.e. work part-time)
    • Use my tax-free lump sum to pay the mortgage off early or to clear debts
    • Use a personal pension as a tax-efficient way to pass money on to my children and loved ones when I die
    • Use my tax-free lump sum to fund the purchase of an investment property or a retirement property abroad
    • Use my tax-free lump sum for home improvements 
    • Use the tax-free lump sum to pay for holiday plans or to buy a motorhome

    Simon Garber is an Independent Financial Adviser and Pension Transfer Specialist with over 15 years of experience. He's a member of the Personal Finance Society and holds the coveted Gold Standard for Pension Transfer Advice.

    He is the Managing Director of 2020 Financial Ltd, Financial Advisors specialising in Retirement Planning & Wealth Management, based in Southampton, Hampshire.

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    Final Salary Pension Transfer

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