It is just over five years since Pensions Freedoms were announced in the 2014 budget. This new freedom allowed the public to re-evaluate how they could access their pensions and, as a consequence, interest in DB transfers grew. So, now is a good time to reflect on those five years, assess how clients who transferred have fared and review the outlook for transfers today.
It’s common knowledge that annuity rates are presently low, making annuities an expensive way to convert your pensions savings into lifetime income at retirement. But just how low are they?
A key attraction of taking a DB transfer for some members is getting access to a tax-free cash sum, often significantly bigger than available from the scheme and several years early; then having the option not to take a pension but to carry on working. Nigel (not his real name) did exactly that with advice and help from Tideway in 2017. Our case study looks at why he took the transfer offer, what he did with the funds and how his and his family’s position are panning out.
Most of us are entitled to a state pension and as a couple who have both worked and paid national insurance contributions you could anticipate as much as £17,600 p.a., although for those still in the 50’s these won’t be paid until age 67. For some who take defined benefit transfers in their mid 50’s the transfer can provide both a bigger tax-free cash sum and higher income (than the scheme pension) in the early years, with flexibility to reduce it later in life. This allows them to smooth out their income to include the state pensions, sometimes called ‘bridging’ to the state pension age.
Mark (not his real name), a Tideway client who transferred with us in 2016, is doing just that.