Defined Benefit Pension Transfers – Key Considerations Video Transcript

In 2015 the Government introduced new legislation which changed how those saving for retirement could take their pension benefits. This is now commonly referred to as “Pension Freedom” or “Pension Flexibility”.

The changes were targeted at Defined Contribution Schemes, such as Personal Pensions and Stakeholder Pensions.

But the changes did <u>not</u> apply to Defined Benefit Schemes, such as Final Salary Pension Schemes.

This has led to a situation where some people who have a Defined Benefit Scheme considering whether they should transfer their benefits to a Defined Contribution Scheme – to access the pension freedoms.

This video aims to help you if you are considering such a transfer, exploring the main factors that apply and how you can take this further.

Transferring away from a Defined Benefit scheme is a complex decision that requires specialist financial advice.

A final decision to transfer should only ever be made once all factors, the advantages and disadvantages, plus the risks involved are fully understood.

You cannot transfer this type of pension without taking advice.

If you’re in a defined benefit pension, you can potentially transfer out of it and into a defined contribution pension, such as a personal pension, by giving up your scheme benefits in return for a cash value.

This cash value is transferred across into your new pension.

So, all the benefits of your current scheme, including all guarantees are lost and gone for good. You cannot reverse this decision later down the line.

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This means you must be confident, if you do transfer from one to the other, the benefits of your new scheme are compensating you fairly for what you have given up.

In most cases this won’t happen. But there can be others where a transfer makes sense.

The reasons why a transfer may be beneficial and might work for you include situations where you can get a much bigger tax- free sum from a new pension, where the death benefits may be improved or where the Pension Flexibility rules work in your favour.

The transfer value amount offered to you will inevitably be a significant factor.

A defined benefit pension offers you guarantees of lifetime income. Often with generous yearly increases attached and, most likely, a spouse’s pension if you die before your spouse.

The transfer value offered therefore makes a big difference, because too little and the compensation for loss of these valuable guarantees isn’t enough.  A generous transfer value however may allow you to see a pathway where the compensation is enough.

The reasons why a transfer may not work for you, regardless of the transfer value offered, include losing all the guarantees of the existing scheme, moving to a position where you will be subject to investment risk, and having the responsibility for your future pension income on your own shoulders.

These factors which you need to weigh up are difficult to balance against each other, because you are not comparing like for like.

This means the decision to transfer or not will be largely circumstantial and will have to factor in your wider financial position, your family position, your goals and legacy wishes.

It should also take into account your health, because certain pensions are better in certain health situations. For example, someone in serious ill-health may benefit from a transfer and having the cash value rather than a long-term income.

Finally, there may be complicated technical reasons which could influence your decision, an example would be The Lifetime Allowance.

You will see that deciding about whether to keep what you have or move to a new scheme is highly complex and requires a detailed analysis. You cannot shortcut this.

This must be done through a process and with a specialist adviser. There is no other option.

However, even if you go through this process and decide to keep the scheme exactly where it is now, which is the most likely outcome, then you will have completed a valuable exercise in properly exploring your options.

A Defined Benefit Pension is for many people as big an asset in their overall finances as their property, in some instances it will be an even bigger asset. It can and probably will be the mainstay of a future retirement, so properly investigating how best to look after this asset is crucial to you and your family.

We are here to help you analyse your Defined Benefit Pension and run through all the aspects and options with you.