Argument for transferring out of final salary

Wellgood

If you had a illness that meant you might not live as long as the average life expectancy does it make sense to transfer out of your final salary scheme? Logic being if you die then your partner only gets 50% of the final salary and when she dies then the pension stops. Whereas if you have transferred it out into a drawdown then the whole pot passes to wife and then children after that. Any thoughts on this would be much appreciated.

bigadaj

It's certainly one of the reasons for getting a cetv and considering a transfer.

Whether you would do so depends on a number of factors, including actual predicted life expectancy and certainty, value of transfer,
Consideration of attitude to risk, wider financial situation, personal cash flow, inheritance etc

atush

It is pretty much the main reason to do so. but if wife is of good health and from a long lived family, it could be the spousal pension is better (children not withstanding)

Silvertabby

Have you got a transfer valuation quote? How does this compare with the 50% widow's pension over your wife's possible life span?

I'm a retired LGPS administrator, and rule of thumb is that you should only consider transferring out of a defined benefit scheme if you have a life limiting illness and are single. Of course, there are exceptions to every rule.

jamesd

Yes, transferring out and using income drawdown can be highly suitable for that situation because as well as your own life income need you can do a plan that provides for 100% or lower if desired spousal pension.

For example, you might use cfiresim to produce a plan that runs until your wife reaches age 100 but remove your state pension and cut the income need by say 30% at age 90 or 80 as an upper bound on your own likely life expectancy. The result of this is likely to be higher income while you're both alive and higher income for her after your death than only 50% from a defined benefit pension. If average case rather than worst case happens the results can be even more strongly beneficial.

While state pension deferral would be sub-optimal for yourself, for her it will provide useful long life case insurance value and is an excellent way to provide that secure income for her. It also has the advantage that even if she is not familiar with investments and hasn't learned by then, the income will just keep on coming with no work needed from her.

If you're not familiar with drawdown planning please do some reading of Drawdown: safe withdrawal rates to get started.