Final Salary and other Defined Benefit pension schemes often have lots of confusing options, and chosing your benefits can be a minefield. In this video I explain all the jargon and how you can compare the options available to you to make the best choices.
📈📊✅ ACCESS CASH FLOW MODELLING SOFTWARE 📈📊✅
Compare your final salary options with Voyant Cash Flow Modelling! (One on One Sessions Available)
🎬 RELATED VIDEOS 🎬
Forget The 4% Rule (How to Make Pensions Last Longer) –
Annuities Explained Simply –
Pension Withdrawal Explained –
RESOURCES
State Pension – Impact of Contracting Out
⏰ TIMESTAMPS ⏰
0:00 Start
0:48 What is Defined Benefit?
1:39 Guaranteed Minimum Pension Explained
4:10 Section 9(2B), Reference Scheme Test, Post 97 COSR Explained
5:17 Excess Benefits and Other Income Figures Explained
7:00 Lump Sum Options Explained
8:22 How to Choose Between Your Final Salary Pension Options
**** DISCLAIMER ****
The content in this video is provided for information and entertainment purposes. It should not be construed as direct or indirect financial advice. You must thoroughly research any potential financial or investment decision and fully understand the risks before taking it. If in doubt, you should seek individual advice from a professional adviser.
🌎 CONTACT ME AT 🌎
…(read more)
LEARN MORE ABOUT: Retirement Annuities
REVEALED: How To Invest During Inflation
HOW TO INVEST IN GOLD: Gold IRA Investing
HOW TO INVEST IN SILVER: Silver IRA Investing
Final salary pensions, also known as defined benefit pensions, are a type of retirement plan that provides a guaranteed income for life based on your salary and years of service with your employer. These pensions are increasingly rare in today’s workforce, as many companies have switched to defined contribution plans such as 401(k)s. However, for those lucky enough to have a final salary pension, it’s important to understand the different income options available when you retire.
When you reach retirement age, you will have several choices for how you receive your final salary pension. The most common options include:
1. Lifetime annuity: This is the default option for most final salary pensions. With a lifetime annuity, you receive a fixed monthly payment for the rest of your life. This can provide peace of mind knowing that you will have a steady income stream no matter how long you live.
2. Lump sum payment: Some final salary pensions allow you to take a portion of your pension as a lump sum payment when you retire. This can be a tempting option for those who want more control over their money, but it’s important to consider the tax implications and potential impact on your retirement income.
3. Partial lump sum and reduced income: Another option is to take a partial lump sum payment and receive a reduced monthly pension. This can provide a balance between having some extra cash upfront and a guaranteed income stream for the future.
4. Pension drawdown: With pension drawdown, you have more flexibility to access your pension savings as and when you need them. You can choose how much income to take each year, but it’s important to carefully manage your withdrawals to ensure your pension lasts for the rest of your life.
When choosing the right income option for your final salary pension, it’s important to consider your individual financial situation, retirement goals, and risk tolerance. Factors to consider include your health, life expectancy, other sources of income, and any financial obligations you may have.
It’s also a good idea to seek advice from a financial advisor or retirement planner who can help you evaluate your options and make an informed decision. They can help you understand the tax implications, inflation risks, and other factors that may impact your pension income over time.
In conclusion, choosing the right income option for your final salary pension is a crucial decision that can have a lasting impact on your retirement lifestyle. By carefully considering your options and seeking professional advice, you can make an informed choice that best suits your individual needs and financial goals.
Dates that may be referenced on your statement are as listed below. These are when changes took place to how benefits are revalued when in deferment, or increased when in payment:
Social Security Act 1985 (Effective for Leavers on or after 1 January 1986) – Introduced revaluation to preserved benefits in excess of Guaranteed Minimum Pension (GMP) earned after 1 January 1985.
Social Security Act 1990 (Effective for Leavers on or after 1 January 1991) – Revaluation extended to cover the whole of the member's pension, in excess of the GMP. Annual increase applicable was the increase in the Retail Price Index (RPI), capped at 5% (sometimes known as 5% Limited Price Indexation – LPI).
Pensions Act 2008 (Effective for Post 6 April 2009 accrual) – Allowed schemes to reduce the revaluation percentage from RPI capped at 5% a year (as above) to RPI capped at 2.5% for pensions accrued after 6 April 2009.
Pensions Act 2011 (Effective 6 April 2011) – Consumer Prices Index (CPI) replaced RPI as the basis for the minimum statutory revaluation. Rules for the pension scheme will determine whether this change was applied to benefits.
I was in a local gov scheme between 1991 and 2001 – I guess this is why there are 2 fund references – an FO and a PO. the statement I receive are severely lacking in detail!
Hi Chris, I hope you are well. You made a great video talking about the Fidelity Index World fund. I think it is a great fund for a UK investor who is looking for a simple 100% global equities passive fund, also I think it makes a good benchmark to compare against some other funds. Have you come across a similar passive global fund? Thanks and keep up the great work
DB is a boomers privilege…an another one. Now I would need to contribute at least £1000/month to DC to be able to get near to DB pension scheme.
Take lump sum and stick into dividend shares.
If I have multiple pensions with multiple employers what happens if I take a lump sum with one does it affect the others if I want to remain in the schemes
Hello Chris, I don't know if you know of this big pensions issue, but there is a long delay with my HL SIPP this year in allowing me to claim my annual UFPLS withdrawal. They sent me a form a few weeks ago ready for the new tax year and then said it was void due to new government regulation changes. Then did the same again last week. I'm still waiting for a valid UFPLS request form and am rapidly running out of last year's cash! Is this a UK-wide phenomenon, and how come it hasn't made national news? Thanks, Nick
Thanks for making a DB pension specific video, Chris! I am unsure why other UK YouTubers don't make more of these – considering there are millions of us in these scheme.
Hi Chris, thank you for the amazing content on the channel. I took 25% commutation from a DB pension in 2017. Since then I’ve been paying into a SIPP, can I also take 25% tax free from the SIPP? Thanks again for the great channel!
Quick question, can a private pension provider refuse a policy holder to make increased monthly payments into their pension, unless they prove in writing they have consulted an independent financial adviser.
An interesting informative video with subject matter that I have not seen elsewhere.
I am fortunate to have a DC pension in payment having taken early retirement and several years into the future will have a DB pension in payment and then a few years later on the state pension.
I was aware of the different elements to my DB pension (GMP & non-GMP) and their different increases in deferrment. However, what I wasnt aware of is that there is no tax free cash that can be taken from the GMP element, so thank you for that information.
What I find difficult to determine is the decision whether or not to take the tax free cash from my DB pension. As per everything else I suppose that this depends on individual circumstances.
Is guaranteed future higher income (although taxed) more important every year than the initial tax free cash and reduced DB pension income ?
Can the initial tax free cash be invested (in GIA & ISA) and grow more than the differential higher pension income – probably, but not guaranteed.
I suppose a bird in the hand is worth two in the bush – if I go for the tax free cash then I have it and can then do what I want with it and it is in my estate to be passed to my spouse, children or anybody else for that matter.
A question that I have concerns DB pension crystallisation and the pension lifetime allowance assuming that this will be reintroduced in the future if there is a change in government. If a tax free crystallisation limit is brought back in say before my DB pension started, if this limit were likely to be breached at some future date would it be worthwhile crystallising my entire DC pension now whilst there is no LTA in legislation ?
Great video. Like many of your listeners I have a mix of dB and DC pensions. The most important thing in my view is understand the computation ratio. At 1:12 assuming you are younger and in good health taking the 25% is probably a bad idea. At 1:23 as per my scheme taking the cash is very appealing as it will protect the capital for inheritance
I worked for fifty years long hours low pay retired now because I worked for so long I get less of a government pension than someone who couldn't be bothered to get off their arse and get a job they get the rest made up on benefits
My deferred benefits pension states that I have a pre-97 and/or post 97 excess of £6900 & a Guaranteed Minimum Pension of £487. Then in another area on the website, under quote history it states my deferred pension in the scheme at the start of the year is £15000. so which is the figure I use as a basis of what I will get paid at normal retirement age (in this case its defined as 62)?
I wanted to swap my DB to a DC scheme as I wanted to retire at 55 however to do this would of cost me £1000s in fees and on top of that these pension companies wanting to manage my sum of money so in the end I stuck with the DB reluctantly which i retired with.
I was just forced to retire early because of ill health. It was a bit of a surprise to find out how much you get taxed when you retire due to ill health. The tax charge bill was so large that I had to give up a major lump of pension income to take a lump sum to pay the tax bill. Not only was the multiplier for the lump sum poor I have also lost indexed linked income for life. My retirement has not started well. I do wonder if many people realise you get taxed so harshly if you are forced to retire early because of ill health.
Worked at same company since I was 16 years old ,I'm 55 next year ,got a year to decide what to do regarding my pension ….it is a mine field …Great video as usual.
it's not all about absolute £ 's and pence, when deciding to take a lump sum. Taking the lump sum however much is done early in retirement, when you are young and when you probably need it most. Also pensions, even after being in receipt, are not written in tablets of stone. For instance Tata bought out of the pension I was in, by paying the scheme a lump sum, the result for me was that my Final Salary pension reduced slightly, so taking the lump sum under the original pension, turned out to be a wise move because they can't take it from you, when it is in your arse pocket. The same reasoning goes for rule 11 : 8, taking a larger pension pre state retirement age. Even doing this, when I get my state pension I will still have a much larger income post state pension, when I will probably need it least, so again rule 11 : 8 was the right thing to do for life reasons, not just the total bottom line. The other thing is that I was 'opted out' of my state pension but i have made further NI contributions since retiring in 2010, to fill shortfalls in years now missing, since the gov. changed the rules in 2016 ( never complained like an entitled, waspi woman, just paid for the extra ) also paying to increase my pension to cater for missing money through being opted out. It is only 2.9 years before you get your money back after being in receipt of state pension, so a no brainer in my opinion. Luckily for me, I got my private Final Salary pension on 27th March 2010 at the age of 51. Gordon Brown changed the receipt age to 55 on April 6th 2010. A very lucky escape. All you people having to wait to at least 55 and older can thank the Labour party, ( the party for the working man lol )