Savers in the UK with final salary pensions – where employers guarantee a retirement income – are widely envied by people with less generous arrangements.
A number of these savers could be about to become the source of new – found jealousy among the “gold plated” pension community.
This is because when it comes to asking their scheme if they can take a “transfer value” for their pension – instead of waiting and taking the money itself – some people are being offered far more money than others. And this is the case even where similar levels of pension income have been promised.
This issue is hugely important right now, as pension savers prepare for the reforms coming into effect from April. These will allow “money purchase” also known as “defined contribution”, pension savers to access their cash from age 55. Savers with final salary schemes could access their benefits in cash form only if they requested a transfer.
UK Pensions Melbourne, based on real transfer values requested by employees have revealed that the best offers would swap annual income of £30,000 for £900,000 in cash, while other firms are trading in the same guaranteed income for £450,000. These figures are for a 55 year old who plans to retire at 60.
Generally speaking, the bigger your employer, the more generous your transfer value is likely to be. Large financial companies, banks and insurance companies tend to offer the best transfer values. Big airlines and telecoms businesses are also offering generous- looking transfer’s, as well as oil companies and other non-financial FTSE 100 companies.
Data shows that some firms are prepared to offer such generous transfer values, that if savers took the cash and invested it they would not need to achieve a high investment return in order to obtain the same benefits offered by the pension scheme.
The average transfer offered by UK firms, when invested in an Australian Superannuation Fund would only need to beat inflation by between 1% and 2% per annum in order to take a similar income and protect the capital.
We believe that these offers illustrate why we could see many final salary members looking to transfer out in the near future. The cash sum upfront, accessible in full, tax free in Australia from age 60, could appear very enticing. Low interest rates in the UK have also driven up some transfer values.
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