Transferring Pension

I have been working for a large local company for over 20 years and have been in their pension scheme for most of that time – it’s a scheme that builds benefits according to how long I’ve worked there and my salary.  I’m still only 45 and have decided that I want to change my life completely by going self-employed and becoming a landscape gardener.  I understand that I could transfer my company pension benefits to a private pension when I leave.  Is that the best thing to do?

Carl Lamb Responds

It sounds like your existing workplace scheme is what we describe as a Defined Benefit (DB) scheme, which delivers entitlements that are based on your length of service and your salary.   The entitlements can include a range of safeguarded benefits such as a pension for your spouse on your death and guaranteed income levels.  With twenty years’ service under your belt, you are likely to have built up significant benefits.

The benefits from a DB pension scheme are hugely valuable and for most people they outweigh what might be achieved by transferring the value of those benefits into a private Defined Contribution (DC) pension scheme.  DC schemes rely on contributions and investment growth for their value.  They are subject to market performance and can generally offer no guarantees.

It is true that some DB scheme members have opted to transfer their benefits from a DB scheme to a DC scheme because of the high transfer values that have been on offer in the last few years.  However, I cannot stress strongly enough that it is unlikely to be in your best interests to do so, particularly as you move into self-employment where your income is less secure and you may be less able to build further significant pension entitlements.  The financial services sector regulator, the Financial Conduct Authority (FCA), in fact requires anyone who has pension entitlements worth over £30,000 who wants to consider this route to take advice before doing so.

Transferring benefits from a DB to a DC scheme is not only likely to give you less value in retirement, it also puts additional pressures on you to monitor and manage your pension investments which can entail additional responsibilities and costs.

If you do want to pursue this idea, please get advice from an independent financial adviser who holds the Pension Transfer Gold Standard designation from the FCA.  Only certain advisers have the necessary authorisation permissions from the FCA to assess your situation and make a recommendation.

Any opinions expressed do not constitute advice.  The value of your investment can go down as well as up and you may get back less than the amount invested.  The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. 

Carl is a Director and Chartered Financial Planner with Smith & Pinching