Many people with “gold plated” final salary pension schemes are being offered seemingly generous incentives to cash in their pension at the moment. Thousands of people are wondering whether it is worth exchanging a guaranteed income in their retirement for an enticing cash lump sum now. Other benefits, such as being able to pass on the money to the next generation, are also factors in the decision to transfer out of those “defined benefit” pension schemes. But there is also more to consider, as The Telegraph reports –
“… making the decision to transfer is only the first step. Deciding when exactly to take the plunge is tricky. Transfer offers typically expire after three months and some schemes will not issue more than one a year, even if you offer to pay… Dozens of readers have written to Telegraph Money to ask whether they should transfer immediately or wait until they are nearer retirement in the hope that the transfer value will increase. Pinpointing the best time to transfer is an art as much as a science… Will your former employer, which funds the final salary scheme, still exist in 20 years? What kind of assumptions on investment returns are being made? And will life expectancy continue to rise? Deborah Cooper of Mercer, the actuarial firm, said trustees calculated transfer values on the basis of a typical member of the scheme in question. Someone who was not typical – a deskbound finance director in a company that mainly employs manual labourers, for instance – could find that the transfer value doesn’t accurately reflect his or her circumstances.”
Their article then lists 10 important factors to consider, that will determine how much cash you could get for transferring away from a defined benefits scheme.