Types of People Who Are/Are Not Suitable For Transfer

Why is transfer not in most people’s interest?

• On transfer you give up a secure income for you and your dependants.
• You will need to pay all of the charges associated with your pension plan. These will reduce the value of your pension fund.
• You will need to make investment decisions.
• You will be exposed to investment risk and volatility. Your fund may fall in value.
• The transfer may cause you to have less money in retirement , especially if the investment performs poorly or you live for a long time after transfer.
• You may use all of your pension fund leaving you with little money in retirement.

Types of people who typically would not leave a defined benefit scheme

People who are heavily reliant on the income from a defined benefit pension tend not to have the ‘capacity’ to consider a pension transfer. This is because in periods when the fund does not perform as well as was hoped there may be some difficulty in meeting outgoings and the fund could even become exhausted. There may be features of the transfer option which are attractive, but due to reliance on the income it is unlikely that a transfer will be suitable.

Moving out of the scheme is probably not for you if:

• This is your most significant pension.
• If you have a low tolerance to investment risk you would generally not be able to tolerate the risks associated with pension transfer.
• You are unclear about what your expenditure in retirement will be.
• You are used to receiving a regular wage.
• You are some time away from retirement.
• You want certainty.
• You are concerned about inflation.

Characteristics / circumstances of people who are most suited to transfer

• If you do not need or want a regular income from the pension scheme under review. This is usually because other income is available such as another pension.
• If you have a reduced or limited life expectancy and you wish to consider alternatives to the death benefits as offered by the scheme.
• Where you are in a position where it might be advantageous to control the flow of benefits from your pension. This might be for tax reasons or to manage expenditure requirements in a way that the scheme cannot offer.

Factors that people often consider when reviewing a secure pension

• Ability to vary benefits. A secure pension will pay a regular income to you which will generally increase over time. This is the most suitable route for most individuals. Sometimes however it may be beneficial to have access to a more flexible benefit structure such as to take higher income than the scheme can pay out for a short period of time and then reduce it in the future. The ability to vary death benefits to bring them in line with personal circumstances is also an important considertation.
• Control over the Pension Commencement Lump Sum (PCLS) The PCLS or tax-free cash paid by a defined benefit scheme must be taken at outset or not at all, it usually has to be taken in full if it is taken. Many people like to control this and take it as a tax-free ‘income’ stream or would benefit from a higher level of PCLS to meet a specific need. The transfer option usually pays a higher amount of PCLS.
• Control of death benefits What happens in the event of death is important for some. Where the scheme death benefits do not fit in with circumstances, it may be appropriate to consider alternative death benefits such as leaving a lump sum inheritance in line with your wishes.