Final Salary Pensions - How to Choose the Right Income Option

Final Salary and other Defined Benefit pension schemes often have lots of confusing options, and chosing your benefits can be a minefield. In this video I explain all the jargon and how you can compare the options available to you to make the best choices.

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DISCLAIMER:
This video is for education purposes only and does not represent financial advice. When investing, your capital is at risk. Investments can rise and fall and you may get back less than you invested. Past performance is no guarantee of future results. If you are unsure of what to do, always seek advice from a qualified financial adviser.

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0:00 Start
0:48 What is Defined Benefit?
1:39 Guaranteed Minimum Pension Explained
4:10 Section 9(2B), Reference Scheme Test, Post 97 COSR Explained
5:17 Excess Benefits and Other Income Figures Explained
7:00 Lump Sum Options Explained
8:22 How to Choose Between Your Final Salary Pension Options

[chrisbourne-retirementplanner]

Dates that may be referenced on your statement are as listed below. These are when changes took place to how benefits are revalued when in deferment, or increased when in payment:

Social Security Act 1985 (Effective for Leavers on or after 1 January 1986) - Introduced revaluation to preserved benefits in excess of Guaranteed Minimum Pension (GMP) earned after 1 January 1985.

Social Security Act 1990 (Effective for Leavers on or after 1 January 1991) - Revaluation extended to cover the whole of the member's pension, in excess of the GMP. Annual increase applicable was the increase in the Retail Price Index (RPI), capped at 5% (sometimes known as 5% Limited Price Indexation - LPI).

Pensions Act 2008 (Effective for Post 6 April 2009 accrual) - Allowed schemes to reduce the revaluation percentage from RPI capped at 5% a year (as above) to RPI capped at 2.5% for pensions accrued after 6 April 2009.

Pensions Act 2011 (Effective 6 April 2011) - Consumer Prices Index (CPI) replaced RPI as the basis for the minimum statutory revaluation. Rules for the pension scheme will determine whether this change was applied to benefits.

[oakie]

I'm 55 in June, I'm taking my 25% lump sum, and then again with my second one at 60.

Lifes for living, I knew so many people who didn't get to my age. Don't let it sit in the fund, enjoy it now. Obviously don't totally skint yourself in the process 🎉🎉

[williamling]

Good to see somebody covering DB schemes for a change.

[DKNW]

Hi Chris brilliant and very relevent, i was off 6 options for a mix of DB and DC and was very puzzled by how much tax free cash i could get via commutation, i did a crazy excel sheet and fugured out that each option from the providers point of view were more or less equitable, it was just a question of how one wanted to take it. A tricky thing was working out the tax. My initial thought was min DB and max PCLS. But suprisingly in the end I considerd max DB to better for me personally. What also swung this was that a % of DB would be passed on to my spouse which I thought was really valuable.

[chqshaitan]

i am not fortunate to have any employers who offer a DB scheme, but my wife worked in the NHS for about 10 years so it something that is at the back of my mind for the future, your video sheds light on situation, thanks Chris. Keep up the great work

[LauBau]

Thanks for making a DB pension specific video, Chris! I am unsure why other UK YouTubers don't make more of these - considering there are millions of us in these scheme.

[manymoms]

I’m glad you did this, very few videos cover this. It’s as if we do not exist for some planners on facebook. I’m surprised there aren’t more members of these schemes giving the amount of civil service and nhs police etc

[bumblebee]

Brilliant as I have 2 final pensions first one due at 60 second at 65 I am currently 54

[simon]

Very lucky to have 2 DB schemes, that was the norm when I started work at 16. 45 years later these 2 DB pensions pay all my bills and I have a DC pension that covers the luxuries. If it were possible I’d like to see a national DB scheme like they have in many European countries, it seems a much better system than the 100% DC pension has been foisted on our young people.

[timlodge]

I wanted to swap my DB to a DC scheme as I wanted to retire at 55 however to do this would of cost me £1000s in fees and on top of that these pension companies wanting to manage my sum of money so in the end I stuck with the DB reluctantly which i retired with.

[ianwall]

Great video. Like many of your listeners I have a mix of dB and DC pensions. The most important thing in my view is understand the computation ratio. At 1:12 assuming you are younger and in good health taking the 25% is probably a bad idea. At 1:23 as per my scheme taking the cash is very appealing as it will protect the capital for inheritance

[johnbarrett]

Worked at same company since I was 16 years old, I'm 55 next year, got a year to decide what to do regarding my pension ....it is a mine field ...Great video as usual.

[pip]

I'm lucky enough to have a defined benefit pension through my job although I've only been paying in for 10 year's to buy an annuity of the same value would cost a fortune I was really surprised .It gives the option of a 25% lump sum and a generous yearly pension in line with inflation and pays out a widows pension .

[BiscuitsTotalWar]

Hi Chris, I hope you are well. You made a great video talking about the Fidelity Index World fund. I think it is a great fund for a UK investor who is looking for a simple 100% global equities passive fund, also I think it makes a good benchmark to compare against some other funds. Have you come across a similar passive global fund? Thanks and keep up the great work

[jocar-]

An interesting informative video with subject matter that I have not seen elsewhere.
I am fortunate to have a DC pension in payment having taken early retirement and several years into the future will have a DB pension in payment and then a few years later on the state pension.
I was aware of the different elements to my DB pension (GMP & non-GMP) and their different increases in deferrment. However, what I wasnt aware of is that there is no tax free cash that can be taken from the GMP element, so thank you for that information.
What I find difficult to determine is the decision whether or not to take the tax free cash from my DB pension. As per everything else I suppose that this depends on individual circumstances.
Is guaranteed future higher income (although taxed) more important every year than the initial tax free cash and reduced DB pension income ?
Can the initial tax free cash be invested (in GIA & ISA) and grow more than the differential higher pension income - probably, but not guaranteed.
I suppose a bird in the hand is worth two in the bush - if I go for the tax free cash then I have it and can then do what I want with it and it is in my estate to be passed to my spouse, children or anybody else for that matter.
A question that I have concerns DB pension crystallisation and the pension lifetime allowance assuming that this will be reintroduced in the future if there is a change in government. If a tax free crystallisation limit is brought back in say before my DB pension started, if this limit were likely to be breached at some future date would it be worthwhile crystallising my entire DC pension now whilst there is no LTA in legislation ?

[leesmith]

the standard opinion seems to be that DB is amazing and anyone who has one is lucky. honestly this just makes me much prefer a DC pension. much simpler, you keep the capital, you decide.

[Sabhail_ar_Alba]

I have a DB pension which had a transfer value of £146k when I received a written quote from the administrator 4 years ago, today the latest quote is £112k and the annual pension £1500.
I'm going to see a financial advisor and have something signed before I can transfer it over to a SIPP and or buy an annuity which would give £4500 annually ( not inflation proof, of course).

[damoncrawshaw]

Hi Chris, thank you for the amazing content on the channel. I took 25% commutation from a DB pension in 2017. Since then I’ve been paying into a SIPP, can I also take 25% tax free from the SIPP? Thanks again for the great channel!

[HP]

I have a small final salary pension from a company I worked for 20 years ago, this pension allows you to start taking it from 50 years old, obviously reduced.I decided to get some figures from this when I was 51, it was a decent lump sum 25% but I decided to leave it a while, 2 years later I got the figures again which was this week, my lump sum and monthly payments have gone down which I cant understand, could have been earning interest on that lump sum and have 24 months of payments going into bank account.

[richpowell]

Good stuff Chris. Don’t suppose you know where I can get a list of the Government Section 148 Orders? HBOS DB scheme increases by these each year from date of leaving until NRD.
Thanks in advance