Defined Benefit Pension Transfer | Money Saving Advisors
Learn about transferring a final salary (defined benefit) pension and what to consider before moving it.
What is a defined benefit pension transfer?
Defined benefit (DB) pensions - often called "final salary" or "career average" schemes - promise a guaranteed income for life based on your salary and years worked. Transferring means moving this guaranteed pension to a different pension plan, usually a defined contribution (DC) scheme. It's a big decision that could affect your retirement, so knowing the ins and outs is vital.
Before transferring
Security vs. flexibility
- Defined benefit pensions offer a guaranteed income for life, which can be good for peace of mind.
- Transferring to a defined contribution scheme may offer more control over your savings but comes with investment risks.
- Think about whether you want the security of a fixed income or the potential growth of investments.
Costs and charges
- Transfers can come with fees, including advice charges and admin costs.
- You could lose valuable benefits such as spouse's pension or inflation protection.
- Always check if the transfer value reflects your true pension worth.
Thinking about a transfer?
Get professional advice
- If your transfer value is over £30,000, you must get regulated financial advice before transferring.
- An advisor can help you understand if transferring makes sense for your goals and circumstances.
- Beware of high-pressure sales tactics or promises of quick, risk-free gains.
Understand pension options
- Defined contribution pensions let you choose investments, but values can go down as well as up.
- You might have more freedom over how and when you take your money.
- Consider the long-term impact, including tax implications and future retirement income needs.
Summing up
Transferring a defined benefit pension is a major financial move. It can offer flexibility but may sacrifice guaranteed income and security. Weigh up the benefits and risks, and always seek expert advice. Your future retirement depends on making an informed decision that suits your lifestyle and goals.
Frequently Asked Questions
Can I transfer my defined benefit pension without advice?
In the UK, if your transfer value is over £30,000, you're legally required to get regulated financial advice before transferring your defined benefit pension. That's because transferring is a complex decision with long-term consequences. A qualified advisor will help you understand the risks and whether transferring fits your circumstances and goals. Without advice, your transfer request may be rejected.
What happens to my spouse's pension if I transfer?
Many defined benefit pensions include valuable benefits for your spouse or dependants, often called a spouse's or dependants' pension, which gives them an income after you pass away. When you transfer out of a DB scheme, these guarantees often disappear, so your spouse might not receive any ongoing payments. It's essential to carefully check what benefits you might lose before making any decisions.
Is transferring a defined benefit pension always a good idea?
Transferring a defined benefit pension isn't always the best choice. It can offer more control over your pension savings and access to different investments, but you give up the security of a guaranteed income and often inflation protection. If you want stable, predictable income, staying put might be better. It's a very personal decision that depends on your financial goals and the risks you're comfortable with.
How is the transfer value calculated?
The transfer value is an estimate of the cash amount your defined benefit pension scheme will pay to another provider in exchange for giving up your guaranteed benefits. It's based on factors like your age, salary, years of service, and current interest rates. This figure doesn't guarantee how much income you'll receive in retirement - it's a lump sum that you'll need to invest wisely.
Can my pension savings decrease after transferring?
Yes, once you transfer your define benefit scheme into a defined contribution scheme, your pension is invested in the stock market or other assets. These investments can go up or down, so the value of your pension pot isn't guaranteed and could fall, especially in the short term. Unlike your defined benefit scheme's fixed income promise, your retirement income depends on investment performance and your choices about when and how to withdraw money.
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