Defined Contribution Pension Transfer Advice

Defined contribution pensions build up a pension fund through your contributions, your employer’s contributions, tax relief and any investment returns from the pension funds. Your employer usually deducts your pension contributions from your salary before it is taxed.

A defined contribution pension fund does not offer a specified income at retirement. Unlike defined benefit pensions which offer a specific income at retirement. A defined contribution pension fund can grow, as well as fall, depending on how well the fund investments perform.

Many employers now prefer to offer their employees defined contribution pensions. This is because there is no risk to them as they will not have to cover any investment loses in the pension fund. With a defined benefit pension scheme, if the pension fund makes a loss through bad investment, it may not have enough money to cover the guaranteed pension payments to its members. This is known as a pension deficit and the employer will have to cover the funds loses to ensure its members receive their full pension payments.

• Personal Stakeholder Pensions
• Self Invested Personal Pension (SIPPs)
• Small Self Administered Schemes (SSAS)
• Workplace Pensions
• Executive Pension Plan
• Group Personal Pension
• Master Trust Pension

There are many reasons why you might be considering transferring your defined contribution pension into a new scheme or a self invested personal pension (SIPP), the main benefits being:

• Consolidate several small defined contribution pensions into a single pension scheme, reducing fees and charges across multiple pension funds.
• Better tax planning and less paper work; you will be able to have a clearer picture of your retirement income and plan for any pension shortfalls.
• Investment freedom, security and control; you may want to choose where your pension is invested, whether it be low risk, high risk or even ethical investments.
• Greater control of pension benefits such as death benefits, guaranteed annuity rate and the ability to draw down on you pension when it suits you.
• Move your pension fund from your ex employers or a poorly managed defined contribution pension scheme.

Before you transfer any defined contribution pension you need to consider the following risks:

• Cost of any exit and transfer fees when moving your pension to a new scheme.
• Loss of Safe-Guarded benefits offered from your previous scheme.
• Loss of guaranteed annuity rate that you are entitled to.
• What sort of investment risk are you willing to take with your pension fund.

If your defined contribution pension benefits are worth more than £30,000 and you have a guaranteed annuity rate you’ll need the transfer signed off by a FCA regulated adviser, such as ourselves. This rule is there to protect you and ensure you are fully aware of the risks.

• Money Helper – Transferring defined contribution pensions
• The Government – Pension Types
• The Pensions Regulator – Retirement options for DC members
• Money Helper – Defined contribution: Money purchase schemes