Are you considering transferring your defined benefit pension and are you aware of the transfer time limits?
Defined benefit pensions need to have their transfer value manually calculated by the scheme administrators. This transfer value is only valid for a short period.
If you want to maximise your transfer value you need to get organised.
How defined benefit pension transfer time limits work
Unlike the more modern defined contribution pensions a defined benefit pension has no regular value to it.
Instead you have a promise from the pension scheme that you will be paid an income for the rest of your life from your selected retirement age.
Having said that, for most private sector defined benefit pensions, you will have the option to transfer into a defined contribution pension if that better suits your needs.
But the defined benefit pension scheme administrators will not just transfer the pension on request. They will need to see you have had regulated financial advice before they will do this.
The first step of this process is normally to request a Cash Equivalent Transfer Value (CETV).
This is where the pension scheme administrators will manually work out what your defined benefit pension is worth in total. The valuation will be based on things like the pension income and interest rates.
As soon as the CETV is produced it is guaranteed for three months.
If the defined benefit pension is not transferred by this time the CETV will need to be calculated again and could be completely different based on interest rates and other factors at the time.
You may think three months is adequate time to transfer a pension fund however there are a number of hoops to jump through.
- You need to find a Financial Planner willing to take on your case.
- You will need to fit into their diary and have an initial meeting.
- The Financial Planner will need to write to the pension scheme to request more information on the defined benefit pension.
- A second meeting with the Financial Planner to go through the recommendations.
- If agreed there will be paperwork to complete and send back to the pension scheme administrators.
There are two problems here.
Firstly, there are less and less Financial Planners advising in this area and those that do are finding they are inundated.
Secondly, pension scheme administrators are notoriously slow at providing all the information required by the Financial Planner.
All this means it can be very difficult to hit the deadline attached to the CETV.
If you do miss the deadline and require another CETV to be calculated you will usually find that the pension scheme will charge you for this. This could typically be between £250 and £500.
How to deal with defined benefit pension transfer time limits
If you are considering transferring your defined benefit pension and are seeking advice then there are a few things you can do to give you the best chance of getting the outcome you desire within the transfer time limits.
- Do not request a CETV yet.
- First, seek out a Financial Planner who you would like to work with, has the appropriate permissions, advises in this area and has appointments available to see you.
- Ensure your personal details are up to date with the pension scheme e.g. full name, address.
- Now request a CETV.
- As soon as you have this book the meeting with the Financial Planner.
- Respond promptly to any information requests.
You may think “I don’t know if I want to transfer until I see the transfer value” and that’s fine.
You can still write to the pension scheme administrators and request information on your current pension income that you have accumulated (just be clear you don’t want a CETV at this stage).
Then using this income figure multiply it by twenty. This is just a basic rule of thumb of a rough CETV. Your actually CETV could be much higher or lower than this but at least it gives you a ballpark and something to work from.
We recently met with Dean and Linda.
Linda has now finished work and has a defined benefit pension due to pay out £30,000 per annum next year. Dean has already retired and has a defined benefit pension being paid out along with his State pension which covers all their basic needs in retirement.
They have some great travel plans over the next few years and Linda would prefer the flexibility to use more of the pension while they are still young.
They waited to speak to us first before getting a CETV. Now they have spoken with us Linda has been offered a £1 million CETV. Thirty three times her pension income.
Dean and Linda have had their first meeting and the advice process is well under way.
Our specialist defined benefit pension team can now only take on cases whereby the CETV has at least 8 weeks before the deadline. Even then there is still no guarantee the CETV deadline will be hit.
So this is definitely an area where it pays to be organised.
If you would like to discuss your defined benefit position before you commit to any transfer time limits please schedule a call. We’d be happy to help.
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.