Defined Benefit Pension Schemes - Should I stay or should I go?
Defined Benefit Pension Schemes, which offer members a fixed level of pension income in retirement, have become less and less common in Ireland in recent years. Due to increased longevity and difficulties in providing these benefits, a large number of these scheme have wound up in recent years or closed to new members. For those who remain, this presents a choice for members, namely:
- To retain your benefits in the Defined Benefit Scheme, or
- To take a transfer value to a different pension structure, where it is invested for you to draw down at retirement.
Although the choice can be described as binary, the factors are multiple and can be complex. When offered the choice of a transfer value there is a crucially important decision to be made. Factors to consider include:
- The overall funding position of the scheme.
- Your preferences for drawdown of income in retirement, and your overall financial plan.
- The risks involved in retaining a benefit within the scheme, and those associated with taking a transfer value.
- Estate planning implications for your spouse and/or family.
- The likelihood of any future enhanced transfer being provided by an employer.
- Your preferences for drawdown of income in retirement, and your overall financial plan.
- Timing of the drawdown of your retirement benefits.
- Tax implications on income, and inheritance,
Everyone’s situation is unique to them, and while taking a transfer value may be the right course of action for some, it will not be appropriate for everyone.
Be especially aware of any conflicts – is the advisor conflicted to recommend you should transfer out? Have they disclosed this to you?
Where an enhanced transfer value is being offered, this is usually time sensitive, so an informed decision should be made, with a focus on how this interacts with your goals, objectives, and overall financial plan.
More in depth information is available in our recently published White Paper “Defined Benefit Pension schemes – do I stay or do I go?”, a copy of which is available on request.
We would be delighted to meet with you and discuss your current position and offer an opinion on this, and work with you to put together an overall financial plan for you and your family. Please feel free to reach out to me at rossdevlin@pfp.ie to start the conversation.