Which would make you happier? A lump sum of £1.4 million to play with or a secure income of £50,000 a year?
New research from the USA suggests that people with a secure income stream are happy and those relying on investment returns are worried.
“No surprises there” you may say. But why then are so many people swapping secure pensions from final salary pension schemes for transfers into schemes which rely on investment performance to provide income?
One of my latest clients is in the process of swapping a secure pension of £50,000 per annum for a transfer value of £1.4 million.
“You must be out of your mind” was the first reaction of his friends and colleagues and that is probably a good starting point.
But £1.4 million is a lot of money and the pension flexibility introduced in 2015 has changed the ball park considerably. Prior to 2015 taking a transfer value was rarely, if ever, good practice but now for many people the opportunity to plan their own retirement lifestyle is more attractive than an inflation proofed income stream.
The big question is which will make you happier?
- A secure but totally inflexible income; or
- All the flexibility and control which will come with accepting the transfer value alternative
I have many clients who, as a result of taking a transfer value, have more current income and are enjoying a lifestyle in the early years of retirement which will not be sustainable for ever – a situation they understand and are happy with.
Other clients have a less than average life expectancy and taking the transfer values enables them to provide more for their dependents.
Having the transferred fund provide an inheritance rather than dying with them is of great importance to some, while the flexibility to plan a phased/partial retirement in a tax efficient manner is interesting for others.
The availability of higher tax free cash sums from the transfer to help with things such as university fees or house deposits for children always seems to be important.
The fact that transfer values are considerably higher than a couple of years ago, and likely to decline as interest rates go up, is the deciding factor in many cases.
So let’s go back to where we started. A secure income = happiness. Not a bad starting point but there’s so much more to be taken into account.
I am not a regulated financial adviser so I cannot carry out the pension transfer report required by law but I can source that report for you and help you think through all the advantages/disadvantages without the potential bias of needing to sell you a product.
If you have a deferred final salary pension from previous employment, or are currently in a final salary scheme and within a couple of years of retirement, you would be absolutely crackers not to find out what this means to you and why so many bright people are swapping secure pensions for large transfer values.
Just pop your details in the enquiry box or text me on 07770 575122 and let’s have a no-fee conversation to discover whether this is something you should explore in more detail.
IMPORTANT INFORMATION
This document and our on going services are not personal advice. We'll give you all the help and guidance you need to make your investment and retirement decisions, but we can't advise you. If you're not sure whether you need regulated financial advice we can put you in touch with a suitably qualified and experienced regulated adviser. Because we are not regulated by the Financial Conduct Authority you will not have access to the Financial Ombudsman Service in respect of any complaints. If you use one of the "no advice" on line services to handle investment transactions they will be Regulated and you will have access to the Ombudsman and The Financial Compensation Scheme in respect of their services. The value of investments/pension plans can fall or rise depending on market performance. The Retirement Team and The Investment and Retirement Coach are trading names of Capture Success Ltd Reg No 01825075 Tel 07770575122
