If you are one of the lucky ones who has received the offer of a golden goodbye to leave your employer’s pension scheme, what should you do?
Some of Britain’s biggest firms are offering huge sums of cash to encourage retirement savers to give up their pension rights and move their money elsewhere.
The problem is final salary or direct benefit pensions offer a guaranteed retirement income and other benefits that are not easily replaceable elsewhere.
A direct comparison between a final salary scheme and another based on investment performance rather than payment guarantees is not easy.
Besides weighing up the pros and cons of the golden goodbye and retirement guarantees against investment returns, other factors come into play.
QROPS option for expats
For instance, will the pension scheme still be there when you retire.
An increasing number of businesses are closing their pensions, which are then managed by the Pension Protection Fund.
Although protection means the fund pays out, the benefits are cut by at least 10% and annual payments are capped depending on age.
A lot of final salary schemes have expat members who can switch their funds to a Qualifying Recognised Overseas Pension Scheme (QROPS).
This complicates the comparisons even more as QROPS pay an enhanced tax-free lump sum of 30% against 25% for a final salary or another UK pension.
Inheritance rules for unspent funds have also changed recently that make spouse pension guarantees offered by final salary scheme less generous.
Taking pension advice
Analysing the comparative figures is a task a suitably qualified pensions professional should undertake.
In some cases, retirement savers will have a fine line between keeping their existing retirement arrangements and moving to a QROPS, but in others the analysis will reveal distinct advantages between the two.
The question is not so much what the benefits of transferring to a QROPS is for an expat with a final salary pension, but can they afford not to find out?
Always discuss QROPS and final salary pension options with an independent adviser who can take a ‘whole of the market’ view.
If the fund is worth £30,000 or more, pension rules require a retirement saver to take advice before making any financial decisions anyway.