Defined benefit based pensions offer fixed terms normally with an index linked pension for life plus a spouses/dependants pension (where applicable). This may not be your personal circumstance therefore benefits could be greater for you if you transfer.
Passing on your pension wealth to beneficiaries is often overlooked when choosing pension schemes. A Final Salary Transfer enables you more freedom on how and who you pass your pension wealth to.
Pension funds are held in a tax efficient Trust and as such, for inheritance tax purposes, are outside of your estate, notwithstanding lifetime allowances. It will pass on entirely tax free if you die before the age of 75. Upon death, after the age of 75, tax is paid at the income tax rate of the person who inherits the pension, at their own marginal rate, which could be as high as 45% if it is taken as a single lump sum. Either way, your beneficiaries can access the funds immediately.
Normally, a pension is liquidated upon death. A Final Salary Transfer allows funds to remain as a pension and used for income by a spouse during their lifetime, and then passed on to their children upon the surviving spouses death.
If you have health issues or a shorter life expectancy, it’s even more important to be able to pass on the value of your pension rather than lose the pensions inherent value to the scheme, especially if there is no spouse or dependants able to claim benefits.
Brenda had a pension from her retail days which provided an income of £19,500 pa from the scheme assuming no tax-free cash was taken. She wanted to take benefits as she was retiring, but wasn’t sure if she was getting the best deal from the scheme and so decided to take advice.
Rewrite your own rules. Defined benefit pensions have fixed terms that have little to do with your circumstance. Your rules mean more flexibility and control over your pension fund based on your needs now and for your future.
If you find the option to draw a much larger tax-free cash lump sum appealing, then moving from a defined benefit pension may suit you. Extra tax-free cash entitlement from a Final Salary Transfer scheme allows a more generous pay out.
If your employer becomes insolvent, the pension is transferred to the Pension Protection Fund that may restrict your pension to a maximum of £33,678 or 90% of the pension if lower.
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