Firstly, not all advisers are alike and in order to advise on occupational schemes you need to hold specialist qualifications over and above those normally needed to practise. Here at Financial Fortress we are supervised by Wayne Musker DipCII who holds the AF3 (advanced pension planning) qualification awarded by the Chartered Insurance Institute.
Occupational pensions take many forms and the most popular is probably the “defined benefit” scheme or “final salary pension”. Simply put, these do not have a personalised pot of money behind them but are essentially a promise from an employer. Usually your retirement income is a specified % of your final salary multiplied by the number of years you worked there. Where you left employment before taking the benefits, it is usually re-valued annually until your scheme retirement age to take account of inflation. Occupational schemes also have a “normal retirement age” and if the employee wants flexibility to retire earlier, the expected income would be reduced accordingly. There is also a formula laid down for calculating the tax free cash lump sum which may also limit the amount available and not be the normal 25%.
What people do not usually understand is that many schemes in the UK are also underfunded so if your employer was to get into financial difficulty and go bust this could jeopardise your financial security. If this were to happen then the “Pension Protection Fund” may apply but prior to retirement age means your promised income will be reduced.
Most clients don’t realise that a “cash equivalent transfer value” may be available instead which, simply put, is a lump sum alternative where you give up rights to the final salary promised. This lump sum can then be transferred into a personal pension of your choice and drawn under the normal pension tax rules (25% tax free and 75% taxable). This is not a decision to take lightly however and this is why the government has insisted anyone contemplating this action must take suitable and qualified financial advice.
Here at Financial Fortress we have the skills and (additional required qualifications!) to help you navigate this extremely complicated area. Our advisers work under the strictest supervision to ensure you fully understand the nature of both the ceding scheme and any proposed recommendation pointing out all the pro’s and con’s. We will work with you to understand your requirements and provide the right shape of benefits based on your own circumstances.
Copyright 2016 Financial Fortress Ltd
Financial Fortress Ltd is authorised and regulated
by the Financial Conduct Authority. Reg no: 753489.
Registered office, 14 Horrocks Road, Chester, CH2 1HE. Company number: 9180267.