Considering transferring out of your Defined Benefit (Final Salary) Pension Scheme?
Find out what you need to consider if you are thinking about transferring your defined benefit pension, or if you are moving or combining your defined contribution pension. The Financial Conduct Authority has published valuable consumer information on their website, which is repeated below for your convenience.
Defined benefit pensions
Defined benefit (salary-related) pensions schemes give you a guaranteed pension income for life. Defined benefit (DB) pensions are valuable benefits so most people are best advised to keep them.
Sometimes employers may offer you an incentive to transfer out of your DB scheme. We call this a ‘pension transfer’.
A pension transfer from a defined benefit pension scheme means giving up your benefits in the scheme in return for cash. This cash could then be invested in another pension scheme.
Even if your employer gives you an incentive to leave, the cash value may be less than the value of the defined benefit payments to you and your eventual pension.
This means that in most cases you are likely to be worse off if you transfer out of a defined benefit scheme.
However, for some DB scheme members, transferring may be the correct thing to do.
For example, there are risks to staying too – the employer could go bust and not be able to pay the pension promised. While the Pension Protection Fund may compensate you in these circumstances, the benefits are likely to be less than you would have otherwise received.
Getting advice on your pension transfer
Deciding whether to transfer a DB pension is, even with the help of a financial adviser, one of the most complex financial decisions you will ever make.
If your pension assets in a DB scheme are worth more than £30,000, Government rules require your pension provider to ensure that you have taken regulated financial advice before allowing the transfer to proceed.
We have clear rules and guidance on how advisers deal with pension transfers.
Considering your options
Because of the important financial and longer-term implications of any Pension Transfer, it is important to take specialist Independent Financial Advice before making any such move, as a transfer may not be in your best interest. For example, there may be exit penalties or you may lose valuable bonuses and benefits. If you proceed with a transfer, all benefits and guarantees under the original scheme will be lost.
Independent financial advice, specialising in pensions is our strength here at Independent Pension Specialists Ltd (IPSL). Due to the stance taken by the Financial Conduct Authority, we have taken the decision not to provide financial advice specifically on Defined Benefit pension transfers for the foreseeable future.