Think carefully before grabbing your ‘gold’
GOLD-PLATED pensions that promise savers a certain level of income when they retire are highly prized and increasingly rare.
But recently, there’s been a surge in people looking to exchange the promise of a regular pension in retirement for a large amount of money.
Freedoms introduced in 2015 allow over-55s with defined contribution pensions to have much more flexibility over how they use their pot.
Research from Royal London among more than 800 financial advisers found a big increase in transfers out of final salary pensions.
But it’s important for savers to think very carefully about what they would be giving up.
Baroness Ros Altmann, a former pensions minister, says: “It is vital to get good advice first.”
Possible reasons for someone transferring could include:
They have large debts which the money could help pay off
They have several pensions and could transfer some and still have a guaranteed income
They are in poor health and fear dying young
They are comfortable with managing money or finding someone to do it for them
They want a fund to help pay for care if needed
On the other hand, reasons someone may want to stay put in a gold-plated scheme could include:
They are worried the decision is irreversible and they might regret it
The scheme is their only pension
They value the peace of mind of a guaranteed regular income
They are concerned about inflation and have an inflation-linked defined benefit pension
They don’t want to take an investment risk.
As well as thinking the decision through carefully and seeking advice, savers should also beware pensions and investments scams.
The Financial Conduct Authority has tips to spot signs of fraud (scamsmart.fca.org.uk). The FCA also lists authorised firms at fca.org.uk/firms/ financial-services-register