Monday, 19 December 2016

Life changing offers for defined benefit pensions



Some of the estimated six million people in the UK with defined benefit pensions could be receiving some tempting cash offers for their pension pots.



Most defined benefit schemes give the pension holder the right to swap their pension entitlement for money and according to Royal London the offers that people are receiving are rising fast.

For someone with a pension income worth £20,000 per year, it is not uncommon to receive an offer of £600,000 in cash. These sharp increases in values are being driven by the continuing low interest rates which are leading to higher valuations of such pensions.

With such offers on the table it is of course tempting to say yes, but there ae a lot of factors to consider. For instance what would you do with the cash sum, will it provide sufficient income to last for the rest of your life and could you get a better offer if you waited?

The advantages of selling can be summarised as:
  • More flexible retirement income
  • Freedom to invest elsewhere
  • Possibility of extra tax-free cash
  • Easier inheritance to pass on to heirs

Keeping your defined contribution pension offers:
  • A guaranteed income for life
  • Ability to plan your future
  • Pension savings protected from inflation
  • Risk-free income
Currently you have to decide to sell or hold; there is no option to sell some of your pot and keep some in the pension scheme. Former pensions minister Steve Webb believes this should change "What I'm saying is there should be a middle ground where you can go on having some of your salary-related pension, so you have got this guaranteed income, but then you have got some cash you can invest or do something more flexible with."

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