Understanding Defined Benefit Transfers
Since the Pension Freedoms Act in 2014, many individuals are exploring the option of transferring out of their Defined Benefit (DB) scheme into a Defined Contribution (DC) scheme.
A defined benefit transfer allows you to swap a future pension entitlement in a defined benefit (final salary) pension scheme, for a cash sum that must be put into a registered, or HMRC recognised, pension scheme.
Before considering this, you must understand the risks involved and what you may be sacrificing if a transfer takes place. It is now a legal requirement to seek financial advice before transferring if your CETV is greater than £30,000. To give you a better understanding, we have put together some additional information to help you understand and determine what is right for you.
The FCA have stated in their guidance that when assessing a transfer out of a pension scheme with safeguarded benefits (such as a Final Salary scheme offering a guaranteed income in retirement), a firm should start with the assumption that a transfer will not be suitable.
They also state that as benefits from pension schemes cannot be accessed before age 55, it is highly unlikely that a transfer from a Final Salary scheme would be considered to be suitable before that age. The only possible exceptions could be serious ill health or Pension Protection Fund issues.
Deciding whether to transfer your benefits from a Defined Benefit scheme to a Defined Contribution scheme is a very important decision, that will affect the rest of your life.
It is crucial that you research the decision fully and take qualified financial advice. If you need further guidance on your retirement, please contact us on 01482 219 325 or by emailing firstname.lastname@example.org.
Further information regarding Defined Benefit pension transfers has been provided by The Money Advice Service. Click here to view.