Many employees, who are members of occupational pension schemes, have recently been given the choice to transfer their benefits from a Defined Benefit (DB) pension scheme to a Defined Contribution (DC) pension scheme or else to remain in the DB scheme. As every pension scheme member’s situation is different and each member has separate retirement needs to be addressed, the decision to stay put or to move is not always a straightforward one.

 

Before making a decision, some of the following may need to be taken into consideration:

DB scheme solvency
Transfer value
Early retirement
Health/Family
Annuity rate
Lump sum
Tolerance for risk
Other pension plans

 

I’ll discuss each of these now very briefly:

 

DB Scheme Solvency

Are you confident the DB pension scheme will provide the benefits promised?

 

Transfer Value

Is your employer offering an increased value to transfer to the DC scheme?

 

Early Retirement

A DC pension scheme may give you the option to take benefits before normal retirement age but this is often not the case with a DB scheme.

 

Health/Family

Your current health situation can have a big impact on your retirement situation. There may be a difference between the two types of scheme as to how benefits can be left to loved ones in the event of your death.

 

Annuity Rate

What rate of pension will the DB scheme provide? Will it be possible to purchase the equivalent pension with the DC scheme?

 

Lump Sum

You may potentially have the option of taking a larger lump sum from the DC scheme.

 

Tolerance for Risk

You are taking on some level of investment risk when you transfer to a DC pension scheme. Is this something you are comfortable with?

 

Other Pension Plans

Any other pensions you have need taken into account.

 

As I have already mentioned, this is not a simple decision to make and may have a significant impact on your retirement plan. I would strongly urge you to seek impartial financial advice if you find yourself in this situation. Should you require further information, you may contact me on 0879308181 or gerard@proactivefinance.ie.

 

Gerard Ward

22nd March 2018