What is a defined benefit pension?
A defined benefit pension or final salary pension as its otherwise known is a type of workplace pension. Rather than building up a pension pot over time, it provides you with a guaranteed annual income for life which is based on your final or average salary.
What are the benefits of transferring?
There are many reasons to transfer your pension and these will be specific to you and incorporate your attitude to risk. One reason could be that your current fund is closing and you have no choice but to transfer out. There are a few benefits including greater flexibility and being able to pass on any unspent pension to family members or loved ones when you die.
What are the risks?
Transferring out of a final salary scheme is unlikely to be in the interests of most people because of the loss of guaranteed income. After transferring you have to accept that the value of your pension and the income it can produce may fall as well as rise, and you could get back less than you invested.
Any potential advantages of transferring from a final salary pension to a personal pension are often outweighed by the costs, risks and loss of benefits involved. Your future pension income can’t be predicted and you’ll give up any benefits you had in the former employer’s scheme.
Get professional advice first
There are strict rules when it comes to anyone looking to transfer. If your fund is valued at £30,000 or more then you will need to seek professional advice. This rule is here to help people understand the benefits and risks for transferring their pensions. Even if your fund is below £30,000 you may still want to seek professional advice.
What are the next steps if I want to transfer?
At Pensionlite we have a team of financial advisers who can help provide no obligation advice about your current pensions and if transferring is in your best interests. Our advice process is clear and concise and if your current scheme is good then we’ll tell you why, giving you piece of mind. If they are not so good then we’ll recommend how they can be improved. If you would like to book a no obligation consultation with one of our experienced advisers then get in touch with us here.
The value of your pensions, investments and the income they produce can fall as well as rise. You may get back less than you invested.
Transferring out of a Final Salary scheme is unlikely to be in the best interests of most people.