Defined Benefit Pension Reviews

Since the introduction of the Pension Freedoms Act in April 2015, any person who has an occupational pension (Final Salary Pension) – or one where there are safeguarded benefits which have a value in excess of £30,000 – has to take financial advice, if they wish to take advantage of the new legislation and consider the benefits of transferring to a personal arrangement.

A defined benefit pension transfer allows you to exchange your future pension income for a transfer value which can then be transferred to a personal pension.

Why do you have to have financial advice?

Taking a decision of this nature requires thought and detailed analysis as you will be giving up revalued pension rights up to normal pension age (and state pension age for any Guaranteed Minimum Pension) within the scheme pre-retirement. When the pension is in payment there will be statutory increases (and there may be other discretionary increases) for guaranteed escalating pension income for life with attaching spouse’s and dependent’s pensions if you die pre/post retirement.

Death benefits provided by the scheme will be confirmed in the scheme rules and generally provide the following benefits: spouse’s pension; dependent’s pension; children’s pension; and lump sum death benefits.

By transferring your occupational pension scheme benefits into a personal arrangement, you may be giving up rights to guaranteed benefits, known levels of pension income and increases that will be applied in the future.

A pension is a long term investment, the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.

Helping you make the right choice

Due to the additional risks, a transfer may not be suitable for everyone. However, there are many circumstances where it may be suitable. Our reviews fully appreciate your individual circumstances.

The Rathmore Financial pension transfer ‘triage’ service (the first stage in the process) sorts potential occupational transfer clients based on their need for transfer advice as compared to their chance of benefiting from such advice.

Triage involves the giving of sufficient information to a potential client about safeguarded and flexible benefits to allow them to decide whether they wish to progress further to take independent regulated advice on the transfer or conversion of their pension benefits.

For some clients they may not wish to pay advice charges unnecessarily, whereas others who are in a more informed position and understand the costs that are involved, will wish to be advised and receive a personal recommendation.

Our reviews fully appreciate your individual circumstances where if a pension transfer is considered suitable, then we are required to clearly demonstrate, on contemporary evidence, that the transfer is in your best interests.

• The Financial Conduct Authority has strict requirements and guidance which we follow.
• To demonstrate that a recommendation is in a client’s best interests we take into account the following factors:
  • A client’s intentions for accessing pensions benefits.
  • A client’s attitude to, and understanding of the risk of giving up safeguarded benefits (or potential safeguarded benefits) in exchange for flexible benefits.
  • A client’s attitude to, and understanding of, investment risk.
  • A client’s realistic retirement income needs, including the following:
    • How they can be achieved
    • The role played by safeguarded benefits (or potential safeguarded benefits) in achieving them.
    • The consequent impact on those needs of a transfer, conversion or opt-out including any trade-offs
    • Alternative ways to achieve the objectives instead of the transfer conversion or opt-out.

Giving you greater certainty

Our comprehensive cash flow analysis process is included in every review. We analyse the potential outcome of drawing benefits in the secure and guaranteed manner against a more flexible approach. This helps us to define which scenario will be more suitable for you, before making our final recommendation.

If you are considering a review of your Defined Benefit Pension, it’s important to note that once you have received your ‘statement of entitlement’ (incl. the cash equivalent transfer value (CETV)) you will have three months to accept the offer, which is the deadline for receiving confirmation of advice.

The statement containing the CETV is the statement of entitlement. This includes the information about the transfer value offered and will typically include the following:

• Date of joining the scheme
• Date of leaving the scheme
• The guarantee date
• The transfer amount
• The transfer value amount that is guaranteed
• The deferred benefits that the transfer value is based on
• The normal pension age / normal retirement age
• The guaranteed minimum pension (GMP) age.
• Details of the deferred pension.
• CETV notes – providing useful technical information regarding the pension scheme.

Get in touch today to find out if your current defined benefit pensions are aligned to your immediate and long term needs.

The Financial Conduct Authority does not regulate occupational pensions.