Final Salary or Defined Benefit pension schemes to give them their true name, are the pinnacle of employer pension provision.
These schemes generally provide a guaranteed level of pension income and in a majority of cases long term protection against inflation by pension increasesand dependents benefits in the event of death of the member.
With George Osborne introducing full flexibility on defined contribution or “money purchase” plans, members of Defined benefit schemes may be feeling left out in the cold.
The benefits under a defined benefit scheme whilst being guaranteed, offer very limited, if any, flexibility and equally do not take account of an individual members circumstances.
It may be that they are single, and not interested in Dependants pension. They may want to access the tax free cash and defer the pension payments. They may have health issues and be able to secure a much higher pension in their own right in the open market when their health is considered. The schemes may only offer limited tax free cash and not 25% of the scheme value that is available elsewhere.
All these are factors which need to be considered.
The starting point though is to compare the Cash Equivalent Transfer Value of benefits – commonly known as a Transfer Value Analysis. This should determine if the scheme is offering a reasonable value for giving up the benefits in the scheme.
Overiding factors may be the fact that most Defined Benefits schemes so not offer tax free cash only nor do they permit phasing of benefits. More importantly as the proposals stand at present the new fully flexible pension rules will not apply to defined benefit schemes. Equally the government consultation period is looking at a potential ban of defined benefit schemes. This looks pretty certain for Public Sector schemes, but a ban on private sector is not so clear as there are a number of options being considered.
This is a specialist area of advice, and requires special permissons from the FCA. Here are Pensions Advice UK we have the permissions and expierence to help you.
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