Is it time you reviewed your deferred defined benefit pension (DB), also known as a Final Salary Pension Scheme?
DB transfer values have increased significantly over the last few years, however there is a growing school of thought suggesting that transfer values may be at, or close to, their peak. This means that if you do want to transfer your DB pension, by exchanging your annual income into a cash equivalent transfer to a defined contribution (DC) scheme, also commonly known as a personal pension, you should do so soon.
So why have transfer values increased so much?
Increasing longevity is one reason, we are all living longer and therefore a DB pension is likely to be paid for longer than we all expected 20 years ago. When you add in falling investment returns and falling gilt yields the cost to secure your annual pension promised by your then employer/pension scheme is going to cost the scheme a lot of cash.
Should you stay or should you go?
That’s a difficult question to answer, what we do know is that if your transfer value is larger than £30,000 you are required by law to get Independent Financial Advice before making a decision.
Giving up a guaranteed, inflation proof, income, which is payable for life, and then an income to your spouse for the rest of their lives is a guarantee that many may not feel comfortable giving up and rightly so if you do not have other resources to rely on in retirement.
A DC scheme does not offer any guarantees of income to either you or your loved ones. So if you are attracted to a secure lifetime income, delivered with very limited risks and without effort on your part then keeping your DB pension until you retire is probably the best outcome.
But what if you are not concerned about a guaranteed income for life, because you need access to your pension scheme early to pay off debts or just retire early? You may want to draw a larger income in the early years of retirement than you might need in the later years. You may have significant assets outside of your pension; indeed you could have no financial dependents and or a shortened life expectancy for medical reasons.
If that’s you, then you should seriously consider reviewing your DB pension scheme.
Royal London has just produced a guide on what you should consider when reviewing your DB pension scheme, click here to download.
At Cullen Wealth we are Independent Financial Advisers who are qualified consultants and we have a technical team that can help you consider if you should stay or go. Please do contact us in the normal way.