Can I obtain a lump amount from a final salary pension?
When you retire, the government compensates you for saving into a pension by enabling you to access 25 percent of your funds fully tax-free.
This is generally called a lump payment, and taking it will limit the amount of income you receive from your pension.
With final salary pensions, the method this is calculated is difficult. It’s based on the scheme’s ‘commutation factor’, which measures how much of a lump payment you get for every £1 you give up in income.
So if you have a commutation factor of 12, you earn £12 of lump payment for every £1 you give up.
You will need to contact your pension scheme to find out how much lump payment you will get from your final salary pension.
Can I cash in or transfer my final salary pension?
As part of the April 2015 pension freedoms, you may be eligible to transfer from a private defined benefit scheme to a defined contribution plan (after seeking regulated financial advice) (after taking regulated financial advice).
This has changed the retirement plans of thousands of people and created a substantial spike in savings changing their defined benefit pensions to defined contribution programs.
However, electing to cash in a DB scheme is not a decision to be done lightly. It is for good reason that the FCA has taken a keen interest and cautioned advisers to adopt a very careful approach when talking to possible transferees.
A guaranteed income for life via a DB scheme remains the gold standard for pensions. Forgoing this puts up the risk that you’ll have less to live on than intended — and you could even run out of money entirely.
What happens to my pension if my company goes bust?
Some people have cited fears about their scheme going bust as a cause to contemplate shifting away from their final salary pensions and all the benefits that it can provide.
However, to safeguard members of insolvent businesses when there is a shortfall in the pension scheme, the Pension Protection Fund (PPF) was formed by the government to cover schemes that collapse from April 2005 forward.
The PPF ensures that:
pensioners continue to get the entire amount owed up to a cap of £41,461.07 at age 65 from 1 April 2021\sothers receive 90 percent of their expected pension – to a current maximum of £37,315 a year at age 65\sit is supported by a general tax on occupational salary-related schemes.