Pension changing from DB to DC....need advice please

J

JosieD97

Registered User
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Hi, I'm new to AAM so apologies for any mistakes I make!

My husband took voluntary redundancy from his job approx. 3 and a half years ago after 22 years service. The pension scheme he had there was very generous and he made substantial AVCs to it as well. Recently we received confirmation that the scheme is to be changed from a DB scheme to a DC scheme to protect the employer, and to protect the scheme from future risk.
The change will involve transferring of assets ie. his share of the overall fund to an individual retirement account in his name. They have also said that you can opt to transfer out of the scheme as a deferred member. Under the new DC scheme they say we have "flexibility to decide how to spend your Retirement Account.....you can decide to purchase a "Guaranteed Income" from a life office, or, "Continue to Invest" in a ARF or AMRF fro which you can draw an income, or a combination of both.

We are looking for some advice on how best to proceed. My husband is now employed again in a pensionable job, however the pension benefits are small in comparison to his previous pension. He is currently 41 years old. Is it possible to cash in this pension? Is it advisable to stay in the DC scheme, or would it be better to transfer the money to a new pension scheme....and if so which one. The sum of money involved is a huge amount for us and we want to safeguard it as much as we can. Any advice would be gratefully received.
 
Hi Josie

It is a very difficult situation you and your husband are in. DB pensions used to be "gold plated" and "guaranteed". Now they are a headache for all involved. Even if you get to draw down your pension, you can have your pension reduced in retirement (this is in exchange for some protection for deferred members which previously there was very little).

First of all, if your husband transfers his benefits out of the DB scheme, it is unlikely that he will get the same benefits at retirement. How the transfer values are calculated are not realistic but it is what the Society of Actuaries have agreed. But then, if he stays where he is, will his pension be there when he retires in 20+ years?

He can transfer his benefits to a stand alone pension called a Buy Out Bond. It would be in his own name and he has control over it, where the money is invested etc. Or he can transfer it to his new employers scheme and form part of that.

I wrote a blog on whether to transfer out or not in December 2013. I hope it helps.

http://www.bluewaterfp.ie/pensions-2/defined-benefit-pension-plan-should-i-transfer-out/

...oh, no, he can't cash in his pension. He can take 30% of his AVC's though but he will have to pay income tax on it.
Steven
www.bluewaterfp.ie
 
Thank you so much for your reply. It's a difficult situation to be in and to be able to receive advice from someone in the know is invaluable.
I have read your blog and found it very informative. We have a meeting set up with one of the trustees of the pension scheme next week, hopefully we will be able to get some clarity on a few issues at that. Thanks again.
 
Best of luck with it. It is very important to know the funding levels of the scheme and the trustees intentions before making such a big decision. Let us know how you get on.

Steven
www.bluewaterfp.ie
 
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