Things You Need to Know About Defined Benefit Pension Transfer

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.