Defined Benefit Pension Review

I have a Defined Benefit pension entitlement and I want to review my options

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Defined Benefit Transfers (40 second read)

A defined benefit pension (also known as a final salary pension) is one which promises a pre-defined level of benefit in retirement (such as 50% of final salary), proportional to your length of service, payable until death. The benefit is defined and contributions to the pension (normally made primarily by the employer) are not defined.

The Defined Benefit pension used to be considered the Rolls Royce of pensions however in recent years many Defined Benefit schemes have become insolvent (their calculated liabilities are greater than their assets) due mainly to people living longer and annuity rates being lower (which increases the cost of providing benefits). Some schemes have been wound up and some have reduced benefits. As such, for some people these schemes have only created the illusion of security in retirement.

For more information on the pros and cons of staying in or leaving a Defined Benefit Scheme please read this blog post.

If you have a Defined Benefit pension it may well be worth your while finding out what your transfer value is and whether the scheme will make an enhanced transfer value* available to you.

* sometimes the Trustees of a scheme may make a higher transfer value available to entice members to transfer out of the scheme. If you receive an enhanced transfer value offer you must seek financial advice without delay and make sure that you meet any deadlines specified

Taking a transfer value will give you greater flexibility regarding how you can take your benefits and it will mean that your capital is preserved for your dependents in the event of your death. We can show you the retirement options you have if you stay in the scheme and how these differ if you take a transfer value out to a product under your own control.

In general the transfer values which are made available to those leaving a Defined Benefit Scheme have increased in recent years, as a result of lower long term government bond yields. The yield on bonds has remained very low (and even negative) for some time but particularly since 2015. Inflation had been low but is now increasing and we are currently seeing an increase in bond yields.

It is wise then to keep informed of your options. If you ask us to review your Defined Benefit scheme we will;

  • Inform you of what benefits your scheme will provide in retirement and what retirement options you have
  • Show you the retirement options you have if you take a transfer value out of the scheme
  • Assess the adequacy of your transfer value and show you the return you would need to achieve from investing it in order to match the pension promised by the scheme
  • Explain the pros and cons of taking a transfer value

Another issue which very often arises is where a member of a pension scheme leaves an employment through redundancy and waives their right to take a tax free lump sum from the pension as part of this process. We can show you how to recover your right to take a tax free lump sum from your pension.

 

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The material and information contained on this website is for general information purposes only. Neither the writer nor Highfield Financial Planning Ltd makes any warranty as to the completeness, accuracy or reliability of the information or the suitability or availability of products or services, referred to on the website, for any purpose. You should not rely on any information contained on this website as a basis for making any financial, legal, taxation or other decision. The information presented does not include all the considerations which are relevant to the topic discussed as to do so would render it un-readable. When considering any financial issue you should seek the advice of a suitably qualified adviser.

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Best Pension Advice is a trading name of Highfield Financial Planning, the most client focused financial services company in Ireland. We provide superior advice on Retirement Planning for all types of pension available in the Irish market. As Specialist Investment Advisers we can also help you to manage the investment of your pension to achieve your income objectives in retirement.

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