Lump sum or regular income… what’s your best option?
With previous employers offering huge pension transfer values and schemes being more flexible than you thought. What is your best option as you enter into, or continue your retirement.
Defined benefit scheme
As many at 5 million people have built significant pensions through years of service and salary. These schemes begin paying out at a set retirement age – usually 65. However, they can be flexible and improve your financial situation. Most schemes are much more flexible than most people realise and we would always recommend speaking to a financial advisor to discover the full potential of your pension.
Workplace pensions hold various benefits. A guaranteed income and annual increases based on inflation are just a couple of the attractive reasons to hold on to your pension scheme. As well as having favourable tax treatment under ‘lifetime allowance’ rules.
A recent report by Royal London highlights the benefit of holding onto such plans.
So why are pension transfers offered? Simply put, people are living longer. This means that employers are having to pay out more and more in order to fulfil the pension schemes promised to their former employees. However, by offering a pension transfer the full responsibility is shifted onto the pensioner and the company no longer needs to make pay-outs. This is so beneficial for the business that some are offering transfers with a value up to 40 times the value of the pension at retirement.
Transferring your pension can be hugely beneficial. A full transfer will allow you full control of your pension pot, making it easier to withdraw cash or pass it on to future generations.
Fortunately, there are options open to you when it comes to your pension.
You can leave it in a defined benefit pension scheme which will afford you to guaranteed income, increases based on inflation and favourable tax benefits.
Some firms will allow you to take your pension at an earlier age than originally agreed. This will mean your pension is paid at a lower rate (for the entirety of your retirement) but allows for the same benefits as standard and you have access to your pension early.
You may be able to take a proportion of your pension, if you’re in need of a lump sum of cash. This, however, may be subject to tax and your options depend on your particular scheme.
Finally, you can do a complete pension transfer. This could be at a very favourable rate and provide much more flexibility in your financial situation.
We would strongly recommend knowing the ins and outs of your scheme and speaking to an adviser about your best options. Large transfer values may be deceiving, remember, this money must last the rest of your life. With that said, however, taking a full transfer with a large value will allow for strong investments to be made – generating a return and maximising your pension fund.
We recommend speaking to an adviser to explore all the options available to you and what will be best for your and your beneficiaries futures.