Let savers part-transfer final salary pensions
Millions of people in ‘final salary’ schemes can’t use the pension freedoms. One answer could be ‘partial transfers’. By Sam Brodbeck
first be transferred out to a defined contribution scheme to enjoy the same benefits, which also include generous tax treatment on death.
More than 200,000 people have already moved money totalling £50bn from final salary schemes in the past two years alone. But as Telegraph Money has repeatedly reported, the high cost and complications of financial advice, which must be taken for pensions worth £30,000 or more, are blocking savers’ route to full pensions freedom.
Another obstacle is that it is often impossible to transfer just a portion of your final salary pension to a defined contribution scheme.
Now some of Britain’s largest pension and investment firms are calling on the Government to consider giving every pension saver the right to a “partial transfer”. This could offer schemes that do allow partial transfers, savers are extremely unlikely to know that the option is open to them, said Sir Steve Webb, a director at the insurer Royal London, who co-authored the report on final salary schemes with LCP.
“Millions of workers who have rights in salary-related schemes with their previous employers may not be aware that they also have rights that could also be moulded to better fit their individual needs,” he said. “For those considering transferring out of a salary-related scheme, the option of a partial transfer would offer welcome new flexibility and is strongly supported by advisers.”
‘Partial transfers remove the all or nothing cliff edge savers face’
In theory, partial transfers work like any other transfer from a final salary to a defined contribution scheme.
Let’s say that the “transfer value” for moving the entire pension pot was calculated using a ratio of 30 to 1: that is, £1,000 of annual income becomes a £30,000 lump sum when