Think Pension, Think Longhurst

Part 1 – Defined Benefit Pensions

This article forms a five-part series where we explore the world of pensions.

Yes you read that correctly; head-line grabbing, tax efficient, and dare we say, adventure initiating, PENSIONS.

What is a defined benefit pension?

A defined benefit pension scheme, sometimes called a final salary pension scheme,is one where the sponsoring employer promises to pay out an income based on how much you earn when you retire.

Unlike defined contribution (DC) or money purchase pensions, the amount you’ll get at retirement is guaranteed, and it will be paid directly to you. You don’y have to invest any money. You don’t have to make any real decisions, bar when to start to receive it.

Pension freedoms & transferring your pension

Since April 2015 any defined benefit (final salary) scheme member with a transfer value over £30,000 who is looking to transfer their benefits to a defined contribution (money purchase) scheme will need to receive appropriate advice from an authorised Independent Adviser before their scheme can effect the pension transfer.

In most instances it is unlikely that your defined benefits will be fully replicated by transferring the value of your scheme into a new money purchase arrangement. However, and important to understand, other important benefits might be of a materially greater value to you and your family, especially with the 2015 pension freedoms act being introduced

For example, someone looking for the control and flexibility to take a higher income between retiring and receiving another pension income such as their State Pension. Or a family who are attracted to multigenerational planning opportunities available by the flexible death benefits currently accessible to them within the money purchase scheme.

The reality

The one thing we can be sure of is that everyone’s retirement will be different and it’s critically important that before you make a decision you first seek out expert advice, where the firm you work with first takes time to fully understand who you are, your situation, and your plans for the future.

By taking this approach the advice firm will be better placed in ensuring that their clients are fully aware of the implications and risks of transferring their benefits, and are in the best possible position to make a clear and informed choice.

Next steps

If this article raises spikes an interest, or raises a question, please let us know.

All discussions are confidential and initially held at our expense.

Part two of this series focuses on Personal Pension Plans (Defined Contribution/Money Purchase).

Think Pensions, Think Longhurst.

A pension is a long term investment, the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.

Information is based on current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change.

The value of your investment can go down as well as up, and you can get back less than you originally invested.

By transferring your occupational pension scheme benefits into a personal arrangement, you may be giving up rights to guaranteed benefits, known levels of pension income and increases that will be applied in the future.