Many people who have “defined benefits” pensions and are thinking of transferring the cash to another scheme are curious about why they have to take advice from a qualified IFA (Independent Financial Adviser) before they can make the switch. Unbiased, a website that helps people find IFAs in their area, gives their view on why it is so important to take suitably qualified advice –
“So if you have a final salary pension and want to transfer it, why is it so difficult? And why won’t your IFA just sign off on it? For those not already familiar with the issue, a final salary pension is a workplace pension that pays you a guaranteed annual income for life from a particular date. This makes it very different from an ordinary workplace pension, which is simply an accumulated pot of money. Historically, final salary pensions have been very desirable. However, it is now possible to transfer them into pension pots, converting them into a lump sum of money (the ‘transfer value’) that can be invested or withdrawn as desired. Transferring has become even more popular lately, as transfer values have risen significantly… If a pension’s transfer value is over £30,000 then the law requires you to seek independent financial advice before the transfer can be made. However, some providers insist on advice even with smaller transfer values, to protect themselves against possible future litigation if the pensioner later decides they made the wrong decision…”