22nd November 2016

On August 4th this year the Bank of England base rate was cut to 0.25%. We all know this means less return for savers, but it also means a lot more for those considering a transfer out of a Defined Benefit (DB) pension. On that day, the 10 year gilt rates dropped rapidly, which means that transfer values for DB pensions shot up by 15%-20%. So a transfer value of £500,000 may have increased to £600,000 overnight.

The merits of a DB pension are still clear though. They give a guaranteed income for life that is linked to inflation. Should the pension holder die, their spouse will receive approximately half the income for the remainder of their life. If there is no spouse the pension ceases completely.

Transferring to a Personal Pension means taking on a degree of risk that can range from zero to whatever level you wish, but you own the capital. You have full control over when you take it, how you take it and crucially you have full inheritance rights, so you can pass on the full value of the pension to your spouse, children, or whoever you wish, completely tax free. (n.b. marginal income tax may apply if death occurs after age 75).

The decision to transfer out of a DB pension is a serious one that requires specialist advice and serious consideration. However, the starting point is to request a Cash Equivalent Transfer Value, so you can make a fully informed decision, because once the pension is activated, or in some cases even before, it is too late.

For more information please contact me on 0131 538 7390 or dvh@personalmm.co.uk

Personal Money Management is the trading name of Professional Money Management Ltd who are directly authorised by the Financial Conduct Authority.