Could Your Final Salary Pension Drop in Value by up to 15%?

Green Broken Piggy Banks-British coins

Those looking to transfer their final salary pensions could face drastic cuts from April.

Older workers at one of Britain’s biggest companies have been told that they will receive up to 15% less if they transfer their final salary pension to a new scheme, it has emerged.

Recently one of Britain’s biggest pension schemes, British Airways, has drastically cut the transfer values it will offer to older staff who want to exchange their guaranteed retirement income for a cash fund.

More major company pension schemes could follow suit over the next 12 months, experts have warned.

British Airways staff in their 50s and 60s have been informed that if they decide to “transfer out”, the lump sum in their new scheme will be much smaller after April 1st with the reduction being as much as 15%.

Over the past year members of some final salary pension schemes have attracted jealousy from their counterparts in other schemes. This is because some firms offer more generous “transfer values” than others.

The values being offered by some schemes have grown in recent months. The best offers allow savers to swap their guaranteed pension for a transfer value of more than 30 times their annual retirement income. This compares with around 28 times last autumn.

For someone with a promised pension of £15,000 a year, this might be the difference between a transfer offer of £480,000 now and £420,000 last year. These figures are for a 55 year-old who plans to retire at 60.

Generally speaking, the bigger your former employer, the more generous your transfer value, at least until now. Large financial companies such as banks and insurers have tended to offer the most. But this is starting to change.

There are a number of reasons, including market conditions.

With only 28 companies disclosing a pension surplus and 111 companies disclosing pension deficits, another significant factor is schemes’ growing deficits and the rising cost of meeting future liabilities.

The total deficit in FTSE 250 pension schemes at 30 June 2015 is estimated to be £12 billion. This is a deterioration of £3 billion from the position 12 months ago.

According to a spokesman for the BA pension scheme “Transfer value assumptions and factors are reviewed regularly, taking account of changes in market conditions and expected investment returns. Members were informed that transfer values resulting from a review would be likely to be lower for older members and higher for younger members.”

Are you affected? Take advantage of the AAM UK Pension Review Service to ensure you don’t lose out – speak to your AAM Financial Planner or email now!

Ian Black
Head of Wealth Solutions
AAM Advisory Pte Ltd


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