Do you still have a final salary or “defined benefit” pension scheme in the UK?
Historically these were viewed as a great benefit to have, providing a defined pension benefit for life that moved up with inflation. Over time these benefits have been eroded as the costs to the employer for providing these schemes has simply become too great. Consequently it has been widely accepted for some time now that the majority of these schemes are “underfunded” and running large deficits. The news for the past few years now has been full of large scale examples, the most recent being the BHS employees pension scheme.
The UK’s recent vote for a Brexit also has significant implications if you have a UK pension.
In 2015 the UK government introduced flexible access from age 55 for people who were members of “defined contribution” schemes, pensions that are not final salary related such as SIPPS’s, personal pensions, stakeholder pensions, FSAVC’s etc. During this time gilt yields were at historic lows and had been for a while.
Low gilt yields are very bad news for Final Salary schemes as the cost of providing benefits for retirees is then much greater. In these circumstances clients were getting paid higher Cash Equivalent Transfer Values (CETV’s) to move their funds because higher amounts had to be set aside to provide benefits. Therefore a lot of people have already taken advice and looked at transferring their benefits to a defined contribution or personal arrangement to take advantage of the following:
- Access, flexibility and control of your Pension Fund
- CETVs at historical highs
- Spouse Benefits & Succession Planning with residual pensions for future generations
- Uncertainty around future funding, deficits and the ability to fulfil obligations
Where are we now following the Brexit decision?
Following the EU referendum, UK 10-year gilt yields tumbled to below 1% for the first time ever. What does this mean? For example on the 30th June a 64 year old with a final salary pension worth 10,000 pounds a year would receive a transfer value of 223,000 pounds, 20,000 pounds more than on 1st January and 25,000 pounds more than in March 2015. Post referendum the total final salary pension funding deficit in the UK went up from 820 billion pounds to 920 billion pounds in one day!
The good news is that you still have options before retirement, the reality is for many people that the UK may not take back the control they believe it needed but you can still take back control of your pension funding and your retirement.
Here at Intelligent Investments we can enable you take a look at the bigger picture and help you decide on the right course of action, depending on your individual circumstances, where ever you are.
Remember retirement planning does not begin and end with pensions, we are experts in helping you find the right path to your retirement goals whether we use pensions, property or other investments.
We can also assist in tax and estate planning to ensure you minimise your tax liabilities, and pass more of your wealth on to your loved ones and beneficiaries instead of HMRC.
Get impartial, independent and commission free advice today. Click here to learn more.