Top 5 Reasons Not To Transfer Your UK DB Pension
As a company that offers financial services, one of Cameron James' jobs is to provide clients with financial advice regarding their DB Pension transfer. It can be said that this is one of the most important services offered by our company. So, reading the title above, you might think that we are providing information that contradicts our work to help clients with their DB pension transfers.
However, during the several years of providing DB pension transfer services, we have found many clients who may not be suitable for DB pension transfers. As a trusted financial service, we try to educate our clients as much as possible and provide other perspectives to understand so that they do not experience losses or difficulties due to this DB pension transfer.
Transfer decisions cannot be reversed. Thus, it is important for you to make sure that you make the right choice. Giving up the guarantee of an income for life is not a decision to be taken lightly. Before come to the top 5 reasons not to transfer your UK defined benefit pension, you can watch a thorough video explanation by our CEO and Senior Independent Financial Advisor, Dominic James Murray.
//www.youtube.com/watch?v=Zy7wTc3IFxA
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Don’t Transfer if It Is a Significant Asset for You
You should not transfer your defined benefit pension if it is makes up a large percentage of your net worth. It is a risky choice to move from a defined benefit guaranteed income index linking pension to a self pension, such as a SIPP or even a QROPS if you are still living in Europe and when the DB pot makes up most of your wealth. You’ve given up guaranteed income, when you have no other significant assets to fall back on, if the transferred assets do not perform as you would like.
If you are a member of a defined benefit pension scheme, the ups and downs of the stock market have no impact on the amount of pension you get – the scheme must still pay your pension and the employer must take the investment risk. When you transfer your pension, you are shifting investing risk onto your own shoulders, and the amount of money you have to live on will be determined by the investments you make.
Don’t Transfer if You Need Guaranteed Annuity for Life
Defined benefit pensions are required by law to provide its members with a fixed income until they die. If you switch to a defined contribution pension, you lose this guarantee.
So, if you have done any research so far on your UK pension scheme, you will understand that from your normal retirement age of 60 or 65 (sometimes 67), you will get that guaranteed annuity from your UK pension scheme until the end of your life.
A lot of clients of Cameron James think this is extremely valuable for them. They don't want to take any risks. They want to have that guaranteed annuity , and they understand exactly how much money they are going to have during their retirement.
So, if you need that annuity , and you would not like the idea of it going up or down over the course of the years, then it is a red flag for a defined benefit pension transfer.
Don’t Transfer if You Have a Very Cautious Risk Profile
If you have an extremely cautious risk profile and want to transfer your pension, the returns on that portfolio will be pretty low, maybe 1-3% per annum.
When you look at the costs of financial advice, for example, as you can see from our cost section on our website, our ongoing annual management charge is 1%. Most financial advisors in the US come around another 0.5-1% higher than we charge.
It means that if you have a between 1-3% return, minus off our charges, there will not really be a huge amount of growth inside your pot. You may have well just kept your pension with your UK scheme in the UK, which will be index-linked. It means that it will keep up with inflation in the UK which is typically running around 2%.
So, if you have a cautious risk profile and you want to transfer your pension, the benefit of transferring away is not that great because you are not going to be able to achieve much growth, as such it may be more suitable just to keep your pension pot where it is in the UK.
Don’t Transfer if You Feel Uncertain
Final salary pension transfers are not a case of just doing it overnight. It is a process where you are going to have to invest your time and energy in research. You have to make sure the company you are working with is regulated.
If you are living in the US, you need to work with an FEC-regulated company. You need to read through their google reviews and testimonials or possibly reach out to some of their existing clients to really check if your financial advisor is genuine. This takes time and energy.
Some people are very busy; maybe you are too. So, if you feel uncertain about doing this research or you don't trust yourself to do this research, it is a good idea for you to stick with your pension where it is.
Don’t Transfer if You Have a Poor CETV
The final point, even if you did not cover off any of the above points, but you still want to transfer your defined benefit pension, you have to make sure that you don’t have a poor CETV.
Your UK pension scheme may offer you a very bad deal. For example, they are offering you 10,000 pounds an annuity for your retirement from the age of 65. If you were to live until 83, you would have around just under 20 years of income.
If they are offering you, for example, 100,000 or 150,000 as a CETV lump sum, this is also clearly a bad deal. You may as well continue to keep your annual pension because you're likely to get more money over the course of your lifetime.
So, if you have a poor CETV or if your UK scheme is offering you a very bad deal, it is recommended for you not to transfer away your UK defined benefit pension.
Still Uncertain? Give Us a Call!
Those are the top 5 reasons not to transfer your UK defined benefit pension. If you are ticking 2 or 3 of those 5 reasons, continue to do your research, to ensure that a DB transfer is in your best interest. One of the IFAs of Cameron James will be more than happy to have a call with you to look further at your situation and give you the best advice, to give you a thorough understanding and more detail.
You can arrange a free initial direct one-on-one session by clicking the brown button below.
