The reason for many employers wanting to shift employees away from final salary schemes is that such schemes tend to be relatively expensive. For the employee, however, the attraction may well be the certainty offered by a final salary scheme, since it will be known all along just how the pension is calculated and what it is likely to amount to. A personal pension plan, however, will depend on the performance of the pension fundís investments and the equally unknown variations in annuity rates. So, the personal pension plan could do better, or it could do worse than, the occupational final salary scheme. How can the employee begin to compare the two, therefore, to know whether to accept the employerís incentive to quit the safety and certainty of a final salary scheme?
The answer is that it is an extremely difficult decision to make and not one which should be made without dependable pension transfer advice. The complicated nature of pension transfers is no idle judgment, but one that comes from the financial services industry regulator, the Financial Services Authority (FSA). Speaking about the responsibility of pension fund trustees towards any of its members who are thinking about a pension transfer, the Authority states: "Although it is not compulsory, the trustees should encourage members to take advice as pension transfers are complicated and it is difficult to make suitable decisions without advice, even when all the relevant information is provided".
So, the FSA itself would encourage anyone thinking of transferring from one pension scheme to another Ė and that includes a transfer out of a final salary scheme Ė should first consult an independent financial adviser. It is the independent financial adviser, for example, who can begin to make sense of the next most important piece of information you will need in order to weigh up the pros and cons of any transfer. That is a transfer value analysis and an estimate of the benefits that your present scheme would pay. Fairly obviously, this is something that would be needed before any comparison between the existing and new scheme could be attempted. Furthermore, the transfer value analysis is something that only the trustees of your present scheme could provide.
For whatever reason you are considering taking pension transfer advice, the best-placed source is an independent financial adviser because:
ē Independent financial advice is recommended by the Financial Services Authority;
ē You will need someone who can help you understand and interpret the transfer value analysis provided by the trustees of your current pension scheme;
ē You will benefit from professional advice in weighing up the benefits and drawbacks of your present scheme compared to any alternative.
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Article Added on Saturday, June 14, 2008
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