6 Reasons to Look at your Defined Benefit Transfer Options
What is an annuity?
An Annuity is an expensive type of insurance policy that provides the policyholder with guaranteed income payments until they pass away. Current interest rates are locked in and you are unable to control your capital. They are increasingly less compatible with modern retirement, which can now extend over 30 years.
Defined Benefit Transfers
If you have a final salary pension in effect you own a deferred annuity. You may wish to consider a final salary transfer if you do not want insurance against a long life or guaranteed income payments. Transferring out gives you the opportunity to take advantage of the flexible pension freedom rules.
This shift in retirement trends combined with Defined Benefit (DB) transfer values being at an all-time high, means that DB Transfers have become an increasingly important part of financial planning. At KDW we have seen a large increase in demand for advice on transfers and DB schemes.
Should you consider a Defined Benefit Transfer?
Historically many advisers have shared the view that it is wrong to come out of a DB pensions scheme, however this is no longer the case. Here are six reasons to consider looking at your transfer options.
1. The transfer value of a DB pension can be a considerable asset, by transferring this you will be in control of the asset and can be left to family members without being subject to inheritance tax.
2. If you were to keep your money in a DB scheme then you would receive a fixed monthly income from it however a transfer allows you the flexibility to choose when and how much you draw. It is unlikely that a person retiring at the age of 65 will have the same income needs as 90-year-old.
3. An additional benefit with DB transfers is that you are able to release the cash at the age of 55 and deferring the taxed pension until you need to take it. This flexibility gives people the options to use the lump sum of cash to pay off a mortgage early, making investments or helping family members to get onto the property ladder.
4. A key feature of the final salary pension is that it will pay income until you pass away, however there is no guarantee you will live for 20 years afyer you retire.
5. A final salary transfer takes away the life expectancy gamble implicit in a lifetime income. It capitalises the benefit once and for all based on normal life expectancy, irrespective of your personal health now and in the future.
6. With flexibility comes the ability to be tax efficient. In virtually all the cases where we have recommended a transfer there has been the ability to save tax as compared to the rigid final salary pension benefits. These can include:
- The ability to limit your pension income so that it is within specific income tax bands
- The option to defer and/or reduce the impact of the lifetime allowance penalty tax charges
- A high tax free cash sum post transfer
If you would like to discuss Defined Benefit Pensions then please do not hesitate to get in touch with the team at KDW.
01727 85 22 99 | mail@kdw.co.uk | www.kdw.co.uk
PAST INVESTMENT PERFORMANCE IS NOT NECESSARILY A GUIDE TO FUTURE PERFORMANCE. THE VALUE OF INVESTMENTS AND THE INCOME FROM THEM CAN FALL AS WELL AS RISE AND YOU MAY NOT GET BACK THE AMOUNT ORIGINALLY INVESTED.
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