For most people, their most expensive possessions are their house, their pension and their cars.
Yet one in five have no idea of how much is in their pension or how much retirement income the money will generate.
If you are one of these happy-go-lucky savers, it’s about time you took on the responsibility of planning your pension finances.
Since you last looked, retirement saving has probably changed a lot with the advent of pension freedoms increasing the options for how to take money from your pot.
A key area to look at is transfer values – you can get these by talking to the pension trustees.
Golden goodbyes
If you have a final salary pension with a FTSE350 company, the likelihood is they will give you a golden goodbye to leave the scheme.
A golden goodbye is a considerably enhanced transfer value to send you on your way.
The typical enhanced transfer value is a multiple of 20.
That would mean the employer would top up your fund to a golden goodbye of £400,000 if you were expecting a £20,000 a year pension.
Now, employers are willing to settle on much higher multiples – Cable & Wireless is rumoured to have paid out on a multiple of 50.
Even for a £20,000 a year pension, this could cause tax problems as a multiple of 50 would see the transfer breach the lifetime allowance of £1 million.
Breaking through the ceiling means penalties from HM Revenue and Customs (HMRC) that take at least 55% of the cash making up the balance of more than £1 million.
Partial transfers
Partial transfers can give retirement savers the best of both pension worlds.
Put some of the money into a personal pension or QROPS while leaving some in the employer’s scheme that comes with index-linking and a guaranteed monthly income.
The cash switched to another scheme comes with a 25% tax-free lump sum – 30% for a QROPS.
Another bonus is drawing some or all the money under pension freedom rules if you are aged 55 or older.
If you do not need the cash, then a transfer out of a final salary scheme is a good way to pass pension money to loved ones without paying inheritance tax.
