Pension advice is crucial for investors considering the complex business of transferring a pension - but variations in the standard of pension advice are still a cause for concern, according to the Office of Fair Trading (OFT).
With many private sector companies now actively encouraging employees to move their pensions, as they attempt to reduce their commitments to their pension scheme, independent pension advice is more necessary than ever to ensure that a pensions transfer is in the best interests of the investor, and not simply a personal response to the advice of an employer. Up to a third of employers with final salary pension schemes may offer cash lump sums to employees to transfer their pensions over the next two years, the National Association of Pension Funds (NAPF) said recently. However, these offers may not be in the employee’s best interests and, in such situations, good pension advice is essential.
Those who depend only on the pension investment advice of their employer, and who fail to take pension advice from an independent source, may lose vital benefits by opting to move their pension assets, according to the Office of Fair Trading (OFT). Some pension schemes, for example, charge high exit penalties, while on the positive side some pension providers offer a guaranteed annuity rate that could be lost by making a transfer.
Pensions transfers are often considered in situations when an employee is changing job and moving company. However, it is essential not only to take pension advice to assess the benefits of your current scheme, but also to seek advice on pensions you may switch to when you move. Switching from an occupational pension scheme to a money purchase scheme, for example, could involve forfeiting important hidden benefits in your current scheme, benefits that would be revealed by taking private pension advice.
Good quality pension investment advice, which assesses the restrictions and benefits of both pension schemes being considered, could reveal that leaving existing pension savings in your current scheme may, in fact, be the best option for you.
If your current pension is a final salary scheme, for example, your pension income would be related to your salary and as such would be fixed at a relatively generous level, compared with other options such as defined contribution pensions based on stock market funds, which carry a higher risk.
The various considerations to be taken into account when considering switching a pension will, therefore, become fully apparent only by seeking quality pension advice.
