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Should You Transfer Your Final Salary Pension? - YouTube
Channel: Morningstar Europe
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[Music]
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welcome to the Morningstar series ask
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the expert I'm Holly black with me in
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the studio is Steve Webb he's director
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of policy at Royal London hello Mohammad
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so we're talking pensions today and
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you're telling us about the difference
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between a defined benefit and a defined
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contribution pension scheme so defined
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benefits sometimes called final salaries
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often you hear it called is the older
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style of pensions so you used to work
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for a big company and they'd pay your
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pension that was like a hard promise
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you've earned this amount of money
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you've served this number of years
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you'll get this percentage of your final
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salary when you retire fantastic great
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that's right so there's the kind of
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thing that you want that's tended to go
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these days companies have shut them
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because they've become a lot more
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expensive than they expected and these
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days you're more likely to have a pot of
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money pension called a defined
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contribution because the only thing
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that's defined is what's going in that's
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what we know what we don't know is how
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well it will do and it's invested we
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don't know what sort of pension it will
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buy you when you retire it's flexible it
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has its advantages but it's not the same
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as the old-style and some new rules that
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came in a few years ago mean that if you
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do have one of those older style
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pensioners you don't have to stick with
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it you can move it into sort of a sip or
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a net choose how you invest it yourself
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why might someone do that what can
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happen is if you've got an old-style
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final salary pension of let's say ten
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thousand pounds a year instead of taking
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that ten thousand a year when you retire
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until you die the pension scheme might
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say we will give you instead three
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hundred thousand pounds that might be an
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example and you can take that money and
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put it into a pot of money pension a
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different sort of arrangement and the
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big plus of that at ease flexibility so
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for example from the age of 55 you can
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start drawing on that now there's tax to
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be paid and of course it might not last
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you to the or 85 or 90 so you know but
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it is much more flexible people like
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that because if they were to die perhaps
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if they don't have a spouse but maybe
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they have children or something like
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that then the pot is left for the
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children whereas a company pension not
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much might go to the children so it
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generally allows people more choice more
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flexibility maybe retire a bit earlier
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and spend some of the pot to keep them
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going till their state pension starts
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that's why a lot of people see this
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large amount of money see the
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flexibility and find it quite attractive
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but the regulator has said they're
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actually concerned that too many people
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are doing that and it might not be the
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right decision because there are a lot
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of reasons to stick with that older
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style pension scheme out there there are
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and the regulator's say that the when
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you take financial advice the advisor
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has to start from the assumption you
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should stay put from the assumption that
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you shouldn't move unless there's a good
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reason to move and some of the
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attractions of staying put or first of
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all this income is pretty much
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guaranteed it lasts as long as you do it
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goes up in line with inflation in most
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cases and if you're retired for 20 or 30
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years that really matters and you don't
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have to worry about the stock market
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going up or down that's the pension
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schemes problem not yours so that
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element of certainty predictability
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guaranteed income because you don't know
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how long you're going to live you don't
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know how the markets are going to do all
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that risk is taken care of for you and
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that's a very attractive and valuable
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thing this is probably one of the most
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important decisions people will make in
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their life if they do have this choice
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so what is the right thing to do well
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even if your pension is worth only as
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they only but thirty thousand pounds and
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that's a pot of thirty thousand pounds
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not an annual pension so most of these
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old final salary schemes will be above
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that level by law you have to take
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financial advice but a couple of things
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first of all listen to it because it's
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tempting to think I see this amount of
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money might be bigger than value of my
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house
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I want my hands on it I don't care what
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you the advisors are say I just want my
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cash that's you know if you're in a
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hurry take a big deep breath and the
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other thing also is to ask some pretty
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searching questions about where the
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money's going to go to because many
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advisors are impartial they've got your
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best interests at heart but some of them
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have got incentives that actually they
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want to manage your money they want
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another slice every year you know and
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you just need to ask a lot of questions
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about the charges your face if you do a
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transfer so be sure there's a good
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reason to transfer and start from the
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assumption that you don't and then
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listen carefully if the advice and be
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quite you know ask some tricky questions
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thank you so much for your time and
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thanks for joining us
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