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I have an excellent defined benefit pension that I must draw - I know what I want to do but need some help executing it...

12 April 2021

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Question by John

I have an occupational pension that I must draw at age 65, next year. It is defined benefit and an excellent pension. I have recently started a new job and anticipate working to age 70. Even if I retired at age 65 I do not need to draw this pension. I would therefore like to put the cash transfer value in a growth fund through a SIPP. We have several of these in place and they do well over time. I don't want to spend hours with a pension adviser as I know what I want to do and I know what I don't want to do. Can you help?


Answered by Carly Dunningham

Hi John, thank you for your question.

With regard to your defined benefit pension, below are just a few points/considerations to make as part of your decision making:

  • Do you definitely have to take benefit from 65? You may have asked the scheme this already, but many schemes allow members to defer benefits, and apply a late retirement enhancement factor to the pension benefits if taken at a later date, i.e. age 70.

  • If you do have to make your decision by age 65, had you considered drawing the scheme pension (rather than transferring), but reinvesting the pension income back into a SIPP in the form of pension contributions each year? Whilst you’re still working and until age 75, you can continue contributing to pension and benefit from tax relief, up to an amount equivalent to your earnings (or subject to the annual allowance) each year.

  • You may also have a pension commencement lump sum from the scheme, which you could also invest in similar growth funds for future use.

If after making these considerations you still wish to explore the option of transferring your pension fund value into a SIPP, you would need to seek financial advice. Our regulator, the FCA insists that people seek advice where their final salary pension transfer value exceeds £30,000.

I appreciate that you have thought this through yourself and feel you know what you want to do, but you would still need to go to a firm for advice, taking into account your wider financial situation. If, as you say above, that you don’t need this pension income even when you do retire (I assume therefore you have sufficient other income and assets to draw from), a pension transfer might possibly be suitable for you, but as I say, you would need to get advice from a regulated firm with the necessary permissions to advise in this area. If you haven’t taken financial planning advice before, you may find it to be an enlightening and helpful process to go through.

If we can help further in the process for you please get back in touch.

Thanks

Answered by

Carly Dunningham

Chartered Financial Planner & Director

Originally from Derbyshire, I came to Liverpool in 1998 where I graduated from Liverpool John Moores University alongside my now husband and we have never left the city. I got straight into Financial Planning after leaving university and I love working closely with clients to really understand their life goals and what’s important to them. When I’m not creating financial plans for clients, I’ll be spending time with my 6-year old daughter, walking the dog or doing yoga!