A defined benefit pension transfer is the sums paid from a defined benefit pension or final salary pension scheme when a member chooses to withdraw their entitlement. Usually, this cash sum transfer value can also be conveyed to a different pension arrangement. In light of this, many individuals with this type of pension decide to transfer for reasons such as wanting to keep all their pensions in one place or feeling that they might be safer with an insurance policy in their own name.
Since making the decision to transfer is only the first step, read on to know more about the top factors that could affect how much your transfer value will be.
Since there is less time for a defined benefit scheme to grow its assets to meet the promised future payments, transfer values rise as you near retirement. Contrary to this, members who are further from retirement will find that the transfer value of their pension is more sensitive to fluctuations in investment returns, interest rates and inflation.
Long-term interest rates
When it comes to long-term interest rates, the lower the return, the higher the sum needed to pay the pension which means higher transfer value. Simply put, because a final salary pension scheme needs to set aside more money today in order to meet its future promises, lower expected returns boost transfer values more.
Cost of living
According to law, defined benefit pension schemes must rise in line with current prices. This means that if inflation is expected to be higher, transfer values will also increase.
Since a final salary pension scheme offers a lifetime income stream, the longer it expects its members to live, the more it has to assume it will pay out. That said, you can have the security of knowing a financial plan for retirement is in place for you.
If you are considering to transfer your final salary pension and looking for a team of expert professionals who can offer a highly-personalised service along with clear and honest guidance, Investax is your best choice. We are an independent company who focus on our clients’ best interests as we strive to help them develop a long-term retirement strategy for their personal and business goals. Questions? Send us a message by completing this form or give us a call on 0141 226 2999 to speak with a member of our friendly team today.