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Defined Benefit Pensions

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.

Spencer Churchill Claims Advice specialise in mis-sold defined benefit pension transfer claims, having experience claiming money back from mis-sold pensions.

What is a defined benefit pension?

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.

What features does a defined benefit pension come with?

There are many important features of a defined benefit pension, most of which are considered to be quite valuable by today’s standards:

  • Guaranteed: Defined benefits pension plans promise to pay a certain amount on retirement
  • Protected: DB pensions are protected by the Pension Protection Fund up to 90% of their total value
  • Index-Linked: Which often helps their value keep pace with inflation
  • Death Benefits: Which may pay a sum to a spouse or dependent children should the scheme member die before retirement
  • Free: The schemes are operated free of charge to members
  • Early Retirement: May be available at the trustees’ discretion, or in the event of serious illness
  • Tax-Free Draw Down: Is often available at the age of 55, or younger in the event of ill-health. 

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Transferring Defined Benefit Pensions

Despite the numerous valuable features of defined benefit pensions, many people are advised to transfer these pensions to private pension plans, often after cold-calls from pension introducers.

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.

Mis-sold Defined Benefit Pension Claims

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:

  • High adviser charges may have taken thousands from your pension in the transfer
  • You may have received a CETV (Cash Equivalent Transfer Value) that does not reflect the value of your old defined benefit pension
  • Your new pension may not be matching or exceeding the Critical Yield
  • Your new pension investments may present an unsuitably high risk 
  • You may have lost your guaranteed income in retirement

Going through the mis-sold final salary pension transfer claims process could be a way to fight back on a no upfront costs basis

Please note: No Win – No Fee*: Successful claims made through Spencer Churchill Claims Advice are subject to the Success Fee, charged as per your terms of business and engagement letter of any monies awarded to the claim. Clients have a 14 day “Cooling-Off” period during which time they may cancel at any time without charge. After this time, cancellation will result in the application of the Cancellation Fee.

*Figures calculated before deduction of Success Fee and taxes

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