Reviewing your defined benefit pension scheme
This case study ‘The value of an independent financial adviser – reviewing your defined benefit pension scheme’ is part of our ‘The value of an independent financial adviser’ series. Read Simon Hawker, independent financial adviser St Albans – The value of an independent financial adviser.
Mark Bowen is an independent financial adviser in our St Albans financial planning team.
Mark Bowen, independent financial adviser, St Albans, manages group pension schemes for Lonsdale Services’ employee benefit clients. He is often involved in providing personal financial advice for company management.
Mark recently met a new client Ms J and conducted a full financial review as she was coming up to retirement. During the conversation she mentioned she had a deferred defined benefit pension scheme with a previous employer.
Ms J’s health was poor and she had been diagnosed with a terminal illness. She lived with her partner but they were not married and had no financial dependents.
How Mark Bowen, independent financial adviser, St Albans added value with his independent financial advice
1. Recommended a further fact-find to investigate the defined benefit pension scheme
Mark Bowen made the client aware of the general death benefits associated with her defined benefit scheme. Death benefits are the amount paid to financial dependents on the death of a scheme member. Ms J confirmed that she had not nominated anyone to receive these death benefits in his pension scheme. Mark requested that he was given authority to investigate the pension scheme so he could make recommendations.
2. Investigated the terms and conditions of the defined benefit pension scheme
The defined benefit pension scheme was only due to pay £4,000 per annum in retirement, and there was no option to take a lump sum payment. Anyone inheriting the pension scheme would only get 50% of the £4,000 per annum. As the client had not completed the pension scheme nomination form and was not currently married to her partner, the pension scheme administrators could not confirm which dependents would benefit from the pension scheme if she died.
3. Recommended the client switch her defined benefit pension scheme into a defined contribution scheme
Following the freedom and choice in pensions legislation that were introduced in 2015, Mark Bowen recommended that the client transfer her defined benefit scheme into a defined contribution scheme. The transfer value cash equivalent was a £350,000 lump sum.
Key considerations for anyone with a defined benefit pension scheme
• In some circumstances, for example ill health, it may be advantageous to take a transfer value from a defined benefit pension scheme and purchase a defined contribution pension scheme as these are more flexible. Although be aware of the possible inheritance tax consequences of transferring when in ill-health. Should death occur within the following 2 years, HMRC will, in some circumstances, allocate a value to the pension for Inheritance tax purposes.
• Ensure you always complete the pension scheme nomination form and review it regularly.
The client appreciates Mark’s financial advice and is spending some of her pension now while she is in reasonable health. Ms J has updated her will and put in place an “expression of wish” so her partner may inherit any of the remaining pension when she dies.
For more information on defined benefit pension schemes please read, Simon Prestcote, chartered wealth manager and independent financial adviser Barnet - should you transfer your defined benefit pension scheme?
Please note the value of investments may go down as well as up.
The Financial Conduct Authority does not regulate tax or estate planning.
If you are considering a defined benefit transfer you will be giving up a guaranteed income for life.