Workers in Britain are swamping their current and former employers with requests to transfer out of their legacy pension schemes. According to a survey conducted by the Association of Consulting Actuaries, there has been a recent influx of demand to trade in final salary employee pensions for cash, with half of surveyed employers reporting that at least 5% of their scheme members have submitted transfer requests from final salary to defined contribution pension plans.
Why are people transferring work based pension plans?
Extra flexibility and superior tax treatment upon death are encouraging a growing number of people to transfer to defined contribution plans, rather than keep their final salary scheme. An estimated £50billion has been withdrawn from final salary schemes within the last two years. The average transfer rate is above £250,000, suggesting that wealthier employees and past employees are more commonly taking advantage of the opportunity.
Transfer value offers have risen, due to record-low interest rates, as final salary schemes are required to pay inflation-linked, guaranteed income and the law requires companies to meet their income promises, regardless of the current market conditions. Because of this, there have been cases of people with pensions worth £12,500 per year being offered around half a million pounds to give up their pension contract.
Final salary schemes are becoming increasingly uncommon in the private sector. Instead, defined contribution pension schemes are offered, as workers on this plan will build up a pension pot throughout their career, as opposed to a promised income.
The difficulties of transferring your employee pension
The Association of Consulting Actuaries found that more than half of employees looking to transfer their pension scheme are having trouble finding a financial adviser to help them carry out the request. The Government require anybody wanting to transfer a pension above the value of £30,000, meaning any pension expected to pay at least £1,000 per year, must be consulted on by a financial adviser.
Following a review from a financial adviser, a saver will have the right to transfer their pension, even if their financial adviser has advised against the move, as long as they can prove that they have received the advice.
Only one in four transfer requests end up successfully processed, due to the lack of willing financial advisers. The reason for this small number of available advisers is the worry that savers do not full understand the risks and that there may be an influx of compensation claims in the future. A similar scenario happened in the 90s, causing billions of pounds to be paid out to people who had been wrongly advised to give up their company’s employee pension plans for a personal pension.
If you are looking for a financial adviser to assist with your pension or would like to resolve any confusion surrounding your pension options, contact Acumen Financial on 0151 520 4353 or browse our pension information and request a free consultation with a financial adviser via the Acumen website.