It is fair to say that transfers from defined benefit plans are one of the most contentious issues within the Pension Industry. Their past track record is littered with problems, mistakes, compensation and, at one point, near extinction. So why have they become more popular in recent times and should you consider taking one.
It is pretty simple to understand why they have become more popular. Many employers are facing increasing deficits in their pension plans that are adversely affecting their business and consequently they are now looking at effective ways to manage down this pension risk. If a significant number of people take transfer values this helps employers to stabilize and control these risks. Hence, you may often see incentives and support packages in place to help you with any decision.
Alongside this, the introduction of pension freedoms provides a much more flexible approach to accessing pension benefits meaning that you can take as much or as little as you like once you have reached age 55.
Is it a good deal – or put more simply will you get a bigger pension if you transfer? You simply do not know at this stage because it depends on future investment returns and how long you will live – amongst other things. If you transfer you give up guarantees and certainty but you could get a higher pension. Whether it’s a good deal depends on the value that you personally put on these guarantees and a defined (or certain) pension.
Fortunately there are experienced advisers and proper controls in place to help you understand how long the money will last and whether you are likely to get a higher pension if you transfer. Unfortunately there are no guarantees that these estimates and projections will be right and if you transfer then it’s a once only, one way process and you cannot go back.