Pensions with Safeguarded Benefits
Safeguarded benefits are defined as benefits that are not money purchase or cash balance benefits. This means defined benefits, guaranteed pensions including guaranteed minimum pensions and guaranteed annuity rates (GARs).
An individual with safeguarded benefits worth more than £30,000 within a pension must take financial advice before they can do any of the following:
- Convert these benefits into a different form of flexible benefits under the scheme.
- Transfer these benefits to another scheme to take flexible benefits.
- Take a cash lump sum in respect of these benefits.
The issue of giving up Safeguarded benefits is a tricky one. Pensions that have a ‘defined benefit’ or a ‘final salary’ are usually best left where they are. The FCA’s position is that you start your advice from the position of it being ‘unsuitable’ to transfer and then work from there!
Where the water gets muddier, is that, it is possible to have a defined contribution pension (where money accumulates into a pot) with safeguarded benefits. Such an example would be a ‘GAR’ where the annuity (income) offered is much higher than would be offered on the open market. This has to be weighed against the flexibility of having a pension in drawdown or income release.
Either way it is important before transferring any pension that you seek the advice of a professional IFA to check what you ‘may’, lose or gain, by transferring out of any scheme.
