What is a Defined Benefit Pension?

Defined benefit pensions

What is a Defined Benefit pension? What are my options? How will my pension provide for my retirement? Any decisions you make about your Defined Benefit pension will affect the income it will provide for the rest of your life – so its important to understand how it works.

What is a Defined Benefit pension?

A Defined Benefit (DB) pension is a type of workplace pension, based on your salary and years of service. If you are a member of a Defined Benefit pension scheme, you can have a high degree of certainty as to what you have as an income in retirement.

Defined Benefit pension schemes typically have a retirement age of 65, when your employer will stop contributing and start paying you an income. This will depend on your scheme.

Although there are options with these types of pension, you should always consider how this will affect you and your financial future. This is where Independent Financial Advice can help.

Not sure if you have a DB pension?

There are several types of pensions, but the two main types are ‘Defined Benefit’ and ‘Defined Contribution’. The latter is based on the contributions you and your employers pay into a pension scheme.

If you’re not sure what type of pension you have, you can get in touch with your pension provider.

Considering your benefits and options with your DB pension

Defined Benefit pensions can provide valuable guarantees that come at considerable open-ended costs to employers. As such, some are closing to new members and offering alternative workplace pensions in defined contribution schemes.

A lot of DB schemes are winding up - Defined Benefit Pensions

Why is a Pension Transfer Specialist so important to the process?

From accessing pension benefits to remaining in the scheme, there may be a variety of options that available to you. For some of these options, it is a regulatory requirement to obtain advice on your DB pension.

A qualified Wren Sterling financial adviser will look at the ‘whole picture’ of your finances, considering any other pension provisions or investments you may have, as well as your appetite for risk, and any provision in place for your spouse. The adviser will discuss these scenarios with you, and help you understand how your current benefits can be used to meet your objectives for retirement.

Your qualified Wren Sterling adviser can also look at other areas of your financial plan to help you achieve goals that are important to you. For example, if you wish to leave a legacy, an adviser can look at alternative ways of providing this such as whole of life cover or funding an alternative pension if appropriate.

What does the process look like?

At Wren Sterling we have organised our DB advice process into a series of stages.

Stage 1

      • Fact find – First, we conduct a ‘fact find’ to learn about your finances and how you want to manage them and assess your financial objectives.
      • Feasibility assessment – This allows us to establish whether or not a transfer may be more suitable to help you achieve your future objectives, or if it would leave you worse off in the long run.

Stage 2

      • Analysis – We’ll carry out a transfer value analysis report and make an assessment on which of your options would be most suitable to you.
      • Recommendation – The adviser will confirm whether or not a transfer is possible. If a transfer is a possible outcome, they will then recommend an appropriate investment strategy aligned with your financial goals.

Stage 3

      • Completion – In this final stage, Wren Sterling would carry out the required actions to complete your Pension Transfer and any associated advice recommendations.

Each stage has an associated cost. You will need to decide whether or not you wish to proceed to each stage, depending on our Feasibility assessment. All fees and charges specific to your recommendation will depend on the product and provider recommended, will be personalised and detailed in your Suitability Report if this does progress to Full Advice.

Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits.

Accessing pension benefits is not suitable for everyone. You should seek advice to understand your options at retirement.

The value of an investment and income from it can go down as well as up, capital is at risk.