I am 57 and my company is taking out its final salary retirement: should I withdraw, transfer or wait? Steve Webb answers
At the end of this year my final salary with fixed commitments will be stopped, when I will be 58 years old.
I’ve been in it for 32 years. I am a little confused whether to take it, transfer it or delay it.
Since my company is discontinuing the defined benefit plan, they have a defined contribution plan instead. I would be grateful for your opinion on this.
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Savings Dilemma: My company is closing its final salary pension, so what should I do? (Stock image)
Steve Webb replies: More than four million people under retirement age have past service rights in a salary-related pension plan.
If they no longer actively build up new entitlements in the scheme, they are known as ‘deferred’ members and you will join their ranks from 1 January 2022.
But just because your retirement plan is closing, in the sense that you can’t add to the entitlements you already have in the plan, doesn’t mean you need to act quickly.
Even in a scheme where you cannot accrue new entitlements – ‘closed to new accrual’ in the jargon – there is still a series of trustees overseeing the fund, a segregated pool of assets set aside for all of the past retirement promises. and an ongoing obligation on the part of the employer to keep the fund supplemented in the event of a deficit.
Steve Webb: The box below explains how to ask the former Secretary of Pensions a question about your retirement savings
An important reason why you don’t have to rush is that although you cannot top up this company pension, it is not ‘frozen’.
The law requires the plan to increase the value of your pension each year to keep pace with inflation through a process known as ‘revaluation’ (albeit with some limits).
I often hear people talk about having their old pension ‘frozen’, but with a salary-related pension like yours, the cash value will keep increasing every year.
One option is therefore to do nothing.
It sounds like this retirement will become your main source of income when you retire.
Today, very few people in the private sector have jobs where they can accrue a salary-related pension, so in a way, you are one of the lucky ones.
Your lump sum benefit is paid from retirement age for as long as you live, and is increased each year to account for inflation, provided your employer continues to operate.
You usually have some flexibility * within * a defined benefit plan. You can often take your pension early (albeit at a reduced rate) and you may be able to extend the part of your total pension that you take as a tax-free amount all at once.
STEVE WEBB ANSWERS YOUR PENSION QUESTIONS
But given your age, you should be wary of not taking the pension earlier if you don’t have to. According to official figures, a 58-year-old man can expect to live on average to 84, but has a one in four chance of turning 92.
If you find yourself in long-term retirement, you may be glad that you waited for your retirement to expire and that you can take it at the full rate instead of taking early retirement.
As you say, another option would be to transfer the value of your salary-related plan to a Defined Contribution or ‘pot of money’ plan.
But you should be aware that regulators expect financial advisers to assume that this would be a bad idea.
Although I cannot of course give you individual advice, I do note that all (or almost all) your pension income comes from this one pension.
If you were to transfer everything (and many DB plans do not offer the option of a ‘partial’ transfer), you would expose all of your pension assets to investment risk.
While investments can of course do very well, there is always the risk that they will do badly.
Since, in addition to this pension, you probably only have the AOW to rely on, chances are that an adviser would advise against a transfer.
Although a pension transfer makes sense in some situations, you need a specific reason for this. The fact that the scheme is no longer open is not in itself a good reason to switch.
Ask Steve Webb a retirement question
Former Pensions Secretary Steve Webb is the uncle of This Is Money.
He’s on hand to answer your questions, whether you’re still saving, quitting work, or juggling your finances when you’re retired.
Steve left the Department of Work and Pensions after the May 2015 elections. He is now a partner at actuary and consulting firm Lane Clark & Peacock.
If you would like to ask Steve a question about pensions, please email email@example.com.
Steve will do his best to respond to your post in a subsequent column, but he won’t be able to reply to everyone or correspond with readers privately. Nothing in his answers constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.
Please include a daytime telephone number with your message – this will be treated confidentially and not used for marketing purposes.
If Steve can’t answer your question, you can also contact The Pensions Advisory Service, a government-backed organization that provides free assistance to the public. TPAS can be found here and the number is 0800 011 3797.
StevE gets a lot of questions about AOW forecasts and COPE – the Contracted Out Pension Equivalent. When you write Steve on this topic, he responds to a typical reader question here. It contains links to Steve’s various previous columns on state retirement forecasting and outsourcing, which can be helpful.
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