Have you ever considered using an annuity instead of a final salary pension scheme? It may prove to be financially beneficial.
Annuity transfer rates have been increasing and the PPF (Pension Protection Fund) is coming under increasing pressure. On top of this there is always the threat of companies going bust, so now could be the ideal time to move your nest egg over to an annuity scheme. Although it will mean waving the chance of a guaranteed income, a annuity based on the capital markets means that a fund could pick up low priced stock and shares which could increase when the economy recovers.
Therefore a defined contribution scheme (like a pension) could work out more lucrative than a defined benefits scheme (like a final salary pension). What you need to be concerned about is your critical yield, this is the growth rate that your capital value would have to achieve if you used it for an annuity. You need to consider if this would match the guaranteed income you would get from a final salary scheme.
If you are seeking flexibility in your investments, than a pension scheme will suit you as you can make choices over what level of risk you place your money at. This will be easier to manage as all your fund will be in one single place. However there are associated risks to this including poor investments returns and poor rates at the point of conversion into an annuity.
If you have been offered an enhanced transfer value for transferring out then you should be carefully considering a transfer, but check the cash incentives. It is also worth remembering that there maybe better tax free options with a pension rather than a final salary scheme. Moreover within final salary schemes. there is often benefits for spouses such as them receiving a portion of your income in the event of you dying prematurely. So if you do not have a spouse, you may be paying for this benefit unnecessarily through a final salary scheme.
However if you have a serious medical illness, then a long pension scheme may not be for you. If this applies to you, you should choose a scheme that pays a set amount to relatives on your death and that you will not be taxed on. If that does nt suit, consider buying an enhanced annuity and take advantage of higher rates for the remainder of your days.
This sort of decision, whether to move out of a final salary scheme to a defined contributions scheme should not be taken lightly, we recommend you seek professional advice.
