Should I stay or should I go
Many people have pension fund benefits which are based on your salary and service, known as defined benefits, rather than on the contributions made and value of the fund.
What are defined benefits (DB) pensions?
Company pension plans can either be based on your salary and the length of service with your employer, known as defined benefits, or based on the value of your fund from the contributions made by you and your employer, known as defined contribution.
What are the benefits of a DB pension?
At retirement a defined benefits pension will pay an income for the remainder of your life. You are not responsible for the investment of the scheme assets – this is the role of the scheme trustees – so you are not directly responsible for ensuring there are sufficient funds to keep paying your income. The scheme will also provide a survivor’s pension in the event of your death, provided you have a dependent that meets the scheme criteria – this is normally a spouse or civil partner.
So why should I consider transferring?
We support the Financial Conduct Authority who have set a clear starting point that they would expect the advice for members of DB pensions to stay in the scheme. They have also made it mandatory that those with funds greater than £30,000 cannot transfer from a DB pension without receiving advice. A transfer from a defined benefit pension is irreversible - which is why Origen recommend you should always seek advice. But a defined benefits pension cannot offer you access to the flexible retirement income options available following the introduction of Pensions Freedom and a transfer may provide more favourable options around death benefits. If you transfer to a defined contributions scheme you can access your pension benefits from age 55.
How do I know what they are offering?
Pension schemes can provide a Cash Equivalent Transfer Value (CETV) which will be a valuation of your current benefits held in the Defined Benefits Scheme. It can be hard to assess whether the value is beneficial for you to transfer or not, as future investment returns, inflation and life expectancy are all unknown. You may need to consider Lifetime Allowance (LTA)restrictions for pension savings as DB scheme and DC schemes are valued differently for LTA purposes. Any decision will depend on your own circumstances, and a transfer from a defined benefit pension is irreversible - which is why advice is always required.
Why are companies offering pension switches?
Companies are facing huge costs to meet the pension commitments for their pension schemes, so many are offering incentives to encourage members to transfer out of the company scheme. They may even enhance CETV to make the offer more attractive. Some pension schemes may not be able to offer a transfer value, such as nurses, teachers and civil servants.
Let Origen help you to review any defined benefit pensions you may have and explore the options available to you.
You have worked hard to build up your retirement fund and will look for the best returns - but proceed with caution. Be wary of cold calls, unsolicited texts or emails – if you have not heard of the company, check that the firm and any adviser are registered on the www.fca.org.uk/register. Our Consultants can help you to obtain and assess a transfer value for defined benefit pensions. We can then help you compare the benefits and provide advice on the next steps you should take.
Call us on 0344 209 3925
Calls are charged at your phone company’s basic rate. All calls are recorded for business purposes.
This article is for information only, based on our understanding of legislation and HM Revenue & Customs practice as at February 2017 and is not to be taken as Financial Advice. CA1205 Exp 04/04/18
[ Date Posted: 16/02/2017 09:43:31 ]