Occupational Pensions and Final Salary Schemes

How safe is your retirement income?

On the face of it, defined benefit pension schemes offer the potential of a guaranteed retirement income based on your earnings whilst working.  Many opt for salary-related pension schemes because:

• They can provide some protection against inflation
• The number of years you have committed to a scheme is reflected in your pension
• Even if you are no longer building up the scheme’s benefits you could be entitled to more than just a pension when you retire
• If the scheme rules allow, you could draw your pension from the age of 55, but there may be penalties
• Benefits vary between schemes

Have you ever wondered who guarantees that income?

• The insurance company or trustees administering the scheme?  No
• Your existing or former employer? Yes
• It is not risk free

If there is insufficient money in the scheme to cover or continue providing your income after retirement, it is the employer that has (by law) to make up any deficit.

What happens if the company is insolvent?

In these specific cases, the Pension Protection Fund steps in but only pays a proportion of your pension, the amount of which is capped – some of the detail depends on if you have already retired at this point.

How can you ensure your pension’s safety?

If you are still working for an employer at the point of retiring you would probably have an idea of whether they were capable of guaranteeing your income for the rest of your life.  If you have already left that employer, you may not know if your fund is safe or not.   You may also be wondering if that ex-employer is in a position to replenish the pension scheme if it runs short of funds.  You should also be aware of the schemes funding position.

At the very least, seek professional Independent Financial Advice to see what your options are. These include:

• Leave your money where it is and hope for the best
• Seek a cash equivalent transfer value quote to discover how much money the scheme trustees would give you to move your pension benefits elsewhere.  These can usually only be obtained yearly without cost
• Ask a specialist professional Independent Financial Adviser to give you an illustration of the benefits you might be able to achieve by moving your pension fund to an insurance company
• Are there any incentives to transfer away?

Remember, moving away from a defined benefit pension scheme involves giving up any guarantees that it could have offered.  Of course, whether these guarantees are worth anything will depend on the circumstances. You cannot afford to not know the status of an occupational or final salary pension.

Our specialists will help you find out and comprehend where your pension really stands. Call 0845 600 6080 or email info@rbaifa.co.uk if you have a question or would like to receive advice.