Defined Benefit Pension Transfer

Specialist FCA Regulated Advice

What are the benefits of transferring or releasing cash from your defined benefit pension early?

If you are 55+ and have a defined benefit pension you are not currently paying into or receiving, you can probably transfer it into a new flexible arrangement; and if you need to, release up to 100% as a cash lump sum, the first 25% is usually tax free.

The question is, should you? The starting point, is that transferring a defined benefit pension is not a good idea so read on to find out more.

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Release cash now

Release 100% as cash a lump sum. The first 25% can be released tax free, the rest is taxed at your marginal tax rate at the time you take it, which could change in the future.

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Investment Freedom

You take control of your money and invest it how you want, including how much risk you want to take and whether the option of ethical/green investments interest you.

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Flexible Retirement Options

You can take money out of your pension from age 55. You don’t have to access it all in one go, you now have more choice and flexibility in how you take it and when.

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Improved Death Benefits

You can ensure that any money invested in your pension will pass onto whomever you like, whether that is your spouse, partner, children or grandchildren or even a friend or charity.

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Release cash now

Release 100% as cash a lump sum. The first 25% can be released tax free, the rest is taxed at your marginal tax rate at the time you take it, which could change in the future.

Investment Freedom

You take control of your money and invest it how you want, including how much risk you want to take and whether the option of ethical/green investments interest you.

Flexible Retirement Options

You can take money out of your pension from age 55. You don’t have to access it all in one go, you now have more choice and flexibility in how you take it and when.

Improved Death Benefits

You can ensure that any money invested in your pension will pass onto whomever you like, whether that is your spouse, partner, children or grandchildren or even a friend or charity.

FCA Defined Benefit Pension Transfer Advice

If you have an old defined benefit (DB) pension scheme, you might be thinking about transferring it into a more flexible personal arrangement, so that you can take greater control of your pension regarding when and how you access it.

If this is the case and the Cash Equivalent Transfer Value (CETV) of your old pension is worth £30,000 or more, then the regulations stipulate you must get professional advice from a fully qualified Pension Transfer Specialist (PTS) who is authorised and regulated by the Financial Conduct Authority (FCA).

The rules surrounding pension transfers are complex, so our job here at Grove is to help translate and explain to you the options that are available, into plain, easy to understand English.

Defined benefit pension transfer advice is heavily regulated by the FCA and they have set out thorough and detailed regulations surrounding it. The regulations are there to protect you and your pension, making sure you’re aware of all the pros and cons before you decide to transfer it.

Here is the FCA video, which aims to help consumers better understand what defined benefit pension transfer advice should look like.

NO OBLIGATION

FREE INITIAL CONSULTATION

Get your free pension review and receive specialist FCA regulated advice for transferring your pension.

Receive expert advice from Grove Pension Solution for free. It’s only if you decide to proceed to full advice that a fee will be charged.

DEFINED BENEFIT PENSION TRANSFER

Know your options

DEFINED BENEFIT PENSION TRANSFER

Know your options

If you would like to know your options we can provide a free no obligation consultation. As part of this we will look at:

  • What existing pension plans you have in place.
  • Whether you have the right type of pension to transfer.
  • What your plans are for retirement.
  • How much cash you can release.
  • Your taxation position.

Our initial free consultation will tell you if transferring your pension is not suitable.

In order to establish if transferring your pension is fully suitable for you, we will need to carry out further analysis, which means you agreeing to progress to full advice, for which there is a charge.

Which option is best for you depends on your circumstances, and what’s important to you. Everyone’s circumstances are different.

We guarantee that we will present you with a clear set of recommendations in plain English, only advising you to transfer your pension if we believe it’s in your best interest.

Furthermore, we will not hassle you with lots of calls and will only act on your behalf when you provide us with signed written confirmation.

Warning

This service only applies to pensions in the UK. Transferring away from a defined benefit pension scheme means you will lose valuable guarantees.

Taking benefits early will almost certainly reduce your pension income in retirement and is only suitable for a limited number of people and circumstances. This should not be seen as an easy option for raising cash.

If you release all your money from your pension early you will not have anything left to provide you with income in retirement.

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Defined Benefit Pension Transfer FAQ's

What is a Defined Benefit Pension Scheme?

Defined benefit pension schemes, also known as Final Salary schemes, are one of the best types of pension you can have because of the guarantees they provide.

You should think very carefully before transferring out of a defined benefit pension scheme and make sure you don’t make any rash decisions. Consider your options carefully and make sure you understand what the implication and costs are.

When you were working for your old company it was likely that you paid a fixed percentage of your income into the pension scheme, usually between 5% and 15%; your former employer also contributed into the pension although the amount they paid varied from year to year – in most cases it was significantly more than the amount you paid.Being in the defined benefit pension scheme meant you got the promise of a pension when you retired, which was dependant on how many years you worked for that employer and what your salary was.

The longer you worked for your old employer the bigger the percentage of your salary you would get as a pension in retirement.

When you stopped working for them and left the pension scheme they would have known how many years you were in the scheme and how much your salary was – from this they would be able to calculate how much pension you would be entitled to at retirement.

However; your retirement age could be many years away from when you left your employment, so the amount of pension they calculated would be increased each year from the date you left your old employer up to the date of retirement – the idea being that it would keep up with inflation so in real terms it was worth as much in retirement as it was when you left work.

Whatever the cost is for your old employer to pay you that pension in retirement, they must find the money. If there is a stock market crash or some other event that means the value of the pension fund reduces, it’s not your problem. They would have to find that extra money to ensure you receive the pension you’re promised at retirement.

If you transfer your defined benefit pension fund away from your old company scheme, you would then miss out on all the increases you might have otherwise got had you left this pension where it was in the first place and lose the benefit of your former employer taking on all the investment risk on your behalf. This is a very valuable benefit to lose and could mean you end up with a smaller pension in retirement.

Can I cash in my defined benefit pension early?

If you are aged 55 or older and not currently paying into or receiving your defined benefit pension, you can transfer most arrangements into a new plan that will give you immediate access.

You can release up to 100% of your fund, 25% is tax-free and the balance is taxed at your marginal rate at the time and could change in the future.

What is an Enhanced Transfer Value and Incentive?

Some companies with defined benefit pensions offer enhanced transfer values and incentives to encourage you to transfer your pension out of their scheme. This is because companies are finding it increasingly more difficult and costly to fund the pension as people live longer in retirement. Many public sector companies are finding their Defined Benefit pension schemes are underfunded and do not cover their liabilities. This is also the reason why many companies have stopped offering Defined Benefit pensions to their employees.

If you are considering transferring your pension out of a defined benefit pension scheme it is advisable to find out if you are entitled to an enhanced transfer value or incentive.

What is a Cash Equivalent Transfer Value (CETV)?

When you transfer a an old defined benefit pension scheme, the pension fund trustees will convert all your pension benefits and offer you a Cash Equivalent Transfer Value or CETV.

This calculation is based on what they believe is a reasonable estimation of what you pension is worth, however, some scheme transfers are more generous than others.

Your CETV figure is guaranteed for three months from the date is was calculated.

What are the risks of missing a guarantee date?

If a transfer is not completed by the Guarantee Date, the figures will need to be recalculated and the scheme administrator will charge you a fee for this, usually around £350, however, some charge more. You can decline to proceed at this stage and therefore a recalculation fee will not be charged.

In addition to you being potentially charged a fee, it is also likely your transfer value will change, and it could go down or up in value. If it does go down, this will mean you’ll have less money if a transfer proceeds and where we may have previously made a positive recommendation, with a drop in value our recommendation could become negative.

However, this will only affect you if you go ahead with a transfer of your pension. If you don’t go ahead and decide to leave your pension benefits where they are, your retirement benefits, as they stand now, are not diminished in any way. In other words, losses will not be crystallised and therefore no loss suffered.

What are defined benefit pension and safeguarded benefits?

Transferring a defined benefit pension or any with safeguarded benefits guarantee’s carries additional risk, which must be weighed up carefully. A safeguarded benefit within a pension could broadly be defined as any form of guarantee or promise that could be beneficial to the member (or their survivors). The main types of safeguarded benefits are:

  • Defined Benefit or Final Salary schemes
  • Pension policies with Guaranteed Annuity Rates (GAR’s)
  • Pension policies with Guaranteed Minimum Pensions (GMP’s)
  • Pension policies offering a promised level of income in the future or guaranteed minimum level of income.

A policy with a GAR means that the accumulated fund at retirement will be converted to a guaranteed lifetime income (or ‘annuity’) at a certain rate which is often, although not always, higher than that available on the ‘open market’. As the underlying fund can still go up and down in value, there is no guarantee of how much income you will get. In addition, the GAR might be restrictive in only allowing certain pension options. None of the GMP can be surrendered for a cash sum. Nevertheless, this type of guarantee can be very valuable – particularly during times where pension rates are very low as is currently the case.

A policy or scheme with a GMP means that you will receive a guaranteed amount of income at retirement age, irrespective of the value of the pension. If there is a shortfall e.g. the cost of providing the GMP is more than the value of the fund, then the pension scheme / company will have to make up the difference and it is this circumstance where a GMP can be particularly valuable. This can also sometimes restrict the ability to transfer this type of pension.

Equally, if there is more in the fund than the cost of providing the GMP, then additional benefits – in the form of a tax-free lump sum and / or income – would be available. However, the GMP benefit must be secured first.

Some older personal pension policies offer a promised level of income (or guaranteed minimum level of income) calculated by reference to the contributions or premiums paid. Much like a GAR, these policies may restrict the choice of income being paid.

The advantage of these type of guarantees is that like a GMP, you know what you will receive, and the pension company carries the risk of how much it will cost them to provide this pension. Also, if the value of the pension fund at retirement is enough to purchase a higher level of income you can still do so – so this is generally not restrictive.

What types of Defined Benefit Pensions can you access early?

Defined Benefit Pensions

Also known as final salary pensions, local government pension schemes (LGPS) and employer funded schemes; these are usually only provided by larger employers such as PLC companies or the government. You receive a percentage of your salary for each year you work for that employer.

They are considered the gold standard of pension schemes, and for most people they are best suited to leaving these alone and taking them at their selected retirement age. However, for some transferring to a flexible pension arrangement is more suitable.

Here are just a few examples of schemes we have dealt with:

National Grid UK Scheme

Sainsbury’s Pension Scheme

Railways Pension Scheme

Lloyds TSB Staff Pension Scheme

Local Government Pension Schemes (LGPS)

Allied Domecq Pension Fund

If your pension fund value is over £30,000, government regulations require you to get regulated advice from a pension transfer specialist such as ourselves.

What types of Pension you can not access early?

Un-funded Statutory Pension Schemes

These are pensions that don’t have any funds, they are paid for by the taxpayer as you take your pension. They include Teachers, Firefighters, NHS workers, Police and Armed Force.

State Old Age Pension

What are the risks and benefits of Defined Benefit Pension Transfer?

If you are considering transferring your defined benefit pension to a private pension, known as a defined contribution scheme, you need to consider the pro’s and con’s carefully before you make your decision. Here we take a look at the pro’s and con’s.

Risks of transferring a defined benefit pension:

  • A guaranteed pension income for life is the gold standard for pensions and should not be given up lightly.
  • You will be giving up a pension that is guaranteed to increase each year.
  • You will be giving up a pension where you have no investment risk, it is all borne by the scheme.
  • Taking out a cash lump sum early will mean you will have less money in your pension for the future.
  • Transferring your pension will require advice, which you will have to pay for.
  • You must have a clear understanding of the risks of swapping safeguarded benefits for flexible ones.
  • The value of your pension pot may go down due to poor performing investments.

Benefits of transferring a defined benefit pension:

  • You can access your pension fund from the age of 55.
  • You can take 100% as a cash lump sum – the first 25% tax free.
  • Improved death benefits. You can leave your entire pension pot to your loved one, free of inheritance tax.
  • You can draw down on your pension pot as and when you like, similar to a bank account.
  • Freedom to invest your pension fund where you want.
  • If your pension fund investments perform well you will end up with more money.
  • Your pension is not at risk if your employer goes into bankruptcy.

What are the stages of defined benefit pension transfer advice?

There are three stages to the advice we’ll give you; the first two are completely free, the final Full Advice stage is subject to a fee.

1. Triage – Free

As soon as we receive your completed enquiry form, we’ll send you some generic information about the risks of transferring a defined benefit pension scheme. This service is free and will provide you with some basic information about your pension.

There is a short video you can watch and details that are written in plain, easy to understand English.

This is the first stage of helping you to understand what you’ve got. We have FCA regulated advisers you can speak with if you need to before deciding to proceed to the next stage.

2. Abridged Advice – Free

This stage of our service is also completely free, where we provide more detailed advice specific to you and your pension. We analyse your personal circumstances along with the details of your pension and what you have told us you want to achieve. We’ll send you a detailed report, again written in plain, easy to understand English. Once you’ve received it we will arrange for you to discuss its contents with one of our specialist advisers.

The report will conclude that either transferring your pension is not advisable or, we are unable to ascertain suitability and can only do so by proceeding to Full Advice. You can decide whether you proceed to the next stage or not, if you don’t go any further, then it hasn’t cost you anything for the details you have so far.

3. Full Advice – Paid

For this stage of our advice service there is a charge, whether you decide to go ahead and transfer your pension or not. All the details of our fee will be included in our report, which you will have already had and discussed with the adviser at the previous abridged stage.

Full advice will provide you with a definitive answer as to whether a transfer is suitable for you, and will include, where applicable, detailed additional information and analysis about investment risk and scheme charges.

Pension Transfer Gold Standard Practitioner

The Gold Standard is a voluntary code of good practice for Safeguarded and Defined Benefit Pension Transfer advice, based around a set of principles.

Financial advice firms can adopt and promote this standard by adhering to these principles, so consumers can be more confident they are dealing with a firm that is going beyond minimum requirements when giving financial advice and a personal recommendation as to whether to transfer their pension.

Grove Pension Solutions are defined benefit pension transfer specialists. We have adopted the Personal Finance Society’s Pension Transfer Gold Standard initiative.

Testimonials

I found Grove Financial advice helpful and informative in all stages of the (Pension Release) process, I would recommend them to any friends and family who needed impartial advice on financial matters.

Mr JA, Isle of Wight

The whole experience was comprehensive and informative. I was never put under pressure, and the whole procedure was conducted professional, with feedback. Everything that I was told would be done was done in the time frame that I was advised of.

Mr MD, Plymouth

When I made my initial enquiry via the Grove Website I received a response within 30 minutes. I realised straightaway that I was dealing with a highly professional operation. From beginning to end my case was handled with utmost speed and courtesy. I would highly recommend your services to anyone thinking of releasing their pension.

Mr CB, France

I found your service to be very professional. The people I had contact with were very patient and understanding.

Mr DW, Bradford

I found the service very good, everything was explained in simple English, which made it easy to understand. The advisor was polite and very helpful.

Mrs SB, Selby

Your staff were very helpful from the start and very professional in their approach to what is a complex field. I would recommend your services to anybody.

Mr AS, Oxford

I did not think such a good service existed but it does. Grove customer service really does look after the customer.

Mr RW, Bedford

from the point of initial contact right the way through to what was an extremely painless and satisfactory final outcome I was treated with courtesy, politeness and kept informed of every stage. My requests for any further clarification are treated with great patience and understanding.

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Grove Pension Release provided a very proficient service regarding my pensions review and pension release. My future pension needs have been fully reviewed and look forward to your support and working together in future years.

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