Is your final salary pension at risk?

The provision of defined benefit pension schemes has been waning in UK over the past 20 years, almost to the point of extinction. It used to be standard that you would qualify for a pension that was determined by your final salary on retirement and the number of years of service at the company. However, these schemes are rarely offered to new employees anymore and those that do increasingly find theirs at risk of change.
Over 3 million final salary pension savers have just a 50% chance of receiving their benefits in full, as warned by the Pensions and Lifetime Savings Association (PLSA). According to the PLSA, the bulk of final salary or defined benefit (DB) pension schemes, which have 11 million members within the UK, look sustainable despite the fact that the deficit for final salary schemes has stood at over £400 billion for the past decade. For the weakest schemes, “millions of people’s retirement incomes are now at risk”, thanks to a mixture of factors: increases in life expectancy, record low interest rates and lower investment returns.
According to a survey of advisers carried out by Royal London, the volume of transfers out of final salary pension schemes has grown by over 50% in the last year. Advisers claim that transfer values for those cashing in their plans are typically between £250,000 and £500,000. Royal London points out that this is greater than the average UK house price – currently £233,000.
Transfer values have risen so dramatically because yields from bonds – in which final salary and defined benefit pensions are predominantly invested – have fallen to record lows. Low bond yields increase the cost to pension schemes, as they need larger funds to produce the same income, which is why they are keen to reduce their liabilities and get pension savers with financial salary pensions off their books.

The attraction of transfers have also been boosted by rule changes allowing cash to be taken from a pension from age 55 and residual funds to be bequeathed on death. Of note, current rules mean that if your transfer value is worth more than £30,000 you must seek financial advice first.  

Speak to one of our highly qualified, professional financial advisers for a no-obligation financial planning review. 

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Halcyon Wealth Ltd is registered in England and Wales. Companies House No. 10311380. Halcyon Wealth Ltd registered office: 68 Lombard Street, London EC3V 9LJ Telephone 0207 868 2891. Halcyon Wealth Ltd (Financial Conduct Authority No. 758949) is an Appointed Representative of Quilter Wealth Limited and Quilter Mortgage Planning Limited, which are authorised and regulated by the Financial Conduct Authority.