Can you sell a final salary pension?

A Final Salary Pension is not a sellable commodity so to try to answer the question can you sell a Final Salary Pension in an indirect way; it is necessary to step back and think about its purpose and value first. Its purpose is to provide the Final Salary Pension Scheme member with a secure, index-linked retirement income for life.

Therefore, the value of the Final Salary Pension is what this fixed income for life means to the individual member. The monetary value can be determined by the scheme before the pension is drawn by way of a Cash Equivalent Transfer Value (CETV). A simplistic view of the CETV is to say it represents a number of years’ worth of retirement income over x number of years.

What is the x-factor? Crudely put, it is the number of years you expect to live in retirement.

For example, a life expectancy of 30 years in retirement at £20,000 per year is £600,000. In the case of a transfer, the £600,00 would sit in a personal pension pot which is in a defined contribution arrangement.

At age 55, 25% would be available as tax-free cash up to the Lifetime Allowance (LTA) which currently stands at £1,073,100 in the 2021/22 tax-year. However, unlike defined benefit Final Salary or Career average pension schemes, defined contribution schemes allow you to take the tax-free sum flexibly and not as a commuted part of the annual benefits you forgo to receive a one-time lump sum.

As part of the transfer analysis process, we commonly lookout to 90 plus years of age to properly assess the risk of ruin. AKA running out of money before you die. How much someone needs for the rest of their lives naturally depends on the lifestyle they aspire to at their chosen retirement age and beyond.

Typically, we spend more money in the early years of retirement going on holidays and such like and then we spend less when we are less mobile.

We could argue that this common spending pattern is better met by having flexible access to your retirement funds however, the counterargument says you can always save up for times of higher expenditure. Which approach would suit you best?

With a Final Salary Pension as fixed income every month you can only spend what you receive as you get it but, if you transfer out into a flexible arrangement you can spend the whole lot in one go! This is one reason why the Financial Conduct Authority (FCA) says that a transfer is unlikely to be in the best interests of most people.

Reading between the lines and paraphrasing, they (the FCA) don’t trust most people to manage their financial affairs well enough to not run out of money and then become a burden on the state. Are they right and who is ‘most people’ anyway?

Retiring on a Final Salary Pension means you should never run out of money. It may not be enough to meet all your goals and aspirations, but it is secure regular annual income paid monthly.

Obviously, running out of money would not be a good outcome for anyone, so we look to avoid the possibility of this happening by checking there is enough secure income to at least cover essential household expenses.

This applies to individuals as well as couples so if one person in a couple is a financial dependent of the other, secure income must cover them both.

If there is not enough secure income, it is unlikely that any firm would recommend a transfer unless there is a substantial amount of highly liquid capital available. Rental income from a property portfolio would count as secure income if the intention were to keep it as retirement income for the foreseeable future.

Some people may also consider buying an annuity with part of their capital to receive some guaranteed income for a fixed period. This may seem at odds with transferring out of a defined benefits arrangement that offers a regular secure income for life.

However, if the goal is to achieve a combination of guaranteed income plus flexibility this could be suitable in some situations but always seek professional advice first.

This article looked at an introduction to can you sell a Final Salary Pension but there is a great deal more to consider than is covered here. The advice can only be given to an individual after a thorough assessment of all personal (and their partner’s) financial circumstances.

Would you like to get some professional advice to gain increased financial peace of mind and family security? If the answer is yes, the next step is to have an informal exploratory chat with a qualified adviser to see if it is worthwhile proceeding to the formal process known as regulated financial advice.

To help you make the right decision for your final salary pension, we will take you through a clear, simple, transparent, and regulated four step process. 
If you would like to explore and discuss the options for your final salary pension transfer, - helping you make the right decision on your pension 
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