The new pension flexibility first announced in this year’s Budget was seen as a game changer by many in the pensions industry, yet the change in the rules only impact DC (Defined Contribution) pension arrangements such as Personal Pension Plans, Money Purchase Occupational Pensions and Stakeholder Pension plans. This creates a dilemma for some approaching retirement age with a Defined Benefit pension scheme, writes Mark Soper.

For the majority of individuals who plan to benefit from the security of a guaranteed DB pension the likeliest advice is to stay with it but for some and even before the new flexibility was announced, a DB pension is not ‘a given’. The availability of enhanced annuities for individuals with medical conditions and those seeking tax planning and IHT solutions may have been provided with a higher pension and/or more tax efficient outcomes following death arising from a switch from a DB to a DC solution.

DB remains a beneficial and secure pension plan for anyone still accumulating their pension benefits and the promise of a guaranteed retirement income remains hugely attractive for many DB members.  Following the introduction of the new flexibility for DC pension plans, however, more DB members may be impacted regarding the lack of income flexibility, tax planning and estate planning opportunities and retirement planning conversations including the relative merits of DC are now likely to be had  with many more DB members.

DC providers will not normally accept DB transfer business unless the individual has received positive advice to transfer from a professional pension adviser who has the correct FCA permissions. Professional advice as an integral part of the transfer process should help safeguard against renewed mis-selling problems and fend off pension prowlers.  Once such advice has been dispensed, DB clients should have thoroughly considered the implications of switching to DC and will be fully aware of the guarantees and other benefits they are giving up before proceeding with any transfer.

As has been widely reported there has been a sharp fall in DB pension provision within the private sector as a result of the increasing costs and risks to employers in running these schemes. The 2013 NAPF Annual Survey reports:

• Only 12% of private sector DB schemes were still open to new members in 2013.
• 35% are now closed to future accrual – this compares to only 7% in 2009.
• 45% of members are already preserved, with only 17% actively accruing benefits.

A further reduction in active DB schemes should be expected when contracting-out is abolished for DB schemes in 2016 driving up costs by around 25%* on average (*ONS Pension Trends 2013).

The position is very different for those working in the public sector as almost all these schemes will ban transfers to DC pension plans from next April.

‘’Should I Stay or Should I Go’’

There is no straightforward answer to this question but for anyone approaching retirement with a DB Pension Plan we believe it is essential that you seek professional advice and ensure that the adviser has the appropriate FCA ‘’pension transfer’’ permissions.