Pensions are a difficult subject. When we are young, we tend to ignore the idea of putting money away for our retirement and concentrate on enjoying ourselves. We then settle down, rent or buy a house, and our children drain our cash left, right and centre.
A significant number of people are retiring with no pension or other savings, as reported in the Express; therefore, it is important that the message gets out to everyone that pensions are important and you need to start thinking about your later years as early as possible. For those who have already made provision, what happens next?
A recent survey shows an increase of more than 50 per cent in transfers out of final salary scheme pensions, often of amounts in the region of several hundred thousand pounds.
These final salary pension schemes are usually seen as the best type of pensions you can get. This is mostly because of the guarantees you get regarding the end levels of pension income you will receive in retirement.
On the other hand, defined contribution schemes offer less guarantees and are not as generous; however, they are a lot more flexible regarding how and when you can draw down your pension pot. Such plans significantly contribute to the increasing levels of transfers, enabling savers to draw down large lump sums albeit at the expense of a higher pension at retirement age.
Pension advisors often discourage the transfers
Despite the growth in transfers, this action is something most advisors would not recommend. To sacrifice the security of the higher, guaranteed pension income later for the sake of a big lump sum now may not be worth the risk for many clients; therefore, it is important to get advice before making such decisions.
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Good quality financial advice essential
With such large monetary figures involved, and given that most of us will be living with the consequences of these decisions for decades to come, it is essential to get advice from a good financial advisor before taking the plunge.
It is vital that savers are shown exactly what they are giving up and are helped to find the best transfer deal for them.