Flexibility and choice


These days, you have more flexibility and choice to decide what to do with any pension savings you have in defined contribution schemes. However, this flexibility and choice does not apply to benefits you have in a defined benefit scheme.


Here’s a quick explanation of each type of scheme:

  • Defined contribution. These are commonly called ‘money purchase’ schemes. In these schemes, money is paid into the plan by you and/or your employer. At the point of retirement, there is a pot of money based on how much has been paid in plus any growth on the money (less the costs of running the scheme).
  • Defined benefit. Usually referred to as 'final salary' schemes, these schemes commonly provide a proportion of your earnings close to retirement.  For example, they may pay 1/60th or 1/80th for each year of service. Some plans calculate benefits based on the average salary you receive over the time you worked for the employer (commonly called 'career average' schemes).


Of course, during your career you may have spent time in both defined contribution and defined benefit plans.


If you are a member of a public sector unfunded defined benefit arrangement, you will not be allowed to transfer your benefits to take advantage of the changes to pensions introduced in April 2015.


If you're in a funded defined benefit arrangement, you can transfer to a defined contribution scheme. However, you must take advice from a professional financial adviser (who must be independent of the scheme and authorised by the Financial Conduct Authority), unless your fund does not exceed £30,000.


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