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Defined Benefits Pension Advice

What are defined benefit pensions?

Defined benefit pensions are a pension scheme where the amount you are paid is based on the length of time you have worked for your employer and the salary you have earned. Defined benefit pensions pay a secure income for life which increases each year and is typically offered by large employers or employers in the public sector.

With defined benefit pensions, your employer assumes responsibility for ensuring there is enough money in your pension pot for a comfortable retirement by making contributions to your defined benefit pensions scheme. In many cases employees will have the opportunity to contribute to their defined benefit pension scheme. Depending on the rules of your defined benefit pension your pension or a percentage of it may still be paid to your spouse, civil partner or dependants after your death.

When can you take your defined benefit pensions?

Typically, defined benefit pensions can be taken at 65, when you reach 65 your employer will stop contributions to your pension and your pension starts to be paid out. Depending on your scheme, it may be possible to take your pension from the age of 55, although this will likely reduce the amount you receive. It is also possible in some cases to take your pension without retiring or you may be able to defer taking your pension to a later age, which could result in a higher income when you do take it.

Your defined benefit pension scheme will detail the rules which apply to your scheme, it is good practice to ensure you understand the rules of the scheme before signing up to it and if need be seek professional financial advice. Once your pension payments begin, they will increase each year by a set amount as set out in the rules of your defined benefit pension scheme.

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Defined Benefits Pension Advice

Taking your defined benefit pension as a lump sum

It may be possible to take your defined benefit pension as a lump sum from the age of 55 or earlier if you are seriously ill, if:

  • The total value of all your pension savings is less than £30,000
  • Your pension is worth less than £10,000, regardless of how much your other pensions are worth. This can be taken for up to three different pensions.

If you do decide to take your pension as a lump sum up to 25% can be taken tax free and you would be liable to pay income tax on the remaining amount.
Protecting your Defined Benefit Pensions

Defined benefit pensions are protected by the Pension Protection Fund. The Pension Protection Fund will pay compensation to scheme members if employers become insolvent and the scheme is unable to pay benefits. The compensation may not cover the full amount and the level of protection offered will depend on whether you are:

  • Drawing benefits
  • Still contributing to the scheme
  • A deferred member who has left the scheme but has built an entitlement
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Independent Pension Advisers

Covering a range of pension and retirement advice...

Pension transfers

Transferring your pension fund to a new pension plan could give you a better deal with potentially lower fees, freeing up more cash for your retirement fund. Find out more about pension transfers and how you could benefit.

Defined benefit pensions

Defined benefit pensions are a pension scheme where the amount you are paid is based on the length of time you have worked and the salary you have earned. Find out if a defined benefit pension could be the best option for you.

Final salary schemes

Final salary pensions provide you with a percentage of your final salary before retirement or when you leave the company as an annual income. Find out if a final salary scheme could be the best pension scheme for your circumstances.

Advice on Annuities

An annuity is an insurance product that allows you to swap your pension savings for a guaranteed regular income for the rest of your life. Find out how you could use an annuity to secure a comfortable income for retirement.

Group & other pensions

A group pension is a collection of individual pension plans set up as a group and generally offer lower charges. There are also a variety of other pension types available. Find out which could be most beneficial for you.

Later life planning

The earlier you start planning for later life the longer you will have to build a significant pension pot to ensure you have a financially secure retirement. Find out which type of pension is best suited to your personal circumstances.

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Further Reading

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