Bennison Brown | Defined Benefit Pension Transfers

Defined Benefit Pension Transfers

The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.

Transferring from defined benefits to a personal pension

Transferring out of a final salary pension is unlikely to be in the best interests of most people. You will be giving up all of the guarantees that a final salary pension offers you if you transfer out.

Why transfer?

The standard pension scheme is a Defined Benefits pension, however there also exists the option of transferring to a personal pension. The main reasons why you may want to transfer to a personal pension are:

  • Flexibility – More choice in how you can distribute your pension income over time
  • Tax-free cash - With a Personal Pension you can get up to 25% of your pension fund as tax-free cash. In a DB pension you may find that 25% takes a larger portion away from your pension income
  • Inheritance – Unlike a final salary pension, up to 100% of money in a Personal Pension pot can be passed onto beneficiaries.
  • Health – Final Salary pensions benefit those who are expecting to live for a long time. With a shorter life expectancy, you may want to have access to more of your pension quicker where you have greater control and more flexibility

You may want more money initially to travel and experience a more luxurious life whilst you are fit able, then live a more minimalist lifestyle when you are older.

This unequal distribution of payments is not possible with a Defined Benefit Pension scheme, however transferring out will give you the flexibility to do this.

Risks of transferring

Such risks include:

  • You don’t know how long you will live, so it is difficult to spread your pension income effectively over the course of your retirement.
  • Unlike a Final Salary pension, a personal pension plan involves you taking on the risk of protecting against inflation yourself.
  • The value of personal pension funds (which are typically invested in the stock market and other investments) may fall as well as rise. This means there is less certainty around your future pension income.
  • You may end up drawing too much out of your pension fund, leading to early depletion of the fund

Is transferring to a personal pension right for you?

Since transferring out of a Defined Benefits pension scheme is risky, it is a legal requirement to receive financial advice before you can go ahead. To be considered, you will need to be aged 54+, and it will help if you fit one of the following criteria:

  • You have significant health issues and good reasons to believe that you have a shorter life expectancy
  • You wish to self-invest in commercial property
  • You have a large amount of additional assets you can invest
  • You have an extremely large pension fund

If you are considering transferring your pension, submit your details for a free initial consultation with an expert pension planner to discuss your options. All queries for advice regarding Defined Benefits/Final Salary Pension Transfers will be referred to a suitably qualified adviser in Quilter Financial Advisers.

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