Defined Benefit Pension Transfer
Defined Benefit Pension Transfer
So, you’ve decided you want to transfer your defined benefit pension (final salary pension/workplace pension).
Moving your DB pension can be a challenge. And doing so requires a lot of factors to take into consideration before doing so. It’s a requirement to take advice from a suitably qualified independent financial adviser where the Cash Equivalent Transfer Value (CETV) is valued over £30,000.
At Dominion Financial Management, as a qualified independent financial adviser (IFA) and regulated by the Financial Conduct Authority, we can advise and assist you on making the right decision for you and your circumstances.
Understanding the pros and cons of moving your defined benefit pension into a defined contribution pension or to other defined benefit pension schemes (for example, if you are switching to another defined benefit pension with a new employer) is vastly important. We understand the complexities and legislation surrounding DB pension transfers, so we can provide advice to ensure that you get the best possible outcome.
We can help you to understand different investment strategies and the impact of inflation on your retirement savings. Furthermore, we can also provide assistance in setting up a pension plan and advise on how to pick the right type of investments for your needs.
We have experience in helping clients review their existing pensions and making sure that they are tailored to their individual needs. Our IFA’s also have access to a range of pension products from leading providers, enabling us to find the most suitable option for you.
At Dominion Financial Management, our IFA’s can provide comprehensive advice to ensure that you make an informed decision about your DB pension transfer. We will work with you to assess your current financial situation and discuss your long-term objectives before helping you to decide what is the best course of action for you.
What is a defined benefit pension?
It’s a workplace pension that your employer provides, guaranteeing you a regular income for the rest of your life when you retire.
There are many types of defined benefit pension schemes, and the rules vary from scheme to scheme. These can range from increases in income, to after death benefits passed on to your dependants.
Defined benefit pensions are commonplace in government and public sector organisations, but are also available in some private sector based organisations/companies too, normally large PLC’s.
Who can transfer a defined benefit pension?
Not everyone can transfer out. Some DB pension schemes restrict transferring out the funds. Notably, certain public sector or government organisations often don’t allow for transferring out. This is because the fund is unfunded and paid for by the taxpayer.
Prior to seeking advice on a defined benefit pension transfer, it’s best practice to check with your current pension scheme provider or administrator to see if you can transfer out your fund.
Enhanced / Incentivised CETV (Cash Equivalent Transfer Value)
The transfer value (CETV) of your defined benefit pension is calculated by your current scheme administrator/provider. This is the ‘pension pot’ figure calculated taking into account different factors on the valuation of your pension fund at the time of calculating. You can ask your pension scheme administrator on how your CETV is calculated, as they can differ from scheme to scheme.
DB pension schemes are expensive to administer and deliver by employers, so sometimes, you can be offered an incentive to transfer out your DB pension with an enhanced transfer value. These sometimes come with restrictions, such as date deadlines for transfer.
Again, it’s best practice to check with your current pension scheme administrator whether there is an incentive to transfer your DB pension out. If so, what incentives are available and what are the rules or restrictions surrounding the incentivised transfer.
Defined Benefit Pension vs Defined Contribution Pension
Before transferring your DB pension to a DC pension, you have to take into consideration the differences between the two types of pension schemes.
Defined benefit pensions normally provide a guaranteed level of income for life in retirement. However, at which age you can take this in retirement is normally higher than a defined contribution pension (post 60+). The liability of your income in a DB pension is met by the employer, despite how badly the scheme performs. The risk of funding the scheme lies with the employer. Also, the scheme could come with benefits such as inflationary increases to your income.
With a defined contribution pension, the risk comes as the funds are invested in assets (stocks/shares/bonds/property) and in the event of market fluctuations, your fund could be worth less than you paid in. However, with a DC pension, you have more flexibility to draw down funds at 55, with tax advantages with doing so (25% tax-free lump sum). Flexibility also comes with how you invest your fund.
What does it cost to transfer your defined benefit pension?
We charge a fixed fee, regardless of your transfer value. Depending on where you are transferring to, will determine if you have to pay the fee from your own pocket, or if you can pay the fee from your fund you are transferring. Fees and payment options will be discussed on our first consultation call.
What are the benefits of transferring a defined benefit scheme?
There are a significant number of benefits by transferring your defined benefit pension over to a defined contribution pension, some are:
- You gain flexibility on where to invest your fund
- You can access your defined contribution fund at the age of 55
- You can draw down a cash lump sum (25% tax-free)
- You can diversify your investment to reduce risks / higher returns
- Flexibility of leaving money to dependants / loved ones if you die
- Flexibility of drawing down your funds as and when
To move your transfer forward, you can arrange a call with us to start the initial consultation. This is a free, no obligation consultation to see if a transfer is suitable for you.
As an FCA regulated adviser, we undertake strict investigation and assessment procedures prior to advising you on a transfer out of your defined benefit pension. We will establish if you are suitable for a transfer and if it is in your best interests to do so.
Transferring your defined benefit pension requires careful consideration/calculation of the risks and loss of benefits, weighed up against the benefits and potential gains of a defined contribution pension. As an IFA, we can provide this service to you, giving you peace of mind.
To find out more, you can contact us by clicking HERE, to arrange an initial call to discuss your individual circumstances.
Get in touch with us today.
You can call or telephone us on 01829 423140
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Dominion Financial Management Ltd are a team of independent financial advisers based in Cheshire.
We are authorised and regulated by the Financial Conduct Authority, no. 763604
We are a registered company in England and Wales, no. 09427666
Whilst every effort is made to ensure that the information contained within this page is correct, these notes are by necessity brief and of a generalised nature. We would recommend and provide specific personalised independent financial advice and investment advice prior to finalising any arrangement with you.
A pension is a long term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates, and tax legislation. This article is intended to provide a general appreciation of the topic, and it is not advice.