If you live or plan to live outside the UK, recent changes in pension legislation and the UK economy mean that a pension review is essential.
Until now, Final Salary pension schemes (or Defined Benefit schemes) have been seen as a gold plated route to a comfortable retirement. Sadly, there are likely to be changes on the horizon and as a result, the key question to ask yourself is, will these schemes really be able to provide the benefits they promised over the next 20 plus years?
So why review now? Firstly, transfer values are at a record high due to gilt rates being at an all time low - some transfer values have increased by over 30% in the last 12 months. Secondly, many final salary schemes are in deficit with some calculations stating that this figure is £1 trillion. Yikes! We’ve seen the problems that this causes in companies like Tata steel and BHS. It is entirely possible that the laws could be changed to allow the schemes to reduce benefits.
Some changes have already taken place. Inflationary increases have already been allowed to change from using the Retail Prices Index (RPI) to the Consumer Prices Index (CPI); this change looks small, but over a lifetime could reduce the benefits by between 25% and 30%. In April 2015 the underfunded Public Sector pension schemes removed the option to transfer so nurses, firemen, army personnel, civil service workers etc. can no longer transfer their pensions. This makes it easier to reduce the benefits and no one is able to respond by transferring out of the scheme. When this rule was being considered, blocking the transfer of funded schemes (i.e. most final salary schemes) was also discussed and this is something that may well happen in the future.
Thirdly, reviewing your pension now means you will have the time to consider the options before any further changes (especially post Brexit) take place.
Pension funds are in trouble and changes will almost certainly be made. This could be in the form of increased contributions, reductions in benefits or increasing pension age. Forewarned is forearmed and whilst Brian doesn’t have a crystal ball, he’s been in the pensions game for long enough to be able to provide you with the correct advice for your particular circumstances. We’ve used Brian to review our pension arrangements and I strongly recommend you do the same!
For a full and free consultation on your pension provision contact Brian Furzer of The Spectrum IFA Group. Regulated by ORIAS under number 07 025 332 – www.orias.fr Conseiller en investissements financiers Reference sous le numero E002440 par ANACOFI – CIF Aassociation agree par l’Autorite des Marches Financiers