There are few more entrenched articles of faith in personal finance than the huge value of final salary pensions and the folly of cashing them in.
The security of a guaranteed income, usually inflation-linked, for your life (or your spouse’s), with all the investment risk and administrative hassle taken care of by your former employer, has been seen as almost beyond price.
So when even very generous sums have been offered to final salary scheme members to give up their entitlements, the advice of financial firms, regulators and other experts has always been, in effect, to think very carefully indeed – and then don’t do it.
It is thus intriguing when one of those experts, a former pensions minister no less, decides to go against the consensus and cash in two of her final salary pensions.
Baroness Altmann has disclosed that she took the step after very pronounced increases in the cash sums offered to surrender the pensions over the preceding two years. One offer increased from £108,000 to £232,000 and the other from £57,000 to £104,000.
“I don’t mind giving up some final salary, guaranteed pension income in exchange for what seems a very good-value offer,” Baroness Altmann said.
She added that the new freedom to invest or withdraw pension cash as savers wished and the end of the need to buy an annuity had been a factor in her decision.
This is not to say that everyone with a final salary pension should blindly follow suit. But for many I suspect that the sums on offer have become so high that the extra risk involved in managing your own money is often a price worth paying.
If you are tempted, it may be wise to act now. The cash sums offered for final salary pensions have been driven higher by low interest rates and high bond prices, which now appear to have peaked.
If interest rates do rise, expect the amount you are offered to fall.
Article taken from The Telegraph, January 2017
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