Final Salary Schemes
Do I Transfer or Not?
Are you in Two Minds about the Benefits of Pension Transfers?
Conventional wisdom would suggest that members of final salary schemes, otherwise known as defined benefit schemes hold onto any pension benefits within the scheme and it’s easy to see why. Defined benefit schemes provide a guaranteed income for life with little risk and without any work required on the part of the member.
Why would you transfer a defined benefit pension?
The Recent Pension Revolution
The Government started a pension revolution that is having a profound impact on the way people can make use of their pension savings in retirement. Changes in rules and tax implications for those with personal pension accounts at retirement age came in to effect in April 2015 making them considerably more attractive.
These new changes however, do not apply to Defined Benefit Schemes.
Defined Benefit Pension Transfers
Defined benefit transfers are not new however, considered opinion has been that that for the vast majority ‘best advice’ is to stay in schemes and so the option of a transfer has often only been brought to the attention of those with very high transfer values and by specialist advisers. In most cases they simply have not been discussed with members.
The vast majority of financial advisers are not qualified to advise on these types of transfers, or have been prohibited from advising on them by compliance departments viewing them as too complex and too risky (for the adviser that is). So the transfer option has been largely un-discussed.
Defined benefit pension transfers are only available to deferred members
A deferred member is someone who has stopped paying into the scheme and is yet to start receiving their pension. As a deferred member of a defined benefit pension, your preserved pension benefit will be held within the scheme until you either retire or choose to transfer it to another registered pension arrangement. Once a defined benefit pension is in payment it cannot be transferred. Moreover, unfunded defined benefit pension schemes, which include most public sector schemes, cannot be transferred to personal pensions.
Following public consultation on the pension reforms announced at Budget 2014, the Government confirmed that transfers out of funded defined benefit pension schemes would be permitted. In doing so, it acknowledged that the additional pension freedoms and flexibility may increase interest from final salary members wishing to transfer from Defined Benefit pension benefits to Defined Contribution pensions
Defined Benefit to Defined Contribution transfers and conversions
In response, The Pensions Regulator issued a consultation document titled ‘DB to DC transfers and conversions’ dated February 2015. This document set out the regulators guidance for final salary pension scheme trustees and included implementation of the requirement for appropriate independent advice.
In short, the guidance stipulated that trustees of defined benefit pension schemes are required to check that deferred members wishing to transfer defined benefit pension, of £30,000 or more, have received independent advice from an independent Pension Transfer Specialist, who is authorised and regulated by the Financial Conduct Authority. And that the firm or individual has the relevant Transfer permissions from the FCA in place. Click the link to the FCA website to see our Transfer Permissions.
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Bailey Richards Wealth Management Ltd
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The guidance contained within the website is subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK