What is a defined benefit scheme?
With a defined benefit scheme (or final salary pension as they are often called), the pension you receive at retirement is directly related to your final salary before retirement and the number of years of service you have had with your employer.
As your salary in the years leading up to your retirement is normally at its highest, this method of calculating retirement benefits will secure a very good pension, particularly if you have been with the employer for several years. The retirement pension benefits are often topped up with additional provision for a spouse and dependants’ pension, inflation proofing or escalation of income. Many schemes also offer a tax-free lump sum in return for a reduced level of income.
A good scheme to stay in
Given the option, most of us would opt for a final salary scheme, if one is available. Unfortunately, final salary pensions are very expensive to provide and the majority of employers have changed to money purchase (or defined contribution) pension schemes.
If you are lucky enough to be in a final salary pension scheme, it is normally good advice to stay in it. However, there are circumstances such as ill health, which might make it beneficial to move your benefits to a money purchase arrangement. Changes to the pension income and death benefit rules have made moving defined benefit pensions to a personal pension attractive for some people.
The importance of seeking professional advice
Eastcote Wealth Management has years’ experience in this area and can help you to access the pension options available to you and help you to maximise your pension on retirement. Please be careful with your hard-earned pension savings and think very carefully before cashing them in or moving them. If you’re offered a scheme which seems too-good-to-be-true, it probably is. For further information, see www.pensionsadvisoryservice.org.uk/pension-problems/making-a-complaint/common-concerns/pension-scams.
Please do not hesitate to contact us if you would like to discuss your retirement options in more detail. Remember, we offer a free no obligation consultation and will be happy to help if we can. We take a holistic and long-term approach to wealth management, opting to build a lasting relationship with you and provide a tailored solution for all of your investments.
A pension is a long-term investment. The fund value may fluctuate and can down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. Occupational pension schemes are regulated by the pensions regulator.