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Defined benefit pensions provide a guaranteed income for the rest of your life, starting from a specific age set by the pension scheme. The income is usually calculated based on factors such as your salary and the number of years you’ve worked for your employer. Once your pension payments begin, they typically increase each year to keep pace with inflation, ensuring your income retains its value over time.
These pensions are commonly offered by large employers or public sector organisations. Your employer makes regular contributions to the pension scheme and is responsible for ensuring there are sufficient funds to pay your pension when you retire. You may also have the option to contribute to the scheme, which could enhance your retirement benefits.
A valuable feature of defined benefit pensions is that they often provide for your spouse, civil partner, or dependents after you die. This means that a portion of your pension will continue to support your loved ones after death. However, it’s crucial to check the details of your specific scheme to understand the exact provisions and how they apply to your situation. You can read about a client’s experience of becoming widowed and how the financial planning process worked.
The value of pensions and the income they produce can fall as well as rise, you may get back less than you invested.
Transferring out of a final salary pension is unlikely to be in the best interest of most people.
