Financial Planning

5 Factors to Consider Before Cashing in Your Final Salary Pension

KLOFinancial |

Many people like a good degree of certainty in their lives and for most this is definitely the case when it comes to their finances.

The pandemic however, has shown just how unpredictable life can be and has highlighted the value of having sound personal financial management plans in place.

If you’ve read our previous blog on cashing in your final salary pension, you may be looking for more up-to-date information.

If you are contemplating whether you should transfer your final salary pension, there are numerous factors you should consider before deciding whether this is the best time to do so.

At KLO Financial Services, our independent financial advisers in Warwick, Birmingham and London are on hand to outline any factors you may want to bear in mind, such as the below:

Age and your plans for retirement

You should consider how much income will be required to meet your lifestyle plans and everyday essentials. Bearing in mind your age, weigh up the best way to provide this income.

It is important to think about when you want to retire and what you wish to do once you have retired. How much time you require to do the things you want is important. For example, a gradual reduction in working hours could suit you better than a sudden end to your working life.

With each year that passes, there is less time for a pension scheme to grow and yield the payments initially promised by it. This means, the longer you wait before transferring, the larger the lump sum is likely to be when transferring.

In usual circumstances, the lower the standard retirement age set out by the scheme, the more likely it is that the final salary transfer values will be higher, as the pension will be paying out for a longer period of time.

Your relationship status

The majority of final salary pension schemes will feature a ‘dependant’s pension’ which is paid out after the member passes away, so the transfer value of the scheme is based on the assumption the member is married.

If you are single, there may be even greater value in a transfer for you.

Providing for your family

If you have elderly relatives who require your financial support – for example with care provision – or younger relations who need assistance with property or university, then receiving a series of lump sums from your fund could prove beneficial.

The Pension Freedoms offered by transferring your final salary pension offer flexibility and could mean a pension fund flows down through generations of your family, as opposed to a final salary scheme which only permits a payout to your spouse following your death.

Health and life expectancy

Poor health may prove a key factor in any decisions you make. If it is likely you will no longer be able to work for as long as you had expected, it could be that you will need to take income from your pension earlier than initially anticipated.

In these circumstances, it may be possible to enjoy your final salary scheme benefits earlier and you could receive a higher income than originally forecast.

On the other hand, you might wish to utilise the flexibility offered through Pension Freedoms or consider leaving a lump sum for dependants when you pass away – the latter being something which is not always possible with final salary schemes.

There are numerous scenarios to consider and you may wish to research the different kinds of annuities available that could help with your decision-making.

Other financial assets, tax and inflation rates

You may wish to access a lump sum of money by transferring, although it could be worth considering whether you have other savings to help instead.

Accessing money from elsewhere would leave your final salary scheme untouched and you will still receive a tax-free lump sum from your scheme when you retire.

Income from other pensions you or your partner possess may provide flexibility and determine whether you think a transfer out is required.

Final salary pension transfers are suitable for some people under certain circumstances, but not suitable for all, and this discussion can be had with KLO initially to explore this further with you.

Let KLO Financial Services help

If you would like to know more about any of the above and are looking for independent pension advice regarding a possible transfer of your final salary pension, our financial advice team will be delighted to help.

Call 0121 726 4722 or email to make a no-obligation appointment.