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Pension Changes April 2015

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The proposed changes to pensions from April 2015 – Defined Benefit (DB) pensions

The Chancellor has expressed his intentions to allow members of DB pension schemes more freedom of choice in their retirement benefit options, via transfer to defined contribution (DC) plans. This option will include members of public sector pension schemes that are funded, e.g. the Local Government Pension Scheme, but not those that are unfunded, e.g. the Armed Forces.

In practice, this option is more likely to appeal either to those with a small prospective DB pension, or to those with a large prospective DB pension or with substantial other wealth. There are two main reasons for this,

1: financial advice is a pre-requisite for transfer values of £30,000 and over and the cost of such advice on this complex matter may be £3,000 or more and 2: the UK regulator’s default position is that DB transfers are unlikely to be in the member’s best interests.

However, there will be some people for whom DB transfer may be attractive; examples are:

The single, the divorced, those in poor health, those with justifiable concerns about their scheme’s solvency.

Those who want and can afford to take their retirement benefits in a different shape to the way in which they are paid by the DB scheme.

Those who want control of their pension investment and can afford the associated costs and risks of such control.

Those whose other wealth is sufficient for them not to be reliant on their DB pension and who want an asset that they can pass to others, e.g. to a spouse during their lifetime or, during life or on death, to the next generation.

Gordon Lynes,  Independent Financial Adviser // SWLaw Investment & Financial Planning Ltd

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