A case study on UK final salary pensions
By Michael Doyle
This article is published on: 28th November 2016
I was recently asked to review one of my client’s UK pensions.
He had what is known as a Defined Benefits Scheme – more commonly referred to as a Final Salary Scheme.
My client had lost touch with this scheme a few years back and the last update he had from them was in 2006. On this statement the scheme offered him a transfer value of approximately £52,928, otherwise he could remain in the scheme until he was 65 and have a pension commencement lump sum (PCLS) of c. £27,000 and an income of £4,700 per annum.
If he remained in the scheme and took the lump sum and income, in the event of his death there would be no lump sum paid to his beneficiaries although an income payment of around £3,000 per annum would have been paid until the 10th anniversary of his 65 birthday.
On completing a review of my client’s pension I found that the scheme would now offer a transfer value just in excess of £180,000. In transferring this to a Qualifying Recognised Overseas Pension Scheme (QROPS), I was able to offer my client an initial PCLS of £45,000. This still left him with a fund of £135,000. Assuming we can provide a rate of return of 3.5% after charges then the client can have the same income as with his Final Salary Scheme.
Assuming the client only draws down the same £27,000 that his UK pension offered then we would only have to provide returns of 3.07%.
In the end, the client chose the transfer because:
- In the event of his death after receiving the PCLS, the remaining funds could be passed on to his children.
- He only needed the PCLS and not the income at 65. This was not an option under the final salary scheme.
- He can control the level of income he needs going forward (subject to the returns in the funds he was invested in).
With annuity rates being very low at this time, final salary schemes are offering a much higher transfer value and this can be beneficial for both you and your beneficiaries.
To review your pension options today please contact me for a no obligation chat and free analysis on your personal situation.