DEFINED PENSION BENEFIT TRANSFERS
Below, you will find comprehensive examples of the work we have undertaken on behalf of our clients, guiding them through complex processes with our expert assistance and straight-talking manner.
Case study FROM DAVID
The client was seeking advice on the implications of transferring the benefits away from his Defined Benefit pension scheme as he was concerned by the poor death benefits available within the scheme.
He was motivated by the high transfer value offered if he were to transfer away from the Defined Benefit scheme.
During our meeting, the client clearly stated that he did not believe that he has a long life expectancy given his current state of health and lifestyle. The client did not think that he will live long into his retirement and was therefore concerned by how his pension fund will be passed to beneficiaries.
He was unhappy with the death benefits of the scheme.
WHAT WE DID
In an initial meeting, we explained to the client that we would normally recommend that individuals with accumulated Defined Benefit benefits retain their benefits. However, given his circumstances, we were confident that transferring away is the best course of action for the client, the main driver being the potential death benefits offered by the new scheme and the fact that he would be able to flexibly draw the benefits from age 55 onwards.
The client had explained to us that he was unmarried and wished to pass most of his accumulated pension funds to his son, as his main beneficiary. We concluded that transferring his Defined Benefit pension to a Personal Pension would allow him to fulfil this aim, as well as allowing him to access the funds from the age of 55.
The new arrangement allowed the client to receive 25% of the fund as a tax free lump sum, with the remaining funds becoming accessible as a taxable income, under the Drawdown functionality included with the new plan.
Given his current state of health, the ability to access the funds from the age of 55 rather than the age of 62 was extremely beneficial to him. His pension fund is still invested and therefore can still benefit from investment growth. This growth can potentially support his income level, maintaining the capital value of his fund which will support him through his retirement.
His son will have the ability to choose how and when how could receive benefits from the pension in the event of the client’s death, and is no longer confined to the Scheme rules.
CASE STUDY FROM PAUL
A client contacted Wealth of Advice in order to seek advice in respect of the accumulated pension benefits that he had built up within two different pension schemes. He had recently been made redundant and wanted to consider his retirement plans.
The client came to us with two pension funds, one was a personal pension and the other a defined benefit pension. He was seeking advice regarding both pensions and his retirement options.
As he had recently been made redundant, he wanted to ensure that he was in control of his pensions and that he could bridge the gap financially until he retired.
WHAT WE DID
During our initial meetings, the client explained that he had already received a forecast for his defined benefit pension, for his annual income. We requested a Cash Equivalent Transfer Value and discussed with the client, the advantages and disadvantages of transferring his fund as well as the implications of breaching his lifetime allowance.
The client decided to leave his defined benefit pension benefits within the scheme, as he was happy with the forecasted annual income that it would guarantee him. He also felt that the scheme was the most safe and secure option for him. His attitude to risk and capacity for loss were both factors which we agreed meant that he would not be comfortable with such a transfer.
We discussed his options in respect of accessing his personal pension fund. The client explained that he had no need for a fixed income from an annuity as he would be receiving an income from his defined benefit pension. He planned to deplete his entire personal pension fund before he reached retirement age as he would then be in receipt of his defined benefit fund and would become a higher rate tax-payer.
He therefore planned to use his personal pension to supplement his income until he retired. We recommended that he transfer his personal pension to a Flexi-access Drawdown pension plan.
We transferred the client’s personal pension to a Flexi-Access Drawdown pension plan. This meant that he could take 25% of the fund value as tax-free cash and could use this to clear any outstanding debts and become more financially secure.
The remainder of his fund can now be used to supplement his income, we reviewed how much income he could receive in order to be within the basic rate tax threshold and to ensure that the fund is depleted before he reaches retirement age.
This has allowed the client to bridge the gap financially between now and his normal age of retirement. The death benefits of this scheme mean that his wife and family will be provided for in the event of his death.