When they retire as an employee, some individuals are members of a Defined
Benefit (DB) pension scheme. Also known as a ‘final salary pension scheme’, it
promises income payout based on your earnings when you retire. DB pensions are
different from Defined Contribution (DC) pensions, as the amount you will
receive at retirement is already guaranteed and paid directly to you.
You may want to consider a DB pension transfer if want to give up the
benefits of the scheme in exchange for cash value, which you can invest in
another type of pension scheme. Here’s what you need to know about transferring
out of your DB pension scheme:
- What
you cannot and can transfer: You will not be able to transfer your pension
if you are in an unfunded public sector pension scheme. A DB pension
transfer is possible if you are in a funded public sector pension scheme
or a private sector DB scheme.
- How
it works: If you decide that a DB pension transfer is best for you, the
trustees running it will convert the benefits into a cash sum. Known as
the ‘transfer value’, this can be invested in a pension scheme with a new
employer, a stakeholder or personal pension, or an SIPP (Self-Invested
Personal Pension). Keep in mind that not all personal pensions, SIPPs, and
employer pension schemes will accept transfers, so check with them first.
- Beware
of scams: Beware of claims telling you that you can transfer your pension
for cash before age 55 and statements claiming that you can get more
returns in a new pension scheme than your current one. In most cases,
these are risky moves and are likely a scam. Keep in mind that you can
transfer your DB pension to a new a scheme and receive cash out of the
action if you are at least 55 years old or older.
The best way to go about a DB
pension transfer is with the guidance of a regulated financial adviser.
That way, you can understand the process of transferring your defined benefit
pension, avoid the guesswork, and make an informed decision. Make sure that the
financial adviser is credible and experienced, and that their practice is based
on the Pension Transfer Gold Standard, so you can trust their ability to give suitable
guidance according to your best interests.
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