Occupational Final Salary Pension Schemes

If you are the member of a defined benefit (a.k.a final salary) occupational pension scheme, you might like to ask yourself a question: “Just how safe is my retirement income?”

On the face of it, defined benefit pension schemes offer a guaranteed income based on your earnings whilst working, and paid for the rest of your life. But have you ever asked yourself “Who offers that guarantee?”

• The insurance company or trustees administering the scheme? No.
• You employer, or former employer? Yes.

So, if there is insufficient money in the scheme to cover - or continue to pay out - your pension, it is the employer that has (by law) to make up any deficit; nobody else.

Only if the company is insolvent does the Pension Protection Fund step in. Even then, it’s only for a proportion of your pension and depends on whether or not you have actually retired.

How can you be sure your Pension is safe?

If you are still working for a firm at retirement, you’d probably have a decent idea as to whether it could provide the guaranteed payout for the rest of your life. But if you left the firm’s employment some time ago, you may well have no idea on how safe your fund is – let alone whether it is in a position to ‘top up’ the scheme if it is short of money!

What can you do?

At the very least, you should seek independent professional financial advice to see what your options are. These include:

• Leaving your money where it is and hope for the best!
• Seek a ‘transfer value’ quotation to discover how much money the scheme trustees would give you to move your pension benefits elsewhere;
• Ask a professional to give you an illustration of the benefits you might be able to achieve by moving your pension fund to an insurance company.

Remember, moving away from a defined benefit pension scheme involves giving up any guarantees that it would have offered. Of course, whether these guarantees are worth anything will depend on the circumstances...

What you simply cannot afford to do ... is nothing at all.

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