My wife has a final salary pension. The conditions on offer started getting worse around the financial crisis. Her salary level to work as a basis for final salary calculation was capped and now stands for about half of her current salary. I started investigating if it’s worth it for her to opt-out of the final salary pension and transfer to personal SIPP.

She received a valuation which seems to be around 21 times her guaranteed income. Still not sure what to do, I will definitely speak to a professional financial adviser and update this article.

But as you found this article and would like to find out a little bit more here is the “final salary transfer calculator” and a few good articles I found on the subject:

Final Salary Transfer Calculator.

Find out if the Final Salary Pension transfer offered is a good value.

Final Salary Pension cash out articles:

Unbiased – Leave or remain in final salary pension
The Telegraph – Why now is the time to cash in your final salary pension
Money.co.uk – What if I have a final salary pension

The pros and cons of transferring your final salary pension

Pros of opting out:

• you can have greater control of your pension fund
• if you have no spouse, you may have no need for some of the benefits
• you can pass on money to your heirs via a transfer
• you might have more than one final salary scheme and only want to transfer one fund
• you can get your hands on a large lump sum

Cons of opting out:

• you’d be giving up a guaranteed, predetermined income for the rest of your life
• with a final salary scheme, you don’t have to use investments to generate retirement income
• final salary pensions are index-linked, meaning they rise with inflation
• final salary schemes usually provide better retirement income than you could secure by other means
• it’s tough to know whether the ‘cash equivalent transfer value’ (CETV) you get represents a good deal or not (please see a pension calculator above for estimation)

What You Need to Know About Your Final Salary Pension

Whether you are in a final salary pension scheme or looking to transfer your existing pension, you should read up on the details of your current pension scheme. Many final salary pension schemes offer additional features to their members such as life assurance cover, survivor’s or child’s pensions, and the option to make additional voluntary contributions. You can use these extra contributions to buy additional benefits. In addition to transferring your pension, you can also benefit from the tax-free lump sum.

A Final Salary Pension scheme guarantees that you will receive a minimum amount of money on retirement. It is linked to a retail price index that generally returns a higher inflation rate than the consumer price index, which is the standard measure for state and public sector retirement benefits. Companies are responsible for paying around 81 billion GBP a year in order to meet their pension promises, of which 31 billion GBP goes directly towards deficits. Final salary workplace pensions cover nearly 11 million workers. Of these, 4.27 million receive pension payments.

While you are an active member of a Final Salary pension scheme, the amount of your final payment will increase. This increase is based on the number of years you worked for the company. The Board of Trustees may set a specific amount, or you may be able to choose a certain amount based on the amount of time you worked for the company. However, be aware that the Final Salary pension commutation is more complicated than a Defined Contribution pension.

You must be at least 55 years old (raising to 57 soon) in order to take full advantage of the Final Salary Pension scheme. It is possible for an employer to compensate you if you retire too early. Although it is a matter of discretion, a final salary pension scheme will remain in place for as long as you are a member. And if you are under 55, you can take advantage of the early retirement option by transferring your benefits into a SIPP.

For the calculation of your future pension income, you should know the accrual rate for your pension scheme. This rate refers to the percentage of your earnings that will be paid as pensions every year. After calculating the accrual rate, multiply the number of years you have been in the scheme by the accrual rate for the years you have served. The final pension benefits are then calculated. You should know that your pension income will vary according to your age and the amount of your final salary.

The final salary pension is one of the most popular types of pension plans. This pension option is based on your final average salary and is pegged to inflation. Public sector employees are often eligible for this pension option. Private sector employees are generally not eligible for this pension type. If you’re eligible, you should let the pension scheme know in writing prior to your departure from the job market. If you don’t want to take advantage of this option, you can opt-out of it.

Pros and Cons source: Money.co.uk

Please note this article is not financial advice. Pension decision is one of the most important in your life and you should seek professional advice on this subject.