15 Questions to Answer Before You Transfer A Company Pension

Should You Transfer A Company Pension?

I met with a couple the other day to discuss the option of them transferring an old company pension (a final salary or defined benefit scheme as they are officially known).

On the face of it, they had some very valid reasons: they had a mortgage and loan they wanted to pay off, they wanted the freedom it would give them to do more with their children and grandchildren and they wanted to prevent the pension being lost on their deaths.

As I say, good reasons. However, there were some aspects that came out during the meeting that led us to agree, on balance, it was more appropriate for them to maintain the company pension and benefit from the guaranteed, inflation-linked regular income in retirement.

If you want to transfer a company pension you may wish to consider the following check-list first:

  1. What are your motivations to transfer the fund? If it is simply that you are attracted, like a moth to a flame, by the capital value on offer you may wish to think some more.
  2. What guaranteed, indexed linked annual income are you giving up?
  3. What is the cost of your lifestyle now and what do you estimate it will be in retirement?
  4. What is the history of longevity in your family?
  5. Is your life expectancy less than would be expected from someone of your age and gender?
  6. What effect has inflation had on prices over the past 40 years (because that is how long you may need an income for and it may be a lot to ask from a replacement private pension). Click here to work it out.
  7. What investment returns do you need to match the benefits you are giving up? Are they achievable?
  8. How much short-term investment risk are you willing to tolerate if you transfer your fund to a private pension. If you transfer the fund you have to expect periodic stock market crashes to reduce the value of the fund and the actions you take will have a huge effect on the long-term value of your fund.
  9. When do you intend to start drawing down from the fund? If it is sooner, what effect would a stock market correction have on the long-term health of the fund when combined with withdrawals?
  10. What other pensions, savings and investments do you have to call on if needed?
  11. Who else will be financially impacted by your decision? If you have a partner would they do better with a guaranteed, indexed linked pension even if it is only 50% of the original value?
  12. What early retirement benefits are available from the scheme if you need the money sooner?
  13. Could you get a greater lump sum from the scheme than available from a private pension?
  14. Would a life assurance policy provide the lump sum to your children that you see the pension fund doing?
  15. If you need short-term access to cash would other sources be preferable? For example, taking out a loan or extending the mortgage.

If having read this list you still want to transfer a company pension contact me to discuss it further.


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