Why did James need independent financial advice?
James wanted to retire.
Having spoken to his work colleagues about their Defined Benefit pension and read up about the subject online and the financial press, James knew that to make the right decision he needed independent financial advice.
He searched online for a suitable adviser and found us on Vouchedfor; a directory of financial advisers who have been reviewed and rated by their clients.
Learn more about James:
James wanted us to provide him with a positive recommendation and equally importantly, the confidence that whatever he did, was the right thing for him.
James essentially had two choices:
- Take the income, or tax-free lump sum (also known as a Pension Commencement Lump Sum or PCLS) and a lower income directly from the Defined Benefit scheme
- Transfer the £480,000 Cash Equivalent Transfer Value (CETV) to an alternative arrangement and take a tax-free lump sum and income from there
The tax-free lump sum available from the existing scheme was just over £100,000 after which an annual income, indexed each year in line with inflation, of £15,500 would have been payable.
The existing scheme also would pay a spouse’s pension of 67% should James die before his wife, Brenda. This was important as Brenda had built up little pension of her own, although both she and James had a full State Pension.
Finally, and very sensibly, James was keen to repay his mortgage of £70,000 before he retired.
What did we recommend?
Despite talk amongst his colleagues and in the press that transferring a Defined Benefit pension is usually the right thing to do, the opposite is usually the case.
After carefully considering James and Brenda’s financial circumstances, as well as their objectives, we concluded that a transfer wasn’t in James’s best interests and that he should take the pension directly from the scheme.
Among other reasons, we made this recommendation because James had a life expectancy of at least 30 years. Furthermore, the income the Defined Benefit scheme provided, even after the tax-free lump sum had been taken covered all current and future income needs. Finally, the spouse’s pension and inflation proofing were also extremely attractive.
What can we learn from James?
Very simply, that despite much of the personal finance press talking about the advantages of transferring your Defined Benefit pension, it usually isn’t in your best interests to do so.
All James and Brenda’s needs were met by the existing pension, so there was no reason to transfer it into an alternative arrangement which would have introduced an unnecessary element of risk.
If you would like advice on your Defined Benefit or Final Salary Pension, please call us on 07837343833 or complete the enquiry form on this page.