Defined Benefit/ Final Salary Pensions Explained

04/11/2022

What is a defined benefit/ final salary pension?

A defined benefit (DB) pension scheme is a pension where the amount you're paid is based on how many years you've worked for your employer and the salary you've earned. DB pensions pay out a secure income for the rest of your life after retirement, you may have one if you have previously worked for a large employer or in the public sector.

A final salary scheme normally offers you an income in retirement based on a proportion of your 'final salary', although other factors can be taken into account. It's important to note that 'final salary' doesn't necessarily mean the actual salary that you're earning at the time you retire and draw your benefits from the scheme.

At present, if you are a member of a DB/final salary pension scheme you have the right to ask the scheme to offer you a cash lump sum in exchange for your entire pension rights. This lump sum is known as a cash equivalent transfer value (CETV).

When can you access your DB pension?

The majority of DB benefit schemes have a retirement age of 65, meaning you are unable to access your pension until you reach the age of 65. However if you are aged 55 or above, you may be able to transfer your pension, this allows you to take a lump sum of 25% of the pension tax free at the age of 55.

Is transferring your DB pension an option for you?

This is where we come in, if your pension is worth more than £30,000 then you will be required to seek advice in order to transfer your pension. We will then calculate the sum of money that would be needed today, if it were to be invested up to your retirement on a 'risk-free' basis, that could buy you a pension (through purchase of annuity) that is equal to the pension that you are giving up.

In order to transfer your pension with expatwealthatwork, all you need to do is fill out a form, complete a fact find and then our pension specialists will complete a Transfer Value Comparator (a detailed report regarding your pension transfer and if it is the right option for you.)

At expatwealthatwork we understand that transferring your pension is a huge decision to make, which is why our pension specialists go through multiple options with you to ensure the correct decision is made for your personal circumstances.

Contact us for a no obligation meeting: info@expatwealthatwork.com