To transfer or not to transfer a defined benefit pension plan

Melanie*, a single mother with an adult daughter, came to us concerned that her final salary benefits would be completely lost in the event of her death.

Having worked for a bank all her working life and accumulated a final salary scheme with a transfer value of £1.5m, Melanie was seriously concerned that the full amount of these benefits would not be passed to her daughter on her death. Given that she had no intention of working after fifty-five, she wanted to explore the new flexibility in the rules regarding pensions and see how these could benefit her if she were to transfer her deferred final salary scheme. Melanie’s position is increasingly common as more and more people explore the potential benefits of the flexibility rules.            

However, she was also conscious that her final salary scheme offered a guaranteed pension, paid from age sixty. Moving away from this plan would mean she would lose these guarantees and be open to future investment and inflation risk.

After a thorough review, we recommended that Melanie did transfer the benefits away from her final salary scheme. This would enable her to leave a legacy to her daughter and also give her the flexibility to retire early, which she had always stated were her priorities. Her investments would be protected through proper diversification, delivered by the structure of our investment portfolios.

Establishing this way forwards was only part of the process of good financial planning. As part of this recommendation it was important to establish what income Melanie would need in her retirement. Her mortgage would be repaid so only household bills and social expenses would be needed. With these allowed for, we settled on investment approaches that would mean she would be in charge of any decisions relating to her retirement and would be able to leave any remaining funds to her daughter – the two core priorities Melanie set out to achieve!     

           

* Not real name

Please note: This recommendation was due to the client’s specific circumstances and the default position would not be to transfer.

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