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Defined Benefit Transfers

We are pleased to provide advice to those thinking about transferring their defined benefit pension benefits.  However, before we are engaged individuals need to be aware that transferring secure retirement provision to an arrangement that is investment based is rarely advisable.

Enjoying a comfortable and worry-free retirement should be your primary objective.  When a defined benefit pension is transferred the guarantee is lost.  Consequently, the retirement income is often determined by global investment markets, which can cause unnecessary anxiety and potentially financial hardship in retirement.  Even lower risk investments can experience a significant fall in value.  To illustrate this point we often look at the average performance of typical investment strategies during the financial crisis.  The table below shows how the average investment portfolio suffered from the 12th October 2007 through to the 6th March 2009:

The loss in £’s based on investments of:
Investment Sector Similar to a… *Loss % £200,000 £500,000 £700,000
Mixed Investment 0-35% Shrs Defensive Portfolio -16.68 -£33,360 -£83,400 -£116,760
Mixed Investment 20-60% Shrs Cautious Portfolio -23.53 -£47,060 -£117,650 -£164,710
Mixed Investment 40-85% Shrs Balanced Portfolio -32.18 -£64,360 -£160,900 -£225,260
Global Adventurous Portfolio -38.23 -£76,460 -£191,150 -£267,610

 *figures provided by Financial Express based on Investment Association average returns

In most cases markets recovered within a couple of years, but those with less investment experience often make poor choices, encashing investments at a loss in the midst of the volatility.

While it is not necessary for transferred money to be held within investments that can fall in value, pension deposit accounts offer so little in interest that the ongoing charges are barely covered.

As a result, it is in very rare circumstances that we find transferring guaranteed benefits beneficial.  We want clients to have security and peace of mind in retirement, not to be worried about the stock market and whether they will have enough money to last the rest of their lives.

Those in very poor health and where the transfer value is particularly generous are examples of where a transfer can be suitable, but this is very much the exception rather than the rule.

We acknowledge that the new flexibility rules associated with private arrangements and the substantial transfer values can be tempting.  But ultimately we feel most individuals will eventually receive less as a result of a transfer and certainly feel more vulnerable in retirement.

If you wish to proceed our fee is £1,000 and charged regardless of the outcome of our review.  When a transfer does proceed, we charge a further £4,000, irrespective of the transfer value.  We are unable to assist where the transfer value is less than £200,000. Should you wish to engage us we will: –

  • Undertake a review of your circumstances and retirement objectives.
  • Undertake a review of the pension scheme.
  • We then provide a letter explaining our recommendations.

It is possible for Sterling to arrange a transfer even where we feel it is unsuitable.  We can do this, but only where you insist and we are confident that you are making an informed decision.  You must acknowledge in doing so that you are acting against our recommendations and explain your reasoning for wishing to proceed in writing.

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