Personal Finance

by Keith Brooks

As we enter a new year and indeed in this case a new decade, there is, for a lot of people a sense of regeneration and renewal, of new plans

and ambitions.

Whether it’s a new fitness regime, a new career or simply a determination be happier, our New Year resolutions are filled with hope and positivity.

One of the biggest resolutions for many is financial, and you will not be short of experts extolling the virtues of saving more, borrowing less, checking interest rates, and getting on the housing ladder to name but a few – all perfectly reasonable and sensible pieces of guidance

and advice.

It can of course be extremely difficult to try and accomplish all of these things in a short space of time, especially if it’s not something you’ve been doing previously. Sometimes it’s easier to break it into smaller chunks and set some priorities, depending on what stage of life you find yourself.

For those around the 50 years of age mark, among the top priorities, if not the top priority, might well be the thought of retirement, and more specifically making

appropriate arrangements.

We know that thousands of workers across Scotland who are breaking into their 50s will likely be members of a Defined Benefit pension scheme and some might not appreciate their good fortune when they signed up in the 1980s or 1990s.

By today’s standards, some of these schemes are astonishing in their generosity – they carry the label of “gold plated” for a reason.

The guarantee of a certain level of income for life once you retire, and knowing in advance what that will be, is something many individuals starting work today can only

dream of.

There are certainly far fewer of these schemes available, the reason for which is straightforward – they are extremely expensive for the organisations that offer them.

It is precisely for this reason that an increasing number of companies have been offering scheme members a premium on the value of their fund, to encourage them to transfer the pension to another provider.

The very clear benefit for the company is that they can then discharge any future

financial liability.

For members, there are of

course pros and cons.

As a member, the benefit of staying within the scheme is that you will receive the guaranteed amount until you die.

Furthermore, you can take a tax free lump on retirement and in some schemes, once you die, your spouse or partner will receive a partial payment for life.

By transferring out of the scheme, by far the most significant benefits are the premium you might receive, and the flexibility of no longer being in the scheme. In addition, should you and your partner both die prior to exhausting the fund, whatever is left can pass to a nominated beneficiary potentially tax free depending on the size of the fund and what age you are when you die.

The biggest downside of transferring is that you no longer benefit from the security of guaranteed monthly income, and in many cases will be investing in assets which carry risk.

No one should be in any doubt that transferring out is a substantial and serious decision, and it is for good reason that the government stipulates that professional advice must be taken if the fund is above £30,000. No ifs or buts. A scheme member must also be able to provide substantive reasons why they feel they would be better off out of

the scheme.

One big challenge for scheme members is that the number of appropriately qualified independent financial advisers has fallen, and continues to fall. Much of this is due to increasing regulatory scrutiny, which arguably is a good thing, as well as rising insurance costs for advisers. Helpfully, the FCA provides a list of qualified advisers on

its website.

The current legislation around pension transfers does provide individuals with choice, and it could be worthwhile to simply establish exactly what you might be entitled to, and what your options are.

Even in your 40s or early 50s, retirement may seem like a distant prospect, but in financial terms it’s not that far away. Taking some advice now might well be the best resolution you ever keep.

Keith Brooks, is a pensions adviser and chartered financial planner at Aberdein Considine