Stay or go?
More individuals are considering the option to transfer away from defined benefit pensions, but is there a right or a wrong answer?
Defined benefit (DB), or ‘final salary’, schemes promise participants a guaranteed income in retirement, based on a formula linked to earnings and length of service. If you are fortunate enough to have one, then your employer is responsible for funding the scheme and for ensuring there’s enough money to pay your pension income at the time you retire.
DB schemes are some of the most prized and generous occupational pension schemes around; yet there is evidence that some DB scheme members are walking away from their gold-plated benefits and towards defined contribution (DC) schemes instead. These offer no income promises and require participants to manage a variety of risks.
Why is this happening? The answer could lie in the ‘cash equivalent transfer value’ – a cash sum offered by some DB scheme trustees in return for members giving up some or all of their pension rights. The relatively high transfer values being offered at the moment are part of an effort by some schemes to offload their members and reduce their overall liabilities – as low interest rates and gilt yields combine to make DB schemes more expensive to operate.
As a result of these developments, some individuals are considering the option of transferring their benefits and putting the money into a DC pension – so should they stay or should they go?
Ian Price, Divisional Director of the Retirement Proposition at St. James’s Place, shares his thoughts on this topical issue in the video below..
The value of a pension with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.