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Do you require final salary pension transfer advice? 

Following the introduction of pension freedoms in April 2015 the FCA introduced new legislation concerning final salary pension transfers. The new requirement states that where the cash equivalent transfer value of your benefits in any scheme are greater than £30,000, you must obtain appropriate advice from a UK regulated pension transfer specialist before you  will be permitted to transfer to a scheme with flexible benefits.

 Final salary pension transfers explained

A final salary pension transfer will involve your scheme trustees calculating what is known as the ‘cash equivalent transfer value’ or CETV for short. This represents the capitalised value of your benefits in the scheme and is calculated using a set of guidelines and assumptions. These include:

  1. The level of pension that you had built up in the scheme before you left.
  2. The scheme rules that dictate how much your pension will increase between leaving the scheme and retirement; the level of increase in retirement; and any spouse’s benefits or guarantee periods.
  3. Any discretionary benefits that you are entitled to within the scheme.
  4. How far away from the scheme’s retirement age you are.
  5. The discount rate; this involves estimating the future returns that can be expected from the funds set aside to provide your pension benefit.
  6. Assumptions relating to the annuity rate at retirement.
  7. How long you might be expected to live.

Final salary pension transfers are available to deferred members (those who have left the scheme but are yet to draw their pension) and to employees who have reached the scheme retirement age. They can also be offered as part of an early retirement or redundancy package.

All deferred members have a statutory right to transfer except in the following cases:

  1. You are a deferred member of an unfunded public sector scheme such as the NHS scheme, teachers’, police or military service schemes. The option to transfer from these types of schemes has now been closed by the government.
  2. You are within one year of your scheme’s normal retirement age. In this case the option to transfer is at the discretion of the trustees; this is also the case for members that have passed their scheme retirement age without commencing benefits.

In all cases the option to transfer is lost as soon you have started to receive your pension benefits.

Accepting the transfer of risk and the loss of fixed benefits 

Within a final salary scheme the pension income that you receive at retirement is fixed and guaranteed by your employer, or in some cases the liabilities can be sold on to an insurance company who then take responsibility for the guarantees. These safeguarded benefits are payable for life and also include annual increases which provide valuable protection against inflation. The longer you and/or your spouse live the greater the benefit you will have received from the scheme.

When you accept a transfer value and invest the money in a personal pension the investment risk will have been transferred from the scheme to yourself. The returns that are achieved will be dependent upon the investment returns that can be generated from the funds or assets that you invest in. If the fund does well then you may end up with more net cash from the transfer value, however if the investment returns are poor you could have significantly less; with longevity comes the risk that you may have to reduce your pension income or worse still – that the fund could eventually run out.

Once you have accepted a transfer value you will be discharged from the scheme and the transaction is irreversible. Making such a decision requires careful consideration and professional advice before proceeding.

Fixed fee final salary pension transfer service

First Equitable has advised on a very wide number of schemes in this area and has a wealth of experience providing clients with invaluable advice in making informed decisions around this complex topic.

Normal Fact-Find gathering will initially be completed with First Equitable and where you require Defined Benefit Pension Transfer Advice, we will refer this part of the advice process to our carefully selected Pension Transfer Specialist. First Equitable will be required to provide the Pension Transfer Specialist with the recommendation of a suitable receiving scheme (which could also be an existing scheme) and appropriate underlying investment portfolio. The Pension Transfer Specialist will not consider cases where a client is self-selecting investments. The proposed receiving scheme and investment strategy recommended by First Equitable will then be used as part of their analysis to ascertain whether a transfer is suitable or not.

The fees charged for this by both the Pension Transfer Specialist, and First Equitable, are payable regardless of whether or not a transfer takes place.

The fees payable to the Pension Transfer Specialist are currently £2,500 + VAT for advice in relation to a single scheme. Additional schemes are charged at a supplementary fee of £1,250 + VAT per scheme.

For larger CETV’s above £350,000, the Pension Transfer Specialist charge an additional fee of £250 for each £100,000 or part thereof over £350,000.

In addition to the fees payable to the Pension Transfer Specialist, fees will also be payable to First Equitable in relation to the provision of a recommendation of a suitable receiving scheme and underlying portfolio of investments. These will be calculated as follows:

1% of the first £500,000;

0.5% between £500,000 and £2.5M;

0% thereafter.

Please note, that following regulatory rule changes which came into force on 1 October 2020, these fees will now be payable regardless as to whether a transfer proceeds or not. Where a transfer a does not proceed it is most likely all fees will need to be paid directly by the individual; where a transfer does proceed then it may be possible for all advice fees to be facilitated by the receiving scheme (subject to the receiving scheme facilitating this option).

Full details of our fees and how they are calculated can be found in our Pension Transfer Client Agreement Document and a personal quotation is available on request.

Ongoing advice and support

When your transfer is complete First Equitable can provide the option of ongoing services and advice for those clients that would like their investments managed professionally on their behalf.