Transfers From Defined Benefit Pension Schemes
For many years now, transfers out of a defined benefit scheme have been strictly taboo. However, for a number of reasons, that stance is gradually changing.
A Defined Benefit pension scheme is a particular type of scheme run by an employer for the benefit of its employees. They are also known as Final Salary Schemes. It promises to pay an income in retirement which usually increases in payment. If the individual dies, some of the rights to the income typically pass to a surviving spouse in payment, but there is usually no pot of money to pass on to the next generation.
It is because of this gold-plated nature of such schemes that transferring the money into a private arrangement – where the income is dependent upon investment returns – has long been a no go area.
That hard line has recently softened. Transfer values are impacted by interest rates, and because rates are so low, in some circumstances the fund values have risen significantly.
The starting position on defined benefit schemes is still going to be that taking the guaranteed income is the best thing to do, especially if that income is going to form the bedrock of retirement income. However, if the transfer value is generous enough and there are other compelling reasons why having a pot of money is preferable to the secure income, the benefits of transferring should be assessed.
Ovation are well placed to advice on such issues for two reasons.
- We have Pension Transfer Specialists within our team (a specific designation from the regulator, the FCA)
- We believe in coaching and life planning before giving investment or pensions advice
This means we can help people take a wider view on their various assets, including any defined benefit pensions.
The advice may well still be to keep the pension schemes, in fact it often will be. But it’s good to know that there are now other options to explore.
But remember – guaranteed benefits are not given up lightly, so it is essential that expert advice is sought.