Final Salary Pension Scheme Transfers
Pension choices have become more flexible since 2015 when the Government gave everyone with a Final Salary Pension (sometimes called a 'Defined Benefit Pension') or 'Occupational Pension' the choice of transferring to something more flexible.
These 'Pension Freedoms' have enabled you the right to make choices about your pension and your retirement. You no longer need to stay in a Final Salary Pension if you find something more suitable for your needs.
Whilst a Defined Benefit Pension offers a guaranteed income for life in most cases, by transferring to a Personal Pension you could benefit from:
- Large transfer value in exchange for giving up some benefits
- Freedom to access your money on your terms, withdrawing more one year or less the next
- Ability to pass your pension on to your family when you die
Defined Benefit or Final Salary Pension Schemes
These schemes, usually known as DB schemes or Final Salary Pension Schemes, are set up by your employer, to provide a pension for you for life when you reach retirement age.
They are usually based on your salary and how long you have been a member of the scheme (usually years of service).
They can provide a guaranteed income for life, or a tax free cash sum and a smaller income.
Defined Contribution Pension?
These schemes, known as DC schemes, are personal pensions, sometimes set up by employers as Group Personal Pensions, but are usually taken out by you with an insurance company or investment house.
The Benefits at retirement depend on how much you have paid in and how well your investment has grown. This type of pension will always have a tangible value on any given day.
The benefits are not defined.
We can help you decide is transferring is right for you
The aim with our “Final Salary Pension Scheme Fact find” below is to help you decide whether you want to proceed to the Advice Stage of the process of considering a transfer from a DB pension into a DC plan.
We first need to assess your view towards risk and reward and how a loss in the value of the pension fund would affect you in retirement.
Risk and reward is the term used when describing the effect of risk on an investment, often a higher risk will bring higher rewards but with the increased chance that there will be a loss in value at some point during the term of the investment. However, holding the investment for a medium to long period, can often yield a positive return overall.
Lower risk typically yields lower rewards, but can limit losses within your investment.
We use a risk scale of 1-10, 1 being the lowest risk and 10 being the highest. Normally a risk score of 3 or less would mean that we would be unlikely to feel comfortable recommending a transfer unless there were any unusual circumstances. If you feel that you might fall into this category, we think that you would probably be wise leaving your pension within the guaranteed environment, unless there were circumstances that dictated otherwise.
It's important that you consider how a loss in value of the pension fund would affect your standard of living in retirement and look at your ability to reduce your income to allow the pension value to potentially recover? Also looking at other assets that could be used for income and considering the effect of a loss in value.