Shoud you take this pension bribe?

From time to time we are approached by people who have received an intriguing offer.

They have a deferred pension benefit inside a ‘defined benefits’ (often referred to as a final salary) pension scheme and have received a letter from the administrators offering an enhanced value.

They can transfer their deferred pension away from the scheme and in return receive a cash lump sum now.

Leaving aside the fact that, in the majority of cases, the best thing to do with a deferred pension of this type is to leave it exactly where it  is, the nature of the ‘bribe’ is what makes it interesting.

As the old saying goes, “A bird in the hand is worth two in the bush” might cause some people to take what is on offer.

But remember transferring out of a defined benefits scheme and putting the cash equivalent transfer value into a private pension is all about transfer of risk.

The bulk of the risk in a defined benefits pension scheme rests nicely with the employer (your ex-boss) whereas the risk with a private pension plan lies with you the plan holder.

And a degree of healthy cynicism is needed here; why are they offering money now to convince you to give up the benefits? Who is the real winner here?

It is well worth taking independent financial advice and considering all the advantages and disadvantages before you take the bribe.

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