Occupational Pension Schemes, which are provided by employers for staff, offer a guaranteed income at retirement. They are becoming much rarer these days as employers look to cut costs. These types of schemes are generally costly to administer and require the employer to provide greater contributions to the scheme to support the benefits payable to members at retirement.
Occupational pension scheme typically contains superior retirement benefits when compared directly to a personal pension scheme and could mean that if you have ever been advised to transfer your pension away from your employer/ previous employer, you may have lost out on valuable benefits and/ or guarantees.
These could include:
- Guaranteed level of income not linked to investment performance. This is called escalation and, dependent on when you started the pension and when you either left (became a deferred member) or worked until retirement, the revaluation rates can be extremely valuable.
- Guaranteed increases to pension in payment. You know exactly what you are going to get every month for life.
- Benefits payable on death in service as a lump sum.
- Spouses/ Dependants pension.
- Protection via the Pension Protection Fund if your Scheme fails.
Unfortunately, it is a fact that many members of defined benefit final salary pension schemes have been misled with the promise of better benefits and flexibility if they move their pension. Some of the general reasons given for moving include fears that the existing scheme is in some way underfunded, or that there is uncertainty surrounding the financial position of the company funding the scheme. Other factors may include members being told that their beneficiaries would not receive the full value of their pension benefits should they die and that their whole pension may be lost.
Here are some other important thoughts to reflect on if you have transferred out of a defined benefit final salary pension scheme
- Were you made fully aware of the risks involved?
- Did your adviser hold the proper qualifications to provide you with the most suitable advice for your needs and did they take you through the process from start to finish? Or did they pass your transfer to an appropriately qualified pension specialist to sign off?
- Were there mitigating circumstances for completing the transfer?
- Did you feel pressured at any time while completing the transfer?
- Were you made aware of the worst case scenario regarding your pension (capacity for loss)?
- Did your adviser complete a detailed cash flow analysis highlighting the potential date when, based upon low returns, inflation and costs involved, your pension fund may run out?
- Did/has your advisory firm recorded the number of clients it has turned down from transferring away from a defined benefit final salary pension scheme.
The FCA has a very clear view on the subject. The first step should be to assume that remaining in the fund is in the best interests of the client. They do, however, agree that in some circumstances transferring can provide the best option.
Personal and/or family circumstances always play a key role in the decision-making process. However, if you did decide to move your pension, it would have been down to your financial adviser to prove and agree that your financial future was better served by moving to thereby allow you to obtain better returns and a solution more aligned to your overall financial plans and goals.
Finally, this type of pension advice does not often come cheaply and initial fees can vary substantially between pension specialists and especially on cases introduced to them from third parties.
If you have been advised to transfer your pension scheme elsewhere and are concerned as to whether you were given appropriate advice, Beat the Banks are currently offering an entirely free pension check. To find out more, please call
You are also more than welcome to call directly to our office at – First Floor, 87 Commercial Street, Dundee, DD1 2AB