Is your Final Salary Scheme safe?

Oct 18, 2016 | Tony Byrne's View

chain-1027864_960_720Have you got a Final Salary Scheme? Is it really as safe as you’ve been lead to believe? They’re known as ‘gold-plated’ because they always were the Rolls Royce of retirement income. A guaranteed income for life after you have retired. Sounds great, but does it though? A defined contribution scheme (which is now the more common employer pension because it’s a lot cheaper to run!) where you have a ‘pot’ of money which yourself and your employer contribute into, ultimately ends up paying your retirement income until your money runs out or you purchase an annuity. A Final Salary scheme guarantees an income based on your final salary and years worked at the company.

There’s been a lot of talk in the news about Final Salary schemes lately, particularly BHS, a household name that came tumbling down! These Final Salary schemes rely on the companies who set them up to continue to prosper to pay your guaranteed income for the rest of your life. If these companies go bust or are unable to meet the pension payments then the Pension Protection Fund steps in. The Pension Protection Fund will pay 90% of your benefits up to a cap of just over £30,000. So think about it, if you’ve got a Final Salary Pension payment coming to you in retirement of £50,000 per annum and the scheme goes bust, you’ve lost £20,000 per year in income overnight.

Final Salary pension transfers are possible. It is a highly complex area that the government have stipulated must involve professional advice from a Financial Adviser. A transfer involves obtaining a transfer value from the scheme and looking at your overall financial position to see if a transfer is viable. If viable the transfer value could be paid out from the scheme and invested into a Personal Pension which you then control. This can provide you with more freedom in terms of the retirement income, death benefits for your family and investment choices for growth.

A Final Salary transfer can provide you with a completely different death benefit. While in the scheme, your spouse is likely to get a 50% pension for the rest of their life, however your children and other beneficiaries will not be entitled to anything. Following a transfer out of a Final Salary scheme, the remaining ‘pot’ of money forms part of your estate to be left to your beneficiaries in it’s entirety in line with nominations of your choice. This can obviously make a huge difference to the value of your estate and your beneficiary’s lives in the future.

Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.

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