Ultimately, your own personal circumstances will determine whether it is advisable for you to transfer your benefits out of a DB scheme. Key considerations include:
One of the biggest advantages of a defined benefit pension plan is security. Provided you have a reputable and solvent sponsoring employer, a DB scheme will insulate you from risk. Even in the event that the sponsoring employer of your DB scheme becomes insolvent, and there are insufficient assets in the scheme to cover all of its pension commitments, you can still claim compensation from the Pension Protection Fund.
Once you move to a DC scheme, you personally take on all of the following risks:
1). Inflation risk - The risk that you have less money to live on in real terms because the cost of goods and services has gone up.
2). Longevity risk - The risk that you outlive your savings.
3). Sequence of return risk - The risk that your investments perform worse than expected.
4). Volatility risk - The risk that your investments change dramatically in value, down as well as up.
If you are interested in transferring to a DC scheme you can ask your scheme provider to issue a statement of entitlement telling you your pension’s ‘cash equivalent transfer value’ . This is the lump sum the pension scheme will offer you in exchange for you giving up any future claims to your DB pension benefits. To calculate it, the scheme provider will consider factors like inflation, investment and longevity forecasts, as well as other assumptions.
Once a CETV has been issued, you generally have three months in which to accept it and to give notice to the scheme trustees of your intention to transfer. If the deadline is missed, the provider may charge you for issuing a new CETV within 12 months. The new CETV could be a different amount (it could be higher or lower than the previous CETV).Seeking financial advice, what happens next?
Deciding whether to transfer your benefits from a DB scheme to a DC scheme is a very important decision, which will affect the rest of your life. So it is crucial that you research the decision fully and take qualified financial advice.
Your personal circumstances will determine whether it is a good idea to transfer your pension benefits. A Lowes Consultant will discuss your personal circumstances and financial position with you, including the level of risk you feel comfortable with.
A Lowes Consultant will invest a lot of time and effort in coming up with the recommendation that is right for you, so that they can make an informed recommendation about whether you should stay with your DB scheme or switch to a DC scheme. This may include requesting extra information from your DB scheme provider.
If your CETV is £30,000 or more the DB scheme trustees will not be able to release the CETV unless they see you have received financial advice from an appropriately qualified financial adviser.