‘The saver is be­ing of­fered a sum nearly 40 times the pen­sion’

The Daily Telegraph - Your Money - - YOUR MONEY -

ris­ing. This is an­other side ef­fect of low in­ter­est rates, which have pushed re­turns on safe as­sets, like govern­ment bonds, to record lows.

It is these as­sets that pen­sion schemes must use to meet their fu­ture li­a­bil­i­ties. The measly re­turns they pay mean li­a­bil­i­ties have be­come even harder to fund, and schemes are pre­pared to pay in or­der to off­load the bur­den.

Tom Kean, di­rec­tor of Thame­side Fi­nan­cial Plan­ning, said: “High trans­fer val­ues are par for the course at the mo­ment. We have a scheme cur­rently go­ing through where the saver is be­ing of­fered a sum of nearly 40 times the pen­sion.”

There is more to con­sider for those weigh­ing up the de­ci­sion to cash in a fi­nal salary scheme.

On trans­fer­ring out, their money will be placed within a per­sonal pen­sion, and then typ­i­cally in­vested into as­sets such as shares and bonds.

The aim is to achieve in­vest­ment re­turns – from ris­ing as­set prices and in­come from div­i­dends and in­ter­est – that match those from the fi­nal salary scheme.

This, of course, can never be cer­tain and de­pends upon the re­turns from those as­sets. Un­til now it has sel­dom been worth the ex­tra risk.

But the fact that trans­fer val­ues are cur­rently so high is help­ing to mit­i­gate some of the dan­gers. Les Cameron, a tax spe­cial­ist at Pru­den­tial, said: “Trans­fer­ring out of a de­fined ben­e­fit scheme means tak­ing on all the risk of in­vest­ment losses, but that risk is much eas­ier to take if the fund value is £1.3m in­stead of £800,000.”

A Pru­den­tial poll among ad­vis­ers sug­gested that half had seen a rise in in­quiries from clients look­ing to cash in their fi­nal salary scheme.

In Mr Ma­jor’s case, there would be fur­ther tax com­pli­ca­tions be­cause his trans­ferred pot would ex­ceed the £1m life­time al­lowance. None the less, both ad­vis­ers he con­sulted said he could still rea­son­ably ex­pect to achieve a £43,000a-year in­come that both keeps pace with in­fla­tion and leaves his orig­i­nal cap­i­tal sum in­tact.

The great ex­tra ben­e­fit is that money held in­side a pen­sion is free from in­her­i­tance tax and can be be­queathed as the pen­sion owner wishes. There is no tax at all to pay if the owner dies be­fore age 75, and only in­come tax at the re­cip­i­ent’s mar­ginal rate there­after.

Mr Ma­jor, who lives with his wife in Penn, in Buck­ing­hamshire, and has two grown-up sons, has set a re­tire­ment date for Septem­ber, but has yet to de­cide how to ar­range his pen­sion.

He said: “If it was just me I think I’d just stay put in the ICI pen­sion, but I’d like to pass on as much as I can to my fam­ily.”

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