How Does Pension Cash Release for Final Salary Schemes Work?
You are probably aware of the new Pensions Freedom and Choice Rules. These rules do NOT apply to your ex employer’s or previous company final salary/defined benefit pension scheme. The only way to use these new rules is to transfer your final salary/defined benefit pension scheme into a personal Flexi Access Drawdown pension. This is the type of pension that allows full access to the value of the pension fund.
However, there are very valuable guaranteed benefits held within the final salary/defined benefit pension scheme. Transferring out of this type of scheme is usually not in anyone’s best interests. You also need to obtain independent financial advice, if your fund is valued at £30,000 or over before you transfer.
Provided you are aged 55 or over, not an active member of the scheme and not taking an income from the pension you are could look into transferring your pension to release cash from it. There is no need to wait until normal retirement age.
You can only access the cash from your ex-employer’s or previous company pension scheme by transferring it into a personal pension. This will allow you to benefit from the new Pensions Freedoms and Choice Rules to release tax free cash straight away. Before you decide to transfer your pension there are a number of calculations that need to be done. These calculations take into account the pension you would be giving up by transferring versus the pension you would receive from a personal pension. These calculations will help you decide whether you wish to transfer your pension in order to access the tax free cash and/or release additional cash.
To transfer your ex-employer’s or previous company pension the following steps are needed:
- Obtain a Cash Equivalent Transfer Value (CETV) from the pension administrators
- Calculate the pension options and the amount of Tax Free Cash that can be released
- Research the most suitable pension provider to accept the funds from the pension
- Communicate your options, advantages and disadvantages of transferring
- If you decide to transfer your cash will be paid by your new pension provider direct into your bank account
Pension Scams – A Word of Warning
Before you start the enquiry process to investigate your cash release options you must ensure the organisation you choose is authorised and regulated by The Financial Conduct Authority (FCA). This is vital to ensure you have full consumer protection. NEVER use an organisation that is not registered with the FCA. If they are not on the FCA register they are, in all likelihood, scammers and should be avoided at all costs. You can check our credentials on the FCA register here: Register and enter our firm reference number 490166 in the appropriate box.
Start your enquiry by going through the enquiry form on the Final Salary/Ex Employer page. Provided you meet the criteria you will navigate through the enquiry form. You will be asked to complete your details and also which pension you are considering transferring. A “letter of authority” will be generated. This letter gives us permission to request a CETV from the pension scheme administrators in order to calculate how much tax free cash you have available. Send this to us at our Freepost Address – there is no need for a stamp. If you are unable to print off the letter we will send you a copy in the post.
Communicating your Options
Once we have gathered the information on your pension(s) we will inform you how much tax free cash you are able to release, and a comparison on the pension you are giving up from your ex-employer’s/previous company pensions versus the pension you are likely to get from a personal pension provider. This is done via email so you obtain your options quickly. If you wish to release your all or part of your tax free cash lump sum we will send you the necessary paperwork.
Accessing your Tax Free Cash
We research the UK pension provider market on your behalf to find the most suitable pension provider has a suitable pension product which will allow you to access your tax free cash without the need to take an immediate pension income that has the most appropriate pension product for your needs. Once the pension provider receives your pension fund from your ex-employer’s/previous company pension scheme they send your tax free cash direct to your nominated bank account.
You are in total control from start to finish. We will inform you how your application is progressing and when you are likely to receive your tax free cash.
Our Charges and Fees
There is no charge for us to investigate, research and communicate to you the amount of tax free cash you are entitled to. It is only if you decide to proceed and release your tax free cash our fee becomes payable. In the vast majority of cases our fee is taken from the remaining pension fund. This means you receive the full amount of your tax free cash from your pension.