The Merseyside Pension Fund is a local government pension for many public sector employees and contractors who either work or have worked in the Merseyside area for their local authority.
Like many local authority pension schemes, many of the members can look forward to a defined benefit pension package, promising a guaranteed income in retirement, no matter how long that lasts.
These pensions are considered safe, with all the risk resting with the trustees, and protected up to 90% with the Pension Protection fund.
Yet that hasn’t stopped people transferring their retirement benefits away from the Merseyside Pension Fund, but why?
For some time now, people have had the option to move their final salary pensions, transferring them into a private scheme if they need to.
But just because you can, doesn’t always mean that you should. Leaving a final salary pension scheme may mean leaving behind some rare and valuable benefits, such as death in service benefits.
Perhaps most importantly, people who transferred away from the Merseyside Pension may have been giving up a guaranteed income based on their salary for retirement, and swapping it for the results of a volatile investment market.
The FCA’s rules to financial advisers about who they should recommend a pension transfer to are pretty strict, meaning advisers should be very careful about who they say should transfer. They need to be making sure that a pension transfer is in their client’s best interest, and doesn’t expose their retirement fund to more risk than can be afforded.
Unfortunately, this isn’t always what happens…
A mis-sold pension transfer can go wrong in a few different ways, from losing up to around 50% of the pension value when transferred around 10 years before retirement (Recent study by Royal London), or having the money invested in high-risk investments that later fail, causing the pension to lose all value.
Swapping a final salary pension for a private one means swapping certainty for uncertainty, and is only right for some people.
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Moving a final salary or other defined benefit pension is rarely advisable, except in certain situations.
While moving your pension may earn your adviser big fees and commissions, you may lose more than you hoped: