The answer is probably not often enough but events of the past year have been a clear reminder of how uncertain one’s finances can be. This is particularly noticeable given the rising number of redundancies in the UK.
Redundancy
The latest figures from the Office for National Statistics paint a bleak picture of the labour market, with redundancies reaching a record level of 370,000 between August and October last year. The furlough scheme has yet to end so it isn’t likely that these figures will improve any time soon.
It may be tempting to eye up the money held in your pension but with hundreds of thousands facing financial turmoil, the resounding narrative from the professionals is clear — seek advice before commencing on any potentially life-changing decisions.
We would encourage those facing redundancy not to worry and avoid taking money from their pensions without understanding the implications. There is help out there.
Additional decisions are thrown into the mix with the potential of a partially tax-free cash redundancy payment – how long will it last? Will I get another job? What savings do I have to rely on?
Another choice that people made redundant are considering is using their defined benefit, or final salary-style pension, as this can be a substantial asset. The Financial Conduct Authority (FCA) has repeatedly taken the viewpoint that defined benefit transfers are not actually suitable in the vast majority of cases. It follows many cases in recent years in which people weren’t correctly advised to leave the schemes and consequently lost the benefit of a guaranteed income. A transfer involves transforming the benefits of a defined benefit scheme into a cash sum, known as the transfer value, and investing it into a personal pension. It’s easy to look at a transfer value and be swayed by the cash value. However, at a time when you are already going through important changes of being made redundant, one should not be making significant decisions about the future without consulting quality advice. Final salary transfers are one-way tickets and can’t be undone.
So, what of those, for whom a transfer would be most suitable when faced with the possibility of redundancy? The question advisers will be asking for clients is: do they stay within the final salary scheme and let the benefits mount under the scheme rules, or do they look at the viability of a transfer out? The answers are not straight forward but any qualified Pension Transfer Specialist will be able to explain them, and also come up with a sensible and appropriate retirement plan. Transfer values are still mostly at all-time highs, certainly they are more attractive than they were only two years ago. It is worth finding advice on what to do with an existing defined benefit scheme if only for the peace of mind of knowing that all avenues have been considered and one is in a completely informed position.
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