More people than ever with final salary pensions can take advantage of a little-known trick to release cash now – yet keep guaranteed income for life.
Whether to transfer a final salary pension (sometimes called a defined benefit pension) is usually an all-or-nothing decision. Doing so means giving up all guaranteed payouts in exchange for a one-off lump sum. A pension due to pay £30,000 a year at retirement might be exchanged for £1m, for instance.
Hordes of people have done just that since the “pension freedoms” reforms were introduced in 2015. Almost 400,000 people have transferred £60bn out of final salary schemes to modern “defined contribution” pensions to use the freedoms, which are more flexible but involve taking on far more risk.
However, the pension transfer market has been slowing as more financial advisers refuse to approve these deals over fears of being caught in a mis-selling scandal.
There could be a solution, as more pension schemes now allow people to transfer just a portion of their pot and leave the rest behind to earn the payouts– potentially the best of both worlds.
Figures seen by Telegraph Money show that between 150 and 200 schemes have started to offer this option in the past two years, meaning that around 1,000 now allow people to take a slice of their retirement pot, according to LCP, a consultancy. Its research found that 22pc of pension schemes offered partial transfers, an increase from 17pc two years ago.