More savers cashing in final salary pensions

Money pile

An increasing number of final salary pension scheme members want to cash in their plans, according to Old Mutual Wealth.

The wealth management company has reported that its investment platform has, in the year to date, received more transfers from defined benefit (DB) schemes than it did in all of 2015.

Old Mutual Wealth also says it has seen an increase in the cash value of defined benefit pension transfer offers, with a number of customers revisiting old requests and asking for a second cash equivalent transfer value (CETV) for their employer-backed scheme. According to Old Mutual’s Transfer Value Analysis Service the updated CETVs are typically between 10% and 20% higher.


This increased interest has been attributed to the pension freedoms, low gilt yields, and ongoing uncertainty over the future of some final salary pensions.

Jon Greer, pension expert at Old Mutual Wealth says: “Pension reforms introduced last year mean individuals can now take pension income from a defined contribution (DC) scheme as they wish, and the money can be passed on to their family in a tax-efficient manner when they die. It means that many people with a DB pension are considering whether DC gives them more flexibility. Equally, low gilt yields have contributed to a general increase in the transfer values available. With rates at record lows, many people view this as the optimal time to cash-out of their DB scheme.”

He adds: “Uncertainty is also contributing to the trend, with some people also questioning the security of their DB pension rights following some high profile cases that have come under the media spotlight.” 

Transferring ‘isn’t a decision to take lightly’

But while transferring out of a final salary or other DB plan might look appealing at the current time, Old Mutual warns that is not a decision to take lightly because it involves giving up a guaranteed and inflation-linked income.

Plus, under current rules, anyone with a pension transfer value worth more than £30,000 must seek professional advice before any transfer can be approved.

Mr Greer says: “Nobody should enter into a DB transfer without being fully aware of the risks. It is vital to make a rounded assessment of the pros and cons in the context of your overall financial circumstances. A DB transfer can be the right thing for some, but it can be a disastrous choice if you sacrifice secure-income and leave yourself at risk in later-life. Get proper financial advice from a qualified professional and take your time to make an informed decision.”