There's a lot of interest surrounding Final Salary transfers at the moment – transfer values ( or CETV’s, cash equivalent transfer values) are perceived by many as very high – values of 30x or 35x the initial level of guaranteed scheme pension are not uncommon - and personal pensions are now more flexible and any money you don’t use as income is available for family to inherit and is outside of your estate.
The values offered themselves vary considerably and are often 60-70% of the current actual cost of buying an equivalent annuity – so schemes are 'de-risking' and unloading liability at a significant discount to the current cost - some are being pro-active and offering incentives to transfer now.
Because the transfers are calculated using current annuity rates, taking a transfer value may be capitalising on possibly low current annuity rates – In many ways you’re reversing the traditional way of saving for retirement income - you're converting a guaranteed income stream for life into a capital sum, with all the inherent investment risk.
For most, the sensible thing has to be to keep the guaranteed annuity, but for some a transfer value will appeal....for example:
Partial Transfers – your scheme may offer a partial transfer i.e. instead of a guaranteed pension of £30,000 a year, or a transfer value of £1m in lieu, you can opt for a guaranteed pension of £20,000 a year and a £333,000 transfer value in lieu – you may feel a £20k income, in addition to any other income you may have is a sufficient level of guaranteed income.
Partner's income – your partner may have sufficient guaranteed income and you feel comfortable taking a CETV and investing in a drawdown arrangement
Your health – if your life expectancy is shorter than most you may feel a guaranteed income for life is not the best way of getting value from your pension
Cash – you can take 25% tax free after 55, and this may be a need you have
Tax efficiency – you may want to work long after age 55 – a TV enables you to take cash but not income
Other Income – you have other income ( rented property?) which enables you to consider a transfer value
Other Assets – you have other assets which enable you to consider a transfer value