DB or not DB: 5 reasons your employees may want to consider a Defined Benefit transfer
Rather than overuse a hammy Shakespearean theme (as the title suggests), I’m in fact thinking back to my university days, when Viz was all the rage and ‘the DBs’ meant ‘the dog’s b0!!0cks… It was a phrase much used to denote approval – ‘that film was the DBs’, ‘that goal was the DBs’, ‘that car is the DBs’ – i.e. brilliant!
Sticking to this theme, your employees would surely be mad to transfer their guaranteed pension from a defined benefit (DB) scheme to a SIPP wouldn’t they? In fact, it was pretty much one of the 10 commandments back in the day: ‘thou shalt repel all oily advisers, who suggest you transfer a DB scheme to a personal arrangement!’
It’s still very likely to be in their best interests to stay, but it can be worth investigating, with some expert help of course.
So at the risk of appearing ever so slightly unctuous, here is why this has changed:
- Pension freedoms – There is no doubt that the exciting prospect of control and access appeals to a huge number of employees with preserved benefits. If the context and financial security offered by other assets are sound, then why not properly revisit the impact of new pension freedoms?
- The family – Benefits can be passed to any nominated beneficiary. This sees families benefitting from transferred wealth, which appeals those keen to avoid their hard-saved pension assets disappearing into a provider-owned annuity pool upon death.
- Gilts – Post Brexit, gilts become unhealthier than ever. DB transfer values rose once more, although many people need to check these against lower lifetime allowances. Cash equivalent transfer values (CETVs) are pleasantly shocking, and with the new pension freedoms, many are seeing the chance to take benefits earlier than scheme rules allow.
- British Steel in 2016 – There are a number of large employers in difficult circumstances. As members face the prospect of going into the PPF (Pension Protection Fund), there is genuine unrest from some employees about the security and financial health of former employers. This carries with it the associated knock-on risk to the corresponding DB scheme if its deficit is still being funded (highly likely by the way).
- Poor health or single status – Not original news but worth repeating; DB schemes in structure do not necessarily serve this cohort very well.
So should employees be looking at this option again, even if they did so some years ago and rejected the concept? Yes. Should they all be transferring in droves to personal arrangements? No. Is it worth exploring the subject with some expert financial advice from qualified transfer specialists? Absolutely, when it is done so with due care, caution and consideration.
DB transfer = nuts? Not taken as read anymore!
This article was first published with REBA on 3 November 2016.