Is my final salary pension safe?

When you hear about employers and companies failing, you could be left feeling unsure about where you stand with your pension and asking the question, is my Final Salary Pension safe? Will the promise to provide guaranteed income for life be kept?

People with Final Salary Pensions are likely be wondering whether their schemes will be able to keep paying them for the next 30 to 40 years. Will their old employers remain able to afford to keep the pension fund solvent?

The Pension Protection Fund (PPF) might need to step in and pay Final Salary Pension Scheme members retirement income as compensation if employers become insolvent and the scheme doesn’t have enough funds to pay their benefits.

The compensation might not be the same as if the employer hadn’t gone bust. The level of protection depends on whether you had passed your normal pension age when your employer became insolvent.

High-profile stories of company collapse and pension scheme deficits from the likes of Tata British Steel, Toys’R’Us and Carillion, many members of Final Salary Pension Schemes are justifiably feeling anxious about the security of their long-term pension income.

You work hard to build up your pension during your working life, so it’s important to make sure your retirement savings are safe. Defined benefit pensions include Final Salary Pension and ‘career average’ pension schemes. These are generally now only available from the public sector or older workplace pension schemes. These types of schemes pay an insurance premium to be protected by the Pension Protection Fund (PPF).

If the scheme needs rescuing and you were over the Normal Retirement Age (NRA) of your scheme or started receiving your pension early due to ill-health, you’re entitled to receive a full pension from the PPF. Anyone receiving a survivor’s pension, such as a widows/widower’s pension, is also fully protected.

However, if you were under the NRA, you’re entitled to receive a pension of 90% of the amount you’ve built up when your employer became insolvent. This is also subject to an upper cap set by the government.

Whilst many schemes have been in a deficit for many years, generally, the funding position has improved in recent years. Even where a scheme does go bust, there is a well-managed insurance scheme in the form of the Pension Protection Fund (PPF) to make sure members still get most of what they were promised.

There are currently around 5,000 schemes and over 10 million members, the vast majority of members are concentrated in a relatively small number of very large schemes. There are a number of small schemes with nearly 2,000 schemes having fewer than 100 members.

Many pension members have transferred out of these traditionally safe and generous pensions in recent years, tempted by high Cash Equivalent Transfer Value (CETV) offers, flexible access with lower income taxes, higher tax-free cash and being able to pass on their pension pot to loved ones or indeed any beneficiary they choose.

But those considering transferring out should seriously consider whether they have sufficient capacity for loss if exposed to a significant financial drawdown as they will be without the protection of an employer or the PPF.

The Financial Conduct Authority (FCA) view is that advisers should start from the assumption that a transfer will be unsuitable for most people. Under rules introduced a few years ago, all pension transfer specialists are required to hold a specific qualification for providing advice on transferring safeguarded benefits. 

There are certain circumstances in which transferring out from age 55 can make sense but getting professional pension advice is essential. You need to have a clear understanding of the risks of swapping safeguarded benefits inherent in defined benefit schemes for flexible ones i.e., defined contribution schemes and personal pensions.

This article looked at is my Final Salary Pension safe but there is a great deal more to consider than is covered in this article. Individual Financial advice should only be given to a person after a thorough assessment of all personal (and their partner’s) financial circumstances so that suitable and appropriate advice can be given.

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 financial adviser to see if it is worthwhile proceeding to the formal process known as regulated financial advice.

Regulated advice can only be given by an appropriately qualified person who is regulated by the Financial Conduct Authority (FCA). Pension advice should only be given by pension specialists working with financial advice firms holding the relevant pension advice permissions.

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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