Three decades ago, it wasn’t uncommon to speak to someone with a defined benefit pension.
Today, these schemes are rarer. An aging population and a more mobile workforce has led many companies to offer employees defined contribution schemes instead. These are commonly seen as less costly for the employer, although there are certain advantages for the employee as well.
As of April 6th 2015, UK citizens over the age of 55 have been allowed to access their defined contribution pension pots. If you hold a pension like this then you need to carefully consider getting defined benefit pension advice from a qualified, experienced financial adviser regulated by the Financial Conduct Authority. If you’re looking to speak to a local adviser with these qualification, then we can put you in touch for free.
Defined benefit plans (or final salary pensions) provide a guaranteed income to a retired person on retirement. The annual amount is usually determined by factors such as years in service at the company/organisation in question, and your earnings during your career.
Often, these schemes account for inflation and have provisions for the recipient’s spouse. Together, these features of defined benefit schemes lead many experts to argue that they are amongst the most valuable pension schemes around these days.
Pros To Consider When Thinking About Transferring
Obviously, the big advantage in transferring is the potential pension freedoms on offer with a defined contribution scheme.
Sometimes people want to access their money in their 50s, but their defined benefit scheme prohibits them from accessing it until they have reached their 60s. Others want to reduce their liabilities, and are enticed by an ETV (enhanced transfer value) where the scheme’s trustees pay. For some people, they might no longer be employed at the company with the scheme, and want to take a lump sum due to having other pensions with different employers.
Whatever your reason for thinking about a transfer, getting professional defined benefit pension transfer advice can often help you think through the issues more clearly. This may particularly be pertinent to you if you have a large pension pot, because you might be tempted to withdraw a big lump sum early without considering the true value of your defined benefit package.
Bear in mind that if your pot is worth over £30000 and you are considering a transfer out of your DB scheme, then the law requires you to seek defined benefit pension advice.
The important thing to look out for when thinking about a pension transfer is cold calling about pensions. With the rise in pension investment scams in the UK, cold calling and texts from businesses about pensions is set to be banned in the UK later this year.
So if you did not expressly ask to be contacted from a company in this way, or you do not have a pre-existing relationship with the company in question, be very careful. At PensionAdvice.org, we are extremely careful with any information you might pass onto us, and will only ever refer you to a local, qualified financial adviser regulated by the Financial Conduct Authority.
One big reason many people are seeking defined benefit pension transfer advice is due to the transfer values currently on offer for DB schemes.
Xaffinity, for instance, gives the example of a 64 year old DB scheme member. In this scenario, the gentleman’s scheme entitles him to £10000 per year on retirement after the age of 65. If he was considering his transfer value in June 2016, Xaffinity claims he could have got £210000. This year, however, the figure could be as high as £241,000.
Others point to possible interest rate rises looming, which could make transfer values fall. This, it is argued, adds incentive to seek defined benefit transfer advice as soon as possible.
No one really knows what will happen, but it’s important that your decisions about a transfer are grounded in objective facts and sound, comprehensive information. If you want to talk to a professional, local and independent financial adviser about your defined benefit transfer options, then we can connect you for free.
Cons To Consider When Thinking About A Transfer
Clearly, the biggest thing you are potentially giving up when switching away from a defined benefit pension scheme is a guaranteed retirement income.
You also get a good measure of peace of mind from a DB plan, since responsibility for working out the investments lies with the scheme provider. Many people like the feeling that someone knowledgeable is looking after their retirement finances on their behalf.
When you switch to a DC scheme, you suddenly bear a lot more responsibility for discerning which investments are right for your retirement, and what strategy you should adopt for your investments and savings. It can be quite daunting and overwhelming, but that’s where seeking professional advice from a trained, qualified financial adviser can really help.
Whatever you do, do not take a leap of faith with your pension. Make sure you are as confident as you possibly can be about whether or not the decision to transfer is right for you. By seeking independent, defined benefit pension transfer advice with a financial adviser, this is certainly possible.