‘I’m in control’: the sunny side of pension transfers

‘I am a lot better off and able to pay myself more than I would have received’

Transferring money out of a “goldplated” final salary pension can be a complex and financially dangerous decision. However, there are times when it works in favour of retirees even when they have to jump through hoops to manage their own savings.

More than 50,000 pension savers ditch their “defined benefit” pensions every year by moving a lump sum into a personal pension and running it themselves. A record number made the leap last summer to unlock their lifetime savings.

The irreversible decision is fraught with risk and the City watchdog, the Financial Conduct Authority, has rules in place that force most of those who want to transfer to seek professional advice. This was part of a plan to raise awareness of the risks of switching following horror stories about scammers fleecing retirees.

As a result, a growing number of consumers have struggled to transfer as the availability of high- quality impartial advisers has dwindled. Some who managed to navigate the complex system have been rewarded, however. There are situations in which giving up a guaranteed income for life for a oneoff lump sum can be in your interest.

Clorinda Ballam, 60, from Southend- on- Sea, was expecting a guaranteed £ 12,000 income per year alongside an £80,000 lump sum. However, she swapped this for a £615,000 payout in 2019 to make the most of her remaining years with her husband, who was in poor health.

“It’s one of the best decisions I’ve made,” she said. “I didn’t realise how much was sat there and was shocked when I got the statement. I am financially a lot better off and will be able to pay myself much more each month than I would have received.”

Ms Ballam said she had spent some of the money creating memories with her husband on cruises. Another advantage is that the pension pot can now be passed on to her heirs. “It seems a shame to work all your life and then no one gets it in the end,” she added.

Completely quitting defined benefit schemes is not the only option: it is possible to keep a foot in each camp. Alberto Medeiros, 56, from Essex, partially transferred his pension.

He took half of his savings out of his final salary scheme so he will still receive a guaranteed annual income, half of what was initially promised, but will also have a lump sum.

Mr Medeiros, who is retired, said: “I feel much more in control of the money that is in my personal pension. A big reason for the transfer was that I worried the pension scheme had to invest for the needs of all kinds of people. By taking a proportion out, I am much better at picking what options make the most sense for me rather than for a large pool of people.”

Simon Torry of SRC Financial, a financial adviser, said both transfers were clearly in the best interests of the savers.

“Mr Medeiros’s scheme was underfunded and there were concerns his former employer could collapse. If that had happened, he would have taken a cut in his pension.”

He added: “A partial transfer gives people the best of both worlds. You secure guaranteed income for the rest of your life but can also draw from a pot of money whenever you need.”

However, transfers are not suitable for everyone. Mr Torry said: “For the vast majority of people, transferring is not the right choice. But it is absolutely the right thing for some, especially those with less than 10 years to live. For them it is an absolute must because their families will benefit tremendously.”

It has become harder to find an adviser. The watchdog set strict rules and told planners to start with the assumption that a transfer would not be in a client’s interests. The additional workload has made the market less lucrative, especially after advisers were banned from charging clients only if they transferred. Jessica Beard Clorinda Ballam took her pension as a lump sum. ‘It’s one of the best decisions I’ve made,’ she said