Thinking of transferring your defined benefit pension? Read this first

When planning for your retirement, you need to make sure that the financial decisions you make will help you achieve the lifestyle you hope to enjoy in later life.

If you're in a defined benefit (DB) pension scheme – sometimes called a “final salary” pension – you can potentially transfer out of it into a defined contribution (DC) pension.

Whether transferring this type of pension is the right move for you requires serious thought and consideration.

A DB pension transfer isn't suitable for everyone.

Seek independent advice from a financial planner before you act because you can't change your mind once it's complete. Read on to understand more about DB transfers, the key considerations, and the effects a transfer could have on your retirement plans.

A DB pension gives you a guaranteed income for life and more besides

When you retire, the income from a DB pension will usually be based on a rate set by the scheme. Often, this is a percentage of your salary for the number of years you’ve been a member of the pension scheme.

Depending on the scheme rules, you may receive other benefits. These might include:

• A guaranteed income for life, so there’s less risk of running out of money in retirement

• An income for your financial dependants after you die. Although scheme rules vary, dependants will usually receive a proportion (for example half or two-thirds) of the pension income you were receiving before you died.

• Income that usually increases over time, which helps to protect against inflation. Again, although scheme rules vary, there are minimum increases all DB schemes must provide.

• Your pension income isn’t affected by the ups and downs of the stock market. Scheme investments are managed by professionals and, even if they perform poorly, your guaranteed income must be paid in full.

Transferring a DB pension must be considered with care

Some DB schemes – for example, teachers’, Civil Service and NHS schemes – can't be transferred.

Other schemes may allow it, but you’ll need to check with the scheme provider to see if this is a possibility for you.

Where it is possible to transfer a DB pension, you’ll need to handle it with a great deal of care and attention. Because it’s important to have a very clear idea of the benefits you'll be forfeiting, many providers won't allow you to make a transfer without expert advice.

Giving up the right to a guaranteed income in retirement is a big decision. And there are other aspects of the decision that you also need to be aware of, including that:

• Advisers can only recommend a transfer after a full investigation of your personal and financial circumstances so that they understand your retirement goals and can show that a transfer is clearly in your best interest.

• The Financial Conduct Authority (FCA) insists that you take financial advice before transferring if the cash equivalent transfer value (CETV) of your DB pension is over £30,000. It is also highly advised that you get advice for anything below £30,000.

• You can't transfer if you're already taking an income from the scheme.

• If your adviser recommends a transfer and you go ahead, the trustees running your DB scheme will convert your accumulated benefits into a CETV, which can then be transferred to a DC scheme.

If you have a DB pension and would like to know if transferring it is the right option for you, we can help.

We carry out a thorough investigation of your pension scheme and discuss the advantages and, more importantly, the disadvantages of each of the options and will answer any questions you may have.  

We provide you with a detailed report written in plain English. This will include details of all the costs involved and outline the best option for you.

4 reasons you may want to consider transferring your DB scheme

There are several circumstances in life that may lead you to want to transfer your DB pension scheme into another arrangement. Some of the most common reasons are:

1. You’re changing jobs and want to move it to a new employer’s scheme. In this case, your scheme administrator should inform you of your choices when you leave.

2. Your current scheme is about to close or be wound up – unfortunately, this isn’t unusual and commonly happens if a company fails.

3. You’re looking to move your DB pension into a DC scheme to take advantage of Pension Freedoms legislation. Be aware, in most cases this is unlikely to make financial sense as you could miss out on valuable benefits, as outlined above.

4. You’re moving overseas.

Transferring your DB pension when moving overseas

If you’re relocating overseas, you have a couple of options: you can leave your pension pot in the UK and draw money from abroad, or you can transfer the entire pot abroad.

You can also mix your options; you might decide to leave one pot in the UK and move another overseas.

As always, there are pros and cons attached to each decision:

• If you leave your pension pot in the UK, your choices, such as how you withdraw the benefits, will remain the same.

• Taking your pension overseas can cause tax problems, for example, you may be taxed on your tax-free lump sum if you haven’t already taken it.

• If you do transfer overseas, you might be charged a fee for having the pension paid into an overseas account.

• If you move overseas, you can stop paying into the pension and start taking money out from age 55 (increasing to age 57 from 6 April 2028). You can continue paying into it, but you may not benefit from the same tax relief.

• You can only transfer if your overseas scheme is recognized by the HMRC as a “qualifying recognized overseas pension scheme” (QROPS).

• If you leave your pension in the UK, note that when you retire, income will be paid in pounds, so if exchange rates don’t go in the right direction, you could see your income drop.

Seek independent financial advice

Anyone considering a UK pension transfer should seek independent financial advice before making a final decision.

Your pension may be the most valuable asset you own, so make sure you protect it by doing as much research as possible into the advantages and disadvantages of a pension transfer before signing on the dotted line.  

We are happy to chat about your situation and answer any questions you may have about pension transfers. Identifying the most suitable option is a service we offer at no cost or obligation to you.

Get in touch

If you’d like help to understand if transferring your DB pension is right for you, or to discuss any other aspect of your retirement plan, get in touch. Email or call us on +44 1689 493455.

Please note: The content of this newsletter is offered only for general informational and educational purposes. It is not offered as and does not constitute financial advice.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

Workplace pensions are regulated by The Pensions Regulator.

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