Stay or Go – The Final Salary Pension Dilemma

Now that you can take your money out of your final salary pension scheme and invest it in a personal pension, you are left with the big question – should I do it? When Viv Eaden’s financial adviser suggested this, her answer was simple – no!

Freedom Financial Planning’s Nick Heys had been working with Viv to plan her exit from her high pressured IT director job and embark on an exciting early retirement – a notion that she had only recently discovered was possible.

viv-2However, income from Viv’s investments and company pension alone would not be enough to sustain the lifestyle she was hoping for. That’s when Nick’s suggestion to transfer into a more flexible personal pension was rejected. Viv said:

“Nick’s response was excellent because I never felt under any pressure to do anything. We debated it a number of times and looked at different options. He’s got great modelling tools, which really helped visualise what we were talking about and eventually that was obviously the best option.

“It felt incredibly scary but because it was so supportive a process and because he makes things so easily understandable, I soon began to realise that what he was proposing was the best option.”

One of the key differences between a final salary pension and a personal pension is how they are treated upon your death. A typical final salary pension will continue to pay a significantly reduced pension to a surviving spouse and possibly a time-limited amount to other dependents if there is no spouse. But essentially, when you die, the core long-term value is lost.

viv-3However, if you transfer your pension pot into a personal pension, when you die,
you have more flexibility with your benefits. The benefits can be passed direct to your spouse and/or children tax free if you die before age 75. By taking professional advice you can minimise the tax, if any that is paid by your beneficiaries.

Your spouse still benefits from 100% of your pot and when they die it can pass to your children, albeit subject to inheritance tax.

One year on from the transfer, Viv described the difference the transfer has made:

“What it’s helped me to do is have a much better lifestyle than I could possibly have had. It made me realise that if I lived a short life, then my dependents would see very little of the hard earned savings that I had got. But this way they will inherit the bulk of what I don’t spend.”

“I think it made me realise that you don’t know how long you’ll live but the modelling tool gave me the confidence that if I lived a long time I would still be ok and if I didn’t, then I could choose what I did with that money rather than lose it back to the bank.”

Transferring out of a final salary pension will not be the right decision for everyone. When you are making a decision that will profoundly affect perhaps the next thirty or forty years of your life, not to mention your dependents, you should seek experienced and qualified financial advice. If you would like to see what Nick’s financial modelling looks like with your finances, it all starts with a phone call to 01663 747000. Maybe today is the day to make that call.

Click below to hear what Viv thinks…