A defined benefit
pension transfer forfeits your scheme benefits in exchange for a cash value to
be invested in a different pension scheme. In many cases, you are likely worse
off transferring out of a defined benefit scheme, even when your employer is
offering an enticing incentive for you to leave. Before making any final
decision regarding a pension transfer, it is crucial that you speak with a
knowledgeable and experienced financial adviser so you can get guidance on the next
steps to take on your defined benefit pension.
When you do decide in
favour of a defined benefit pension
transfer, the Board of Trustees running the scheme is going to convert all the
benefits that you have built up into an equivalent cash sum. This cash sum is
also referred to as your pension’s transfer value or cash-equivalent transfer
value, which you should then invest in a stakeholder or personal pension, a
self-invested personal pension, or a pension scheme with a separate employer.
However, not all employer pension schemes allow personal pension transfers, so
make sure that you are familiar with these kinds of complexities before making
your decision.
One of the main appeals of a
defined benefit pension transfer is the different
kinds of transfer incentives that employers offer when transferring out of a
defined benefit scheme. This could be in the form of a cash payment that’s
separate from the transfer value or an enhancement to the determined or calculated
transfer value of your scheme benefits, also referred to as enhanced transfer
value. However, transfer incentives may not always be as good as they appear to
be, for instance, you may have to pay income and national insurance tax on the
cash payment or get less pension when accepting the incentive as an extended or
enhanced transfer value.
