Defined Benefit pension advice

Do you have a Defined Benefit pension?

Final salary pensions are designed to provide an income for life. Final salary or defined benefit (DB) pension transfers may be an option for some members of these schemes.

The transfer of a Defined Benefit (DB) scheme could be the single biggest financial decision you ever make and it’s vital to make the right decision to support you and your family in retirement. In order to move out of a final salary scheme, your adviser must be able to demonstrate that it is in your best interest. Wren Sterling is authorised to advise clients on the suitability of the options available.

Do I need to take advice for a pension transfer?

Transferring a Defined Benefit pension is a highly involved process that requires the creation of a specialist report and pension transfers can only be advised upon by specially qualified financial advisers.

The Government has made it a legal requirement to seek financial advice before you can transfer. This rule is there for your protection, and to make sure you are aware of all the advantages and disadvantages when considering a defined benefit pension transfer.

How can I find out if a pension transfer could be right for me?

Arrange an appointment to see if a pensions transfer could be appropriate for you. The first appointment is always at no cost to you and all charges will be disclosed to you prior to any work taking place on your behalf. If you meet all the following criteria, we can potentially offer a Defined Benefit review:

  • you are resident in the UK and
  • at least 50 years old (or younger if your life expectancy is severely limited) and
  • you are a Deferred Scheme Member and have not opted out without advice, or you are an active member but your life expectancy is severely limited.

Your adviser will discuss the pros and cons of transferring your pension with you, but here are just some of the considerations which will influence this decision.

Reliance: Those who aren’t reliant on pension income from the scheme – because it represents only a small percentage of overall pensions or they have other substantial investments.

Early retirement: Those who have an immediate need for income and/or a tax-free cash sum, but the Defined Benefit scheme won’t allow early retirement, or the penalties are high.

Tax free cash: Those who have a specific need for tax free cash but the lump sum available from the scheme is not enough and may be higher following transfer.

Income flexibility: There is a specific need to be able to receive a variable income and/or take ad-hoc lump sums which could only be achieved by transferring.
The amount of income can be made in sync with any fluctuating income from other investments and/or employment or self-employment and could therefore be a useful tool for managing income tax.

Higher income: If an individual suffers from ill-health or is single, they may get a higher income by buying an annuity than they can get by taking an income from the scheme.

Death benefits: These are normally paid to a dependant (such as a surviving spouse or civil partner). Following death there is limited (if any) option for any value to be passed on to the next generation.

Age & location: You must be a resident in the UK and at least 50-years-old (or younger if your life expectancy is severely limited).

Reliance: Regardless of how adventurous their attitude to investment risk, the DB scheme pension is the main pension provision and they don’t have substantial other investments to fall back on.

Income guarantees: Those that need or want a secure, inflation linked, income in retirement.

Survivor’s pension: For many, provision of valuable secure pension for a spouse, partner or civil partner is important, especially if the partner will not have sufficient pension provision of their own.

Income flexibility: Whilst the ability to draw as much or as little income as required can be a useful tax planning tool, this brings temptation and retirement funds could be depleted quickly by drawing too much, too soon.
A client may be too cautious about making withdrawals due to the need to maintain an adequate fund for an unknown retirement term.
A secure income helps budgeting, which may be more important in retirement.

Lower income: If the invested fund performs poorly you could be much worse off in retirement than you would have been had you not transferred.

Death benefits: If the payment of death benefits is important, it might make more sense to review your protection policies to see if this could meet objectives without forgoing the security of DB scheme pensions.

Investment risk: If an individual has limited investment experience or a cautious attitude to investment risk or transfer risk paying for a review may be less effective.
Future retirement income would depend on investment performance after charges.

Please note, this list is not exhaustive and there may be other reasons, on both sides, for approving or rejecting a pension transfer request.

Pension transfer gold standard. Wren Sterling has been awarded the standard for the quality of their independent pension transfer advice.

Wren Sterling has been awarded the Pension Transfer Gold Standard, designed to help you recognise good practice, ethical and professional standards when seeking financial advice on pension transfers.

IMPORTANT: The value of your investment can go down as well as up and you may not get the back the full amount invested.

Accessing pension benefits early may impact on levels of retirement income and entitlement to certain means tested benefits. Accessing pension benefits is not suitable for everyone. You should seek advice to understand your options at retirement.