DEFINED BENEFIT PENSION PLAN
What is a defined benefit pension plan?
A defined benefit pension plan (often known as a DB pension scheme) is a private workplace pension scheme that is arranged for you by your employer and which is based on your salary and the amount of time that you have worked for your employer. The amount you get in your pension pot is a guaranteed pre-agreed amount.
When can you access your pension pot?
When you can access your pension will depend on the rules of the pension scheme that you are part of. Normally, the retirement age is 65, but it sometimes possible to access your pension pot before retiring. The earliest age that you can usually access it is 55, but this can mean that you get a reduced amount.
Once you are able to access your pension pot you usually get a tax-free lump sum of 25% and then the rest as regular payments. It provides a secure income for the rest of your life, which increases each year. Alternatively, you may be able to take your entire pension pot as a lump sum, but only 25% will be tax free.
What types of defined benefit pension plans are there?
There are two main types of defined benefit pension plans – final salary pension schemes (based on your final salary, i.e. your salary when you retire) and career average pension schemes (based on your average salary over your career).
Transferring Defined Benefit Pension Plans
In some situations, you can transfer your defined benefit pension to a defined contribution pension if you’re not already receiving your pension. There are advantages and disadvantages to this, depending on your individual pension plan and circumstances.
Neil Gilbourne at 3R Financial Services is a pension transfer specialist and can provide you with independent financial advice regarding your specific and unique circumstances.
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