Transfers of old final salary pensions could be worth ‘a fortune’

There are five million people in the UK who have ‘deferred’ pensions – pensions from a previous job – that may be worth as much as 30 times the annual pension foregone. But pension schemes often neglect to tell pension savers about their options, according to a new report.

Commissioned jointly by Royal London and Lane, Clark & Peacock (LCP), the report found that advisers are seeing a large increase in the numbers of people who want to transfer their final salary rights into a defined contribution (DC) arrangement.

-How to transfer out of a final salary pension

But according to the report many trustees do not routinely provide transfer values to deferred members, so that people may have no idea about their options.

There are various options for deferred pensions after the age of 55: people could take a lower pension earlier, a higher pension later, or a higher starting pension if they are willing to sacrifice some of their inflation increases.

The report found that amongst those who spoke to an adviser and were advised to transfer, the three biggest attractions were: the greater flexibility available in a DC arrangement; the historically large transfer values currently on offer; and the potential to pass on a lump sum balance on death to their heirs.

The main reasons for those advised not to transfer were: the loss of a guaranteed income; the ability of the client to handle risk; situations where the final salary pension was the only or main income available.

-Pension dilemma: £659,000 today, or £22,000 a year for life

‘A deferred pension last valued at £5,000 per year a decade ago, could now be worth a lump sum of well over £150,000. People may be sitting on a fortune and have no idea,’ says Steve Webb, Royal London director of policy.

He adds: ‘The introduction of pension freedoms has given people with pension investments a wide range of new choices about how they shape their income in retirement.

‘But millions of workers who have rights in salary-related schemes with their previous employers may not be aware that they also have rights which could also be moulded to better fit their individual needs.’

Jonathan Camfield, partner at LCP, says: ‘Members of occupational pension schemes do not need to have a one-size-fits-all experience with their pension. Most schemes already offer valuable flexibilities to re-shape their pension benefits within the scheme, as well as options to transfer rights out into a different arrangement.’

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