Recent research from Royal London has found that around five million people in the UK have ‘forgotten’ pension pots from Defined Benefit, or Final Salary, schemes of former employers. What’s more, many of these deferred members don’t know how much a transfer of this accumulated pension to a Defined Contribution arrangement would be worth, thanks to a lack of communication from the provider of their old scheme. As people who transfer their pension pot are offered an average sum of between £158,000 and £190,000 – around 25-30 times the annual value of their pension – the collective amount held in these forgotten pots could reach a total of up to £800 billion.
As many people are unaware that they are holding valuable pension assets, potentially worth a six figure sum, the researchers emphasise that those who are members of these schemes should take steps to discover how much their pensions are worth, as well as seeking impartial advice on what to do with the money. Whilst taking a transfer may seem attractive, it may not be the best option for many people, as doing so means sacrificing a guaranteed pension payment.
Nonetheless, more and more people are choosing to transfer their Defined Benefit entitlements to Defined Contribution arrangements to make use of some of the flexibilities introduced through pension freedoms in 2015.
With many people using pension freedoms to access immediate Lump Sum payments, the former pensions minister, Baroness Altmann, has suggested that “the missing piece is making sure people get financial advice before they make a decision that is irreversible”. In fact, as making any big decisions about your pension can have significant ramifications on an individual’s future retirement, it is our recommendation that anyone considering whether or not to take advantage of pension freedoms should seek professional advice before doing anything.
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