Members of defined benefit pension schemes with average transfer values of £230,000 could lose up to seven years of retirement income under the freedom and choice pension rules, according to a new report.
The report – Member Outcomes under Freedom and Choice – suggests that members could run out of money at 81 rather than 88 if they draw an income of £10,000 a year.
The outcomes, which of course depends on the retirement vehicle members choose to transfer to, could also see their income decrease by £2,600 over their expected lifetime or leave an inheritance £340,000 lower than expected.
Pensions freedoms were introduced in 2015. On 6,000 transfers analysed since 2016, 95 per cent of transfers from a defined benefit scheme go to personal pensions, while the size of an average transfer of £230,000 could produce an annual pension ranging from £7,000 to £10,000.
The report calls for education and support to be provided when transfer values are published; to consider offering partial transfers; making members aware of low-cost options and provision of “unbiased regulated financial advice”.
Transferring your defined benefit pension is a big decision that could have ramifications for the rest of your life. A poor choice may lead to reduced income in retirement. There are a lot of things to think about before going ahead. You need to consider your own situation carefully and in some cases take regulated financial advice. Whether a transfer is suitable or not will very much depend on your individual circumstances and objectives. If your current scheme benefits are worth more than £30,000 and you have a Guaranteed Annuity Rate you’ll have to have the transfer signed off by a regulated financial adviser before your pension scheme will release the money. This rule is there to protect you and make sure you’re fully aware of what you may be giving up.
If you are unsure of your options under the new freedom rules, or are thinking of transferring your defined benefit pension, we strongly suggest you call us now or speak to your usual Brunsdon Financial Adviser.
Please note that this information is for guidance only and does not constitute personal advice. The information provided above regarding pension legislation is based on our understanding of current UK pension legislation law (August 2018), all of which may be subject to change. Brunsdon is not responsible for the content of external web sites.