BEACON WEALTH MANAGEMENT LTD
- Final Salary Pensions
November 2017 - January 2018
2 years ago George Osborne said in his budget people no longer need to buy an annuity with their pension.
What I don’t think he realised (or perhaps he did), was just how many would swap their final salary pensions for the same benefits now offered to those with normal money purchase (defined contribution) schemes?
Final salary pensions were always regarded as the gold standard of pensions, and this is
confirmed by just how many have closed because companies can’t afford to keep them going.
The idea of a pension is that you save as much as you can afford for as long as possible so that you have an income in retirement that is sufficient to provide a comfortable life.
The problem for the traditional annuity is that the rates are so low they usually represent poor value, and little or no flexibility, and then when you die the pension company keeps the rest of the fund, which given the offered annuity rate effectively means they keep the whole fund.
However just like a final salary pension, an annuity is designed to give a guaranteed income (often increasing) for the rest of your life and then a percentage of the value for a surviving spouse.
Under George Osborne rules you can decide how much income you want and change it whenever you want. You can also access lump sums and not only does it not have to reduce on death, the whole fund can go to your spouse or whoever you decide, and is not treated as part of your estate for IHT(Inheritance Tax). It can of course go to your spouse and then on their death be passed to the family etc. free of IHT. Under this scheme the funds remain
invested, so if invested well, they can continue to grow even though you are taking money out.
By switching from a final salary (defined benefit) scheme you are no longer at the risk of
the employer defaulting, and the pension money going to the pension protector fund that offers a maximum pension of £34,665 currently and a standard 90% of lower normal benefits.
The liability for employers of a defined benefit scheme are huge and ongoing as fund requirements are based not only on life expectancy but Government Bonds. These, and interest rates have been low for a very long time meaning fund values are needing to be much bigger than they were. Employers are often keen therefore for people to leave
the scheme and may even pay a premium to encourage people to leave.
If interest rates are set to increase, the transfer values will be reduced.
• We have clients who wish
to retire before the scheme age or
who wish to reduce the days’ they
work and need to supplement
their income. Switching a defined
benefit so that it can be used like
a defined contribution scheme
allows them to do this.
• We have individuals with
no spouse or who feel they will
outlive their spouse and switch to
preserve the fund value for their
• Some don’t need the
pension income so will switch
the plan which is now free of
Inheritance Tax, and spend their
savings in ISA and bonds that
would attract a 40% Inheritance
• Some like the flexibility
of taking money for a car or to
clear the mortgage at the start
plus a higher income, with a view
to reducing the money taken as
they get older and expect to have a
lower desire to do things.
• Others have very different
reasons and would simply have
the money go to their families
rather than the old employer or
As you can see we are very
active in the pension market. Each
of our financial advisers hold the
required advanced pension exams,
as does our specialist researcher
who is able to use specific software
in-house tailored to the individual
demands of every client.
I am unaware of any other
company with this level of
in-house expertise locally or
Given all the above and the
huge benefits most will achieve
by switching their defined benefit
and defined contribution scheme
to this type of pension, there are
still times when we recommend
clients do not.
Just because something can be
done it does not always mean it
We undertake full research
in every case prior to making a
Should you require financial assistance for pensions, savings, investments, mortgages, protection, long term care, employee benefits... contact the team at Beacon Wealth Management Ltd.
Tel: 01480 869466
The Old Chapel, Thrapston Road,
Kimbolton, Cambridgeshire, PE28 0HW