A Defined Benefit (DB) is based on the principle that you will receive a guaranteed retirement income at a certain value. However, it is very important to note that many DB schemes are over subscribed and so the benefits that were predicted at the outset are merely predictions. They can and usually do change by the time your retirement age comes around.
This is because, while the predictions can be very attractive, they are only a promise of a future payment – rather than a guarantee. If a company cannot persuade enough members to transfer out they will be unable to fund the pension going forward. DB pensions were very popular during the past few decades and were created on the basis of a long-term career with the one company.
However, the economy has changed and people move from job to job, sometimes picking up a number of different pension pots as they change roles. This leaves an accumulation of deferred members who have moved on but are still due a pay-out on retirement. If the company cannot manage the number of members, the fund value will fall and the predicted pay-out for your pension will be reduced – sometimes by a large percentage. This is why many people choose to take an Enhanced Transfer Value when it is offered.
It allows them to move their pension pot into another vehicle which will give them greater security, better flexibility and more control of their pension. If you are being offered an Enhanced Transfer Value for your pension then get in touch with a pension advisor to explore whether it will be in your favour to accept it or not.