Defined Benefit (DB) Transfer - Understanding Risk
Probably the biggest advantage of a Defined Benefit scheme is that it protects you from risk.
Even in the event that the sponsoring employer of your Defined Benefit scheme becomes insolvent and there are insufficient assets in the scheme to cover all of its pension commitments, you can still claim compensation from the Pension Protection Fund (www.pensionprotectionfund.org.uk).
If you move to a Defined Contribution scheme, you personally take on all of the following risks:
- Inflation Risk – The risk that you have less money to live on in real terms because of the cost of goods and services increasing.
- Longevity Risk – The risk that you outlive your savings.
- Sequence of Return Risk – The risk that your savings run out because of poor investment returns in the early years.
- Volatility Risk – The risk of the value dropping due to the unpredictable volatility of the underlying assets.
If you require additional information about the risks involved, feel free to contact us and we’ll provide you with additional information.