Now rarer than in past decades, a Defined Benefit Pension is still regarded as a reliable and valuable thing to have for retirement, promising a guaranteed income in retirement.
If you have a final salary pension or Career Average pension, or have had either in the past, finding out more and understanding your defined benefit pension now may make all the difference in retirement.
A defined benefit pension (DB) is one that is distinguished from others because it promises to guarantee what benefits the scheme member gets out of it, such as a specific amount in retirement.
They are different from Defined Contribution (DC) pensions, which are defined by what is put INTO the pension. DC pensions pay out different amounts in retirement depending on how much was paid in, and how well the investments inside the pension grew the pension by (if at all).
A common type of defined benefit pension is a final salary pension – one that promises to guaranteed an income in retirement based on the salary the scheme member finishes their career on (multiplied by the accrual rate, and the length of service in years).
Defined benefits pensions are (or in some cases, were) offered to government-based employees like council workers, armed forces personnel, and in some cases some larger private companies like BAE or British Airways.
There are many important features of a defined benefit pension, most of which are considered to be quite valuable by today’s standards:
The Financial Conduct Authority rules and guidelines are clear: Defined Benefit pensions should only be transferred if the move is suitable and beneficial for the scheme member, which is only in fairly rare circumstances.
But many people receive negligent financial advice to transfer a defined benefit pension, which may lose them money in the transfer, or in the long-run due to investment under-performance or collapse through SIPPs – a big cause for a mis-sold pension complaint!
Many people do not realise they are losing money as their pension appears to be growing.
But if the pension growth does not match or exceed the Critical Yield, then the defined benefit pension will always be worth more than the new pension.
If you transferred away from a defined benefit pension then you may have received negligent advice, leaving you unknowingly out of pocket.
Without realising, you may have lost money because:
Going through the mis-sold final salary pension transfer claims process could be a way to fight back on a no upfront costs basisSee if you can make a claim now