Get the most from a fi­nal salary trans­fer

The Daily Telegraph - Your Money - - FRONT PAGE -

Many savers want to free pen­sion money by quit­ting their scheme. Sam Brod­beck asks how they can get the high­est pos­si­ble sum

In­cred­i­bly gen­er­ous of­fers made to peo­ple with “fi­nal salary” pen­sions have con­vinced thou­sands of savers that swap­ping the guar­an­teed in­come of­fered by these schemes for a cash lump sum is the right thing to do. Such sky-high “trans­fer val­ues” are one rea­son that many savers are transferring out of the schemes. Flex­i­bil­ity over how you can use your money, in­clud­ing pass­ing un­used cash on to the next gen­er­a­tion, is a fur­ther ap­peal of trans­fers to “de­fined con­tri­bu­tion” pen­sions.

But mak­ing the de­ci­sion to trans­fer is only the first step.

De­cid­ing when ex­actly to take the plunge is tricky. Trans­fer of­fers typ­i­cally ex­pire af­ter three months and some schemes will not issue more than one a year, even if you of­fer to pay. Dozens of read­ers have writ­ten to Tele­graph Money to ask whether they should trans­fer im­me­di­ately or wait un­til they are nearer re­tire­ment in the hope the trans­fer value will in­crease.

Pin­point­ing the best time to trans­fer is an art as much as a science. Will your for­mer em­ployer, which funds the fi­nal salary scheme, still ex­ist in 20 years? What kind of as­sump­tions on in­vest­ment re­turns are be­ing made? Will life ex­pectancy con­tinue to rise?

Be­low we set out 10 fac­tors that could af­fect how much your pen­sion fund of­fers you to quit the scheme.

Hy­mans Robert­son, an ac­tu­ar­ial firm, has mod­elled the im­pact of changes in these fac­tors on a hy­po­thet­i­cal saver: a 50 year-old with an in­dex-linked fi­nal salary pen­sion whose scheme has a typ­i­cal in­vest­ment strat­egy of hold­ing half its as­sets in

As pen­sion funds have closed to new mem­bers, they have steadily shifted as­sets out of shares and into bonds. As a re­sult the ex­pected re­turns are likely to have fallen.

If a fund moved from having equal parts bonds and stocks to a ma­jor­ity of bonds, that could dampen re­turns by around half a per­cent­age point a year, for ex­am­ple. This would in­crease our 50 year-old’s trans­fer value by 16pc, Hy­mans es­ti­mated.

As a rule of thumb, trans­fer val­ues rise as you near re­tire­ment. This is be­cause there is less time for the scheme to grow its as­sets to meet the promised pay­ments. If our 50 year-old waited un­til he was 60 to trans­fer, the lump sum would be around 9pc higher, all other things be­ing equal, said Hy­mans. That would mean a trans­fer value of around £240,000 as op­posed to £220,000.

Peo­ple fur­ther from re­tire­ment will

The re­cent spate of cy­ber at­tacks, in­ves­ti­gated at GCHQ (above), in­clud­ing the one that hit the NHS in May, has led in­vestors to pour money into IT se­cu­rity firms. One in­vest­ment fund of­fers cheap ac­cess to the sec­tor.

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